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| **UNITED                STATES                SECURITIES AND EXCHANGE COMMISSION                Washington, D.C. 20549** |
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| **FORM                10-K**                                                                                             |

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| x      | **ANNUAL REPORT                        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                        1934**     |
|   |                                                                                                                                       |
|   | **For the                fiscal year ended July 31, 2007**                                                                                 |
|   |                                                                                                                                       |
| o      | **TRANSITION REPORT                        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF                        1934** |
|   |                                                                                                                                       |

| **For the                transition period from __________ to __________** |
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| **0-11088**                                                                |
|                                                                            |
| **Commission file                number**                                  |
|                                                                       |
| **ALFACELL                CORPORATION**                                    |
|                                                                            |
| (Exact name                of registrant as specified in its charter)      |
|                                                                       |

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

| **300                Atrium Drive, Somerset, New Jersey**                                    |
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|                                                                                              |
| (Address of                principal executive offices)                                      |
| **08873**                                                                                    |
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| (Zip                Code)                                                                    |
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| Registrant’s telephone                number, including area code: (732) 652-4525 |
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| Securities                registered pursuant to Section 12(b) of the Act: None         |
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| Securities                registered pursuant to Section 12(g) of the Act:                   |
| Common                Stock, $.001 par value                                                 |
| (Title of                Class)                                                              |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|             Indicate                    by check mark if the registrant is a well-known seasoned issuer, as defined in                    Rule 405 of the Securities Act. YesoNox 

            Indicate                    by check mark if the registrant is not required to file reports pursuant to                    Section 13 or Section 15(d) of the Act. YesoNox

            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. Yesx Noo  |

|  |
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|             Indicate by check mark if                    disclosure of delinquent filers pursuant to Item 405 of Regulation S-K                    (§229.405 of this chapter) is not contained herein, and will not be                    contained, to the best of registrant’s knowledge, in definitive proxy or                    information statements incorporated by reference in Part III of this Form 10-K                    or any amendment to this Form 10-K.o

            Indicate by check mark                    whether the registrant is a large accelerated filer, an accelerated filer or a                    non-accelerated filer. See definitions of “accelerated filer” and                    “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check                    one):   Large Accelerated Filero   Accelerated                    Filerx   Non-accelerated                    Filer o 

            Indicate by check mark                    whether the registrant is a shell company (as defined in Rule 12b-2 of the                    Exchange Act) Yeso Nox

            The aggregate market value                    of the common stock, par value $.001 per share, held by non-affiliates based                    upon the reported last sale price of the common stock on January 31, 2007 was                    approximately $68,200,000. As of October 10, 2007 there were 46,555,880 shares                    of common stock, par value $.001 per share, outstanding.

**Documents Incorporated                    by Reference**

            Certain information                    required in Part III of this Annual Report on Form 10-K is                    incorporated by reference to portions of the registrant’s definitive                    proxy statement for its 2008 Annual Meeting of Stockholders, which will be                    filed with the Securities and Exchange Commission not later than 120 days                    after the end of the registrant’s fiscal year. |
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| **TABLE OF                CONTENTS** |
|--------------------------------------|
|                                 |   |   |   |   |
|                                 |   |   |   | **Page** |
|                                 |   |   |   |  |
| PART                I                |   |   |   |
|                                 |   |   |   |   |
|                                 | ITEM  1. |   | Business | 5 |
|                                 |   |   |   |   |
|                                 | ITEM                1A |   | Risk                Factors | 16 |
|                                 |   |   |   |   |
|                                 | ITEM  2 |   | Properties | 26 |
|                                 |   |   |   |   |
|                                 | ITEM  3. |   | Legal                Proceedings | 26 |
|                                 |   |   |   |   |
|                                 | ITEM  4. |   | Submission of                Matters to a Vote of Security Holders | 26 |
|                                 |   |   |   |   |
| PART                II               |   |   |   |
|                                 |   |   |   |   |
|                                 | ITEM  5. |   | Market for                Registrant’s Common Equity, Related Stockholder Matters                and Issuer Purchases of Equity Securities | 27 |
|                                 |   |   |   |   |
|                                 | ITEM  6. |   | Selected                Financial Data | 29 |
|                                 |   |   |   |   |
|                                 | ITEM  7. |   | Management’s                Discussion and Analysis of Financial                Condition and Results of Operations | 30 |
|                                 |   |   |   |   |
|                                 | ITEM  7A. |   | Quantitative                and Qualitative Disclosures About Market Risk | 38 |
|                                 |   |   |   |   |
|                                 | ITEM  8. |   | Financial                Statements and Supplementary Data | 38 |
|                                 |   |   |   |   |
|                                 | ITEM  9. |   | Changes in                and Disagreements with Accountants                on Accounting and Financial Disclosure | 38 |
|                                 |   |   |   |   |
|                                 | ITEM                9A. |   | Controls and                Procedures | 38 |
|                                 |   |   |   |   |
|                                 | ITEM                9B. |   | Other                Information | 40 |
|                                 |   |   |   |   |
| PART                III              |   |   |   |
|                                 |   |   |   |   |
|                                 | ITEM                10. |   | Directors,                Executive Officers and Corporate Governance | 41 |
|                                 |   |   |   |   |
|                                 | ITEM                11. |   | Executive                Compensation | 41 |
|                                 |   |   |   |   |
|                                 | ITEM                12. |   | Security                Ownership of Certain Beneficial Owners                and Management and Related Stockholder Matters | 41 |
|                                 |   |   |   |   |
|                                 | ITEM                13. |   | Certain                Relationships and Related Transactions and Director Independence | 41 |
|                                 |   |   |   |   |
|                                 | ITEM                14. |   | Principal                Accounting Fees and Services | 41 |
|                                 |   |   |   |   |
| PART                IV               |   |   |   |
|                                 |   |   |   |   |
|                                 | ITEM                15. |   | Exhibits and                Financial Statement Schedules | 41 |

| The following trademarks appear in this Annual Report: ONCONASE®                    is the registered trademark of Alfacell Corporation, exclusively for its                    anti-cancer agent, Alimta® is the registered trademark of Eli                    Lilly, and Zolinza® is the registered trademark of Merck &                    Co.

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| This                    annual report on Form 10-K includes forward looking statements within the                    meaning of the Private Securities Litigation Reform Act of 1995. We have based                    these forward looking statements largely on our current expectations and                    projections about future events and financial trends affecting the financial                    condition of our business. These forward looking statements are subject to a                    number of risks, uncertainties, and assumptions about us, including, among                    other things: |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

|  | •      failure                to achieve positive results in clinical trials; |
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|  |                                                                                                             |
|  | •      competitive                factors;                                    |
|  |                                                                                                             |

|  | • | available                financial resources and ability to secure adequate funding for development                projects; |
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|  |        |                                                                                                                         |

|  | •      the                ability to attract and retain qualified management;        |
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|  |                                                                                                                    |
|  | •      relationships                with pharmaceutical and biotechnology companies; |
|  |                                                                                                                    |
|  | •      the                ability to develop safe and efficacious drugs;             |
|  |                                                                                                                    |
|  | •      variability                of royalty, license, and other revenue;            |
|  |                                                                                                                    |
|  | •      failure                to satisfy performance obligations in our agreements;  |
|  |                                                                                                                    |
|  | •      ability                to enter into future collaborative agreements;         |
|  |                                                                                                                    |

|  | • | uncertainty regarding                        our patents and patent rights (including the risk that we may be forced to                        engage in costly litigation to protect such patent rights and the material                        harm to us if there were an unfavorable outcome of any such                        litigation); |
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|  |        |                                                                                                                                                                                                                                                                                                                                             |

|  | •                     governmental regulation;           |
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|  |                                                                                   |
|  | •                     technological change;              |
|  |                                                                                   |
|  | •                     changes in industry practices; and |
|  |                                                                                   |
|  | •                     one-time events.                   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| In                    addition, in this annual report, the words “believe,”                    “may,” “will,” “estimate,”                    “continue,” “anticipate,” “intend,”                    “expect” and similar expressions, as they relate to us, our                    business, or our management, are intended to identify forward looking                    statements. All of our forward looking statements are qualified in their                    entirety by reference to the factors discussed in this document under the                    heading ITEM 1A.—RISK FACTORS, and any documents incorporated by                    reference that describe risks and factors that could cause results to differ                    materially from those projected in these forward looking statements.

We                    caution you that the risk factors contained herein are not exhaustive. We                    operate in a continually changing business climate which can be expected to                    impact our forward looking statements, whether as a result of new information,                    future events, or otherwise, after the date of this annual report. In light of                    these risks and uncertainties, the forward looking events and circumstances                    discussed in this annual report may not occur and actual results could differ                    materially from those anticipated or implied in the forward looking statements.                    Accordingly, you should not rely on forward looking statements as a prediction                    of actual results.

All                    information in this Form 10-K is as of October 10, 2007 and we undertake no                    obligation to update this information. |

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| **PART                    I**

**ITEM 1.                    BUSINESS.**

**BUSINESS                    OVERVIEW**

                Alfacell Corporation is a                    Delaware corporation incorporated on August 24, 1981. We are a                    biopharmaceutical company primarily engaged in the discovery and development of                    a new class of therapeutic drugs for the treatment of cancer and other                    pathological conditions. Our proprietary drug discovery and development program                    consists of novel therapeutics which are being developed from amphibian                    ribonucleases (RNases).

                RNases are biologically                    active enzymes that split RNA molecules. RNases are enzymes which play                    important roles in nature, including the embryonic development of an organism                    and various cell functions. RNA is an essential bio-chemical cellular component                    necessary to support life. There are various types of RNA, all of which have                    specific functions in a living cell. They help control several essential                    biological activities, namely; regulation of cell proliferation, maturation,                    differentiation and cell death. Therefore, they are ideal candidates for the                    development of therapeutics for cancer and other life-threatening diseases,                    including HIV and autoimmune diseases, that require anti-proliferative and                    apoptotic, or programmed cell death, properties.

                ONCONASE®                    (ranpirnase) is a novel amphibian ribonuclease, unique among the superfamily of                    pancreatic ribonuclease isolated from the eggs of the *Rana pipiens* (the                    Northern Leopard frog). Ranpirnase is the smallest known protein belonging to                    the superfamily of pancreatic ribonuclease and has been shown, on a molecular                    level, to re-regulate the unregulated growth and proliferation of cancer cells.                    Unlike most anti-cancer agents that attack all cells regardless of phenotype                    (malignant versus normal) and cause severe toxicities, ONCONASE®                    is not an indiscriminate cytotoxic drug (cell killing agent).                    ONCONASE® primarily affects exponentially growing malignant                    cells, with activity controlled through unique and specific molecular                    mechanisms.

                The molecular mechanisms                    which determine the apoptotic cell death induced by ranpirnase have been                    identified. tRNA (transfer RNA), rRNA (ribosomal RNA), mRNA (messenger RNA) and                    miRNA (micro RNA) are all different types of RNA with specific functions in a                    living cell. Ranpirnase preferentially degrades tRNA and targets miRNA, leaving                    rRNA and mRNA apparently undamaged. The RNA damage induced by ranpirnase                    appears to represent a “death signal”, or triggers a chain of                    molecular events culminating in the activation of proteolytic enzyme cascades                    which, in turn, induces disintegration of the cellular components and finally                    leads to cell death. It has been shown that there is a protein synthesis                    inhibition-independent component, which, together with the changes induced by                    the protein synthesis inhibition, results in tumor cell death.

                ONCONASE®,                    our lead drug product candidate, is currently being evaluated in human clinical                    trials for the treatment of various forms of cancer. Our most advanced clinical                    trial for ONCONASE®  is a confirmatory Phase IIIb                    registration trial designed to evaluate the efficacy, safety and tolerability                    of the combination of ONCONASE® and doxorubicin as compared to                    doxorubicin alone in the treatment of patients with unresectable (inoperable)                    malignant mesothelioma, a rare and deadly form of lung cancer. The primary                    endpoint of the trial is overall survival. An interim analysis based on one                    third of the required events (deaths) of the study, was reported in April 2006.                    These results were consistent with the results from a previous Phase III trial                    and were the basis for our decision to continue the confirmatory registration                    trial. Enrollment in the Phase IIIb trial was completed in September 2007. The                    Phase IIIb clinical trial statistical analysis will be initiated upon reaching                    316 evaluable events (deaths of evaluable patients), which is currently                    expected to occur prior to the end of 2007. The following table summarizes the                    current clinical development status of ONCONASE. |
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           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|         | **Clinical                Indications**                                                                                                  |   | **Clinical Development                Status**                                                                  |   |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------|--------|
|         |                                                                                                                                          |   |                                                                                                                 |   |
|    |
|         |    Unresectable                malignant mesothelioma                   Lung cancer and other solid tumors |   |      Phase                IIIb                     Phase I/II |   |

| 5 |
|---|

|                 We believe that                    ONCONASE®, as well as another group of our amphibian RNases                    known as Amphinases, may also have applications in a variety of other areas in                    addition to those being investigated currently in our clinical development                    program. Amphinase is currently in the pre-clinical research and development                    stage.

                In February 2007, we began                    submitting portions of our rolling NDA for ONCONASE® with our                    submission of the Chemistry, Manufacturing and Controls (CMC) section, in                    anticipation of potentially achieving favorable results from the Phase IIIb                    trial. If results from the Phase IIIb clinical trial are favorable, we expect                    to submit the final section of the rolling NDA within four months of reaching                    the 316th evaluable event in the clinical trial.

                We are a development stage                    company as defined in the Financial Accounting Standards Board’s                    Statement of Financial Accounting Standards No. 7, “Accounting and                    Reporting by Development Stage Enterprises.” We are devoting                    substantially all of our present efforts to establishing a new business and                    developing new drug products. Our planned principal operations of marketing                    and/or licensing new drugs have not commenced and, accordingly, we have not                    derived any significant revenue from these operations.

**MARKET                    OVERVIEW**

                According to the American                    Cancer Society (“ACS”) *2007 Cancer Facts and Figures*, cancer                    is the second leading cause of death in the United States, accounting for one                    in every four deaths. The ACS *2007 Cancer Facts and Figures* also                    estimates that doctors will diagnose approximately 1.4 million new cases of                    cancer in the United States in 2007. The National Institutes of Health                    (“NIH”) estimate that the annual cost of cancer in 2006 was                    approximately $206.3 billion, including $78.2 billion in direct medical costs                    and $17.9 billion for morbidity costs, which includes the cost of lost                    productivity.

                Cancer is characterized by                    uncontrolled cell division resulting in the growth of a mass of cells commonly                    known as a tumor. Cancerous tumors can arise in almost any tissue or organ and                    cancer cells, if not eradicated, spread, or metastasize, throughout the body.                    Cancer is believed to occur as a result of a number of factors, including                    hereditary and environmental factors.

                For the most part, cancer                    treatment depends on the type of cancer and the stage of disease progression.                    Generally, staging is based on the size of the tumor and whether the cancer has                    metastasized or spread. Following diagnosis, solid tumors are typically                    surgically removed or the patient is given radiation therapy. Chemotherapy is                    the principal treatment for tumors that are likely to, or have, metastasized.                    Chemotherapy involves the administration of drugs which are designed to kill                    cancer cells, affect the growth of tumors, or reduce bloodflow to tumors, in an                    effort to reduce or eliminate cancerous tumors.

                Because in most cases                    cancer is fatal, cancer specialists attempt to attack the cancer aggressively,                    with as many therapies as available and with as high a dose as the patient can                    tolerate. Since chemotherapy attacks both normal and cancerous cells, treatment                    often tends to result in complicating side effects. Additionally, cells which                    have been exposed to several rounds of chemotherapy develop a resistance to the                    cancer drugs that are being administered. This is known as “multi-drug                    resistance.” The side effects of chemotherapy often limit the                    effectiveness of treatment. Cancers often recur and mortality rates remain                    high. Despite large sums of money spent on cancer research, current treatments                    are largely inadequate and improved anti-cancer agents are needed.

                The products we currently                    have under development target a broad range of solid tumors. The table below                    shows the incidence and mortality estimated for the year 2007 for various types                    of solid tumor cancers that our products seek to treat: |
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

|   | Cancer                Indication             |   | New                Cases |    | Deaths |   |    |
|--------|----------------------------------------------|--------|--------------------------|---------|--------|--------|---------|
||
|   | Lung                (including mesothelioma) |   |                     | 213,380 |   |   | 160,390 |   |   |
|   | Breast                                       |   |                     | 180,510 |   |   | 40,910  |   |   |
|   | Brain                                        |   |                     | 20,500  |   |   | 12,740  |   |   |
|   | Esophageal                                   |   |                     | 15,560  |   |   | 13,940  |   |   |

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|   |         Source: American Cancer                Society, 2007 Cancer Facts and Figures |

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|                 Unresectable malignant                    mesothelioma is the planned initial, or “gateway”, indication for                    ONCONASE®. Malignant mesothelioma is an aggressive tumor of                    serosal surfaces (e.g., pleura, peritoneum) that is often caused by exposure to                    asbestos. The most common form is pleural mesothelioma, which accounts for 75%                    of all cases and affects the lungs and the protective lining and cavity of the                    lungs.

                The incidence rate for                    mesothelioma in the U.S. is estimated at approximately 15 cases per million                    population (Datamonitor, March 2007), which equates to about 4,500 cases per                    year. By comparison, the rate is approximately 93 and 566 cases per million for                    Small Cell Lung Cancer (SCLC) and Non-Small Cell Lung Cancer (NSCLC),                    respectively, according to recent data from the National Cancer Institute                    Surveillance, Epidemiology and End Results Program (SEER). The incidence of                    mesothelioma in the European Union is slightly higher, resulting in                    approximately 8,000 cases diagnosed annually. However, given the latency period                    of 20–50 years and an average development time of 35–40 years for                    mesothelioma, the peak incidence for the disease is yet to be reached in some                    countries and therefore, it is difficult to estimate its future patient                    potential.

                The prognosis for malignant                    mesothelioma patients is very poor. The overall survival for mesothelioma is                    approximately seven months. Only 9% of patients are expected to survive for                    five years.

                It is estimated that only                    approximately 1–5% of all mesothelioma patients are suitable for radical                    surgery. Furthermore, radiotherapy has no impact on survival and is mainly used                    for palliative purposes. As such, most patients are treated with various                    chemotherapy regimens, including anthracyclines, platinum agents and                    antimetabolites. Most of these regimens yield poor response rates, typically                    between 15% and 20%, and the disease almost always recurs.

**Competition**

                In February 2004, the Food                    and Drug Administration (FDA) granted Eli Lilly & Company approval to                    market Alimta® (pemetrexed), in combination with cisplatin as a                    treatment for malignant pleural mesothelioma (MPM), the most prevalent form of                    mesothelioma. To date, Alimta is the only approved therapy worldwide for the                    treatment of MPM or any form of mesothelioma. Alimta is a multi-targeted                    antifolate that is based upon a different mechanism of action than                    ONCONASE®. Like ONCONASE®, Alimta received Orphan                    Drug and Fast Track Status from FDA.

                To our knowledge, only one                    other drug is in a Phase III trial for the treatment of mesothelioma. The drug,                    Merck & Co.’s Zolinza (vorinostat), is currently in Phase III                    clinical trials for relapsed mesothelioma and advanced malignant pleural                    mesothelioma.

                There may be several                    companies, universities, research teams or scientists, which are engaged in                    research similar, or potentially similar to research performed by us. Some of                    these entities or persons may have far greater financial resources, larger                    research staffs and more extensive physical facilities. In addition, these                    entities or persons may develop products that are more effective than ours and                    may be more successful than us at producing and marketing their                    products.

                We are not aware, however,                    of any product currently being marketed that has the same mechanism of action                    as our proposed anti-tumor agent, ONCONASE®. Search of                    scientific literature reveals no published information that would indicate that                    others are currently employing this method or producing such an anti-tumor                    agent. However, we cannot assure you that others may not develop new treatments                    that are more effective than ONCONASE®. |
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| **BUSINESS                    STRATEGY**

                Our goal is to become a                    leading biopharmaceutical company focused on discovering and developing                    innovative anti-cancer treatments based on our proprietary RNase technology                    platform. Our strategy consists of the following key elements:

**Focus                    on the growing cancer market**

                Cancer is the second                    leading cause of death in the US, yet there remain unmet needs, and current                    treatments remain ineffective and inadequate for some populations. Given the                    life-threatening nature of cancer, the FDA has adopted procedures to accelerate                    the approval of cancer drugs. We intend to continue to use our expertise in the                    field of cancer research to target this significant market opportunity for                    cancer drug development.

**Develop our existing                    product portfolio**

                We currently have a                    portfolio of clinical and pre-clinical drug product candidates under                    development for potential use as anti-cancer, and other therapeutics. We intend                    to further develop these drug product candidates both by expanding our internal                    resources and by continuing to collaborate with other companies and leading                    governmental and academic research institutions.

**Commercialize                    pharmaceutical products focused on cancer in selected markets**

                In North America, our                    current strategy is to partner with third parties to market our future products                    to oncologists and other key specialists involved in the treatment of cancer                    patients. We may also elect to develop an appropriately-sized internal oncology                    sales and marketing capability in the United States. This group may function as                    a standalone operation or in a supportive, co-promotion capacity in                    collaboration with a partner.

                Outside of North America,                    we have recently entered into ONCONASE marketing and distribution agreements                    with partners in Southeast Europe (GENESIS Pharma S.A.) and Eastern Europe                    (U.S. Pharmacia). We may elect to enter into more collaborations with other                    pharmaceutical companies with different regions for ONCONASE and/or other                    future products.

**RESEARCH AND DEVELOPMENT                    PROGRAM**

                Research and development                    expenses for the fiscal years ended July 31, 2007, 2006, and 2005 were                    approximately $5,543,000, $5,230,000, and $5,082,000, respectively. Our                    research and development programs focus primarily on the clinical and                    pre-clinical research and development of therapeutics from our pipeline of                    amphibian RNases.

**Clinical Development                    Program**

                In January 2007,                    ONCONASE® was granted orphan drug designation by the FDA for                    malignant mesothelioma. Orphan drug designation permits us to be awarded seven                    years of marketing exclusivity for ONCONASE® for the malignant                    mesothelioma indication upon FDA approval for this indication. Other benefits                    for which we are eligible with the orphan drug designation include protocol                    assistance by the FDA in the preparation of a dossier that will meet regulatory                    requirements, tax credits, research and development grant funding, and reduced                    New Drug Application (NDA) submission fees. Previously, our                    ONCONASE® development program received Fast Track Designation                    from the FDA for the indication of malignant mesothelioma. We continue to have                    discussions with the FDA to establish mutually agreed upon parameters for the                    NDA to obtain marketing approval for ONCONASE®, assuming the                    confirmatory Phase IIIb clinical trial for the treatment of malignant                    mesothelioma yields favorable results.

                We                    also have previously received an Orphan Medicinal Product Designation for                    ONCONASE® from the European Agency for the Evaluation of                    Medicinal Products, or EMEA, as well as Orphan Drug Designation for                    ONCONASE® for malignant mesothelioma in Australia from the                    Therapeutics Goods Administration, or TGA. |
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| 8 |
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| Orphan                    drug designation from these agencies provides benefits such as potential                    marketing exclusivity, reduced filing fees and regulatory guidance.

                The FDA, EMEA and TGA                    Orphan Drug Designations for ONCONASE® for malignant                    mesothelioma may serve to expedite its regulatory review if the Phase IIIb                    clinical trial yields a positive result. The efficacy and safety of                    ONCONASE®  for malignant mesothelioma will ultimately be                    determined by these regulatory agencies based on the results of our Phase IIIb                    registration trial.

                ONCONASE® is                    currently being evaluated as a treatment for unresectable malignant                    mesothelioma in an international, centrally randomized, confirmatory Phase IIIb                    registration trial. Malignant mesothelioma is a rare cancer, primarily                    affecting the pleura (lining of the lungs), and is usually associated with                    asbestos exposure. The first Phase III trial of ONCONASE in unresectable                    malignant mesothelioma was completed in 2000. The Phase IIIb registration trial                    was closed to patient accrual in September 2007.

                The confirmatory Phase IIIb                    registration trial is designed to evaluate the efficacy, safety and                    tolerability of the combination of ONCONASE®and doxorubicin as                    compared to doxorubicin alone. The primary endpoint of the trial is overall                    patient survival. The interim analysis results of the confirmatory registration                    trial, based on one third of the required events (deaths) of the study, have                    been reported and demonstrated a trend favoring the ONCONASE® +                    doxorubicin treatment group, with median survival time (MST) of 12 months over                    the doxorubicin only group (10 months). |
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|   | Other results                of this interim analysis included: |
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|  | • | At one-year,                47% of the ONCONASE® + doxorubicin-treated patients were alive as                compared to 36% of the patients treated with doxorubicin alone.                                                                                                                                                                                                                                                      |
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|  | • | Of the                patients evaluable for clinical response, more ONCONASE® +                doxorubicin-treated patients showed evidence of tumor regression or stabilization                of disease (minimum of 3 months) and there was a seven-month difference in the                MST (17 vs. 10 months) for the ONCONASE® + doxorubicin group vs. the                doxorubicin group.                    |
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|  | • | The analysis                of safety data revealed that ONCONASE® when given with doxorubicin                did not increase the number or severity of known doxorubicin-associated side                effects. The most frequent side effects reported for both treatment groups included                nausea, fatigue and alopecia. The incidence of these events was comparable for both                treatment groups. |

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|                 The results of the interim                    analysis of the Phase IIIb trial were consistent with the results from our                    previous Phase III trial, which compared ONCONASE® to                    doxorubicin as single agent therapies, and were the basis for our decision to                    continue the confirmatory registration trial. A two month improvement in median                    survival had previously been observed in the Treatment Target Group                    (“TTG”) (n=104) analysis from the completed Phase III single agent                    study that favored patients treated with ONCONASE® alone                    compared with patients treated with doxorubicin (11.6 months vs. 9.6 months).                    Our Phase IIIb confirmatory registration trial was designed based on the                    conclusions drawn from the TTG analysis but powered to reach a statistically                    significant difference in overall survival between the ONCONASE®                    + doxorubicin treatment group and the doxorubicin treatment group at 316                    evaluable events, which is expected to occur prior to the end of 2007. A total                    of 295 evaluable events have occurred in the Phase IIIb clinical trial, to                    date.

                In our single agent Phase                    III trial, the intent to treat population showed median survival of 8.4 months                    for the ONCONASE® arm and 8.2 months for the doxorubicin arm in                    the study. While not statistically significant, a subset analysis of the                    results using the Cancer Adult Leukemia Group B, or CALGB, prognostic groups                    (published during enrollment in the Phase III trial) revealed a marked excess                    of poor prognosis patients (groups 5 and 6) in the ONCONASE® arm                    of the trial (32 patients or 38.1% of the patients treated with                    ONCONASE®) as compared to the doxorubicin arm of the trial (12                    patients or 17% of the patients treated with doxorubicin). By excluding these                    patients and the 10 patients whose central pathology review did not confirm a                    diagnosis of malignant mesothelioma (N=5) from the 154 intent-to-treat                    patients, we defined a target treatment group, or TTG, consisting of 104                    patients |

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| who met                    the criteria for CALGB prognostic groups 1-4. Of these patients, 47 were                    treated with ONCONASE® and 57 were treated with doxorubicin. The                    single agent Phase III results of the TTG showed a median survival benefit of 2                    months for ONCONASE® treated patients, 11.6 months MST versus                    9.6 months MST. This two month median survival difference favoring                    ONCONASE®, while not statistically significant, represents a 20%                    advantage over the active agent, doxorubicin. Moreover, the clinical activity                    of ONCONASE® is also evident from the overall 1-year and 2-year                    survival rates of ONCONASE® versus doxorubicin in the TTG, 46.8%                    versus 38.6% and 20.2% versus 12.3%, respectively. Doxorubicin treatment was                    associated with a 60% higher risk of death compared to ONCONASE®                    treatment. Finally, tumor assessment by an independent radiologist for                    evaluable patients (which included a baseline and follow-up radiological                    assessment) revealed evidence of objective clinical activity in 17 patients in                    each treatment arm. Four partial responses and 13 stabilization of previously                    progressive disease were reported in the ONCONASE® treated                    patients and 7 partial responses and 10 stabilization of previously progressive                    disease were reported in the doxorubicin treated patients. Despite the small                    number of patients in this subset, the analysis revealed a statistically                    significant difference, log rank test, p. = 0.037, in survival of the                    responders favoring ONCONASE® treated patients with an MST 23.3                    versus 14.4 months for doxorubicin treated patients as well as the 2 year                    survival rates of 40% for ONCONASE® and 9% for                    doxorubicin.

                A Phase I/II program to                    evaluate a new dose and administration schedule of ONCONASE®                     was initiated in 2005 to attempt to take advantage of potentially                    increased efficacy with higher and more frequent doses of                    ONCONASE®. This program is ongoing in patients with non-small                    cell lung cancer and other solid tumors. The Phase I portion of this program is                    nearly complete and the Phase II portion will begin upon determination of a                    final dose and administration schedule from the Phase I component of these                    studies.

**Pre-Clinical Research                    Program**

                Our drug discovery and                    pre-clinical research program forms the basis for the development of specific                    recombinant RNases for chemically linking drugs and other compounds such as                    monoclonal antibodies, growth factors, etc., as well as developing gene fusion                    products with the goal of targeting various molecular functions. This program                    provides for joint design and generation of new products with outside                    collaborators. Through these collaborations, we may own these new products                    along with, or we may grant an exclusive license to, the collaborating                    partner(s).

                The multiple effects of                    biological activity of ONCONASE® has led to research in other                    areas of cancer biology. Two important areas associated with significant market                    opportunities are radiation therapy and control of tumor angiogenesis, or new                    tumor blood vessel formation. Many types of cancers undergo radiation therapy                    at early stages of the disease; however, success of such treatment is often                    limited. We believe any agent capable of enhancing tumor radiosensitivity has                    great market potential. Moreover, since the growth of essentially all types of                    cancer is dependent on new blood vessel formation, any agent that has                    anti-angiogenic activity, we believe, is most desirable.

*Ranpirnase                    Conjugates and Fusion Proteins*

                The concept of targeting                    potent toxins as effector molecules to kill cancer or other specifically                    targeted cells has been extensively evaluated over the last two decades. An                    immunotoxin is an antibody linked to a toxic molecule that is used to destroy                    specific cells. Several immunotoxins containing bacterial and plant toxins or                    other biotoxins, have been evaluated in human clinical trials. Efficacy has                    always been limited due to the high incidence of immunogenicity, or an immune                    response, and other intolerable toxicities, including death. Conjugation of                    ranpirnase to targeting ligands, or binding to other molecules, appears to                    eliminate this safety problem in pre-clinical studies.

                A Cooperative Research and                    Development Agreement (CRADA) with the National Cancer Institute, or NCI, has                    produced RN321, a conjugate of ranpirnase with a monoclonal antibody, that has                    demonstrated activity against non-Hodgkin’s lymphoma in preclinical                    studies. The relative benefit of killing targeted tumor cells versus                    non-targeted healthy cells, or the therapeutic index, is greater than                    200,000-fold with this conjugate. This CRADA has been concluded and data                    published. |
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|                 As a result of these                    findings we entered into a new collaborative agreement with the West German                    Cancer Center at the University of Duisburg-Essen for the development of first                    and second generation huRFB4 - ONCONASE® for targeting                    CD22+ B cell malignancies.

                We have also developed a                    variety of uniquely designed versions of ONCONASE® and amphinase                    conjugates. These compounds target the EGF receptors and neo-vascularization                    (tumor blood vessel formation) which have potential clinical application in a                    broad spectrum of solid tumors.

*Novel Amphibian                    Ribonucleases (Amphinases)*

                We have also discovered                    another series of proteins, collectively named amphinases that may have                    therapeutic uses. These proteins are bioactive in that they have an effect on                    living cells and organisms and have both anti-cancer and anti-viral activity.                    All of the proteins characterized to date are RNases. Preclinical testing of                    the new candidates collectively called amphinases showed them to be similarly                    active to ranpirnase. Their chemical structure makes them ideal candidates for                    genetic engineering of designer products.

                These compounds have                    undergone screening by the National Institute of Allergy and Infectious                    Diseases (NIAID) against various RNA viruses and by outside collaborators. One                    of these compounds, AC-03-636 has been determined to be active in yellow fever,                    Hepatitis C and Dengue fever. The same compound has been evaluated at Johns                    Hopkins University in a sustained time release formulation for the treatment of                    brain tumors (gliomas).

*Evaluation Of                    ONCONASE**®**As A Radiation                    Enhancer*

                The p53 gene is a                    tumor-suppressor gene, which means that if it malfunctions, tumors may be more                    likely to develop. Published preclinical studies have demonstrated that                    ONCONASE® causes an increase in both tumor blood flow and in                    median tumor oxygen partial pressure, causing tumor cells to become less                    resistant to radiation therapy regardless of the presence or absence of the                    functional p53 tumor-suppressor gene. In pre-clinical research at the                    University of Pennsylvania, ONCONASE®, when combined with                    radiation therapy, enhanced the radiation-sensitivity to treatment in NSCLC                    tumor cells without causing the common radiation-induced tissue damage to                    non-tumor cells. ONCONASE® inhibited SLDR (sub-lethal damage                    repair) and PLDR (potentially lethal damage repair) in these animal models. We                    believe these findings further expand the profile of ONCONASE®*in vivo* activities and its potential clinical utility and market                    potential.

*ONCONASE**®**As a Resistance-Overcoming and Apoptosis-Enhancing                    Agent*

                The *Fas* (CD95) cell                    surface receptor (and its *Fas* ligand *FasL*) has been recognized as                    an important “death” receptor involved in the induction of the                    “extrinsic” pathway of apoptosis. The apoptotic pathways have been                    the preferred target for new drug development in cancer, autoimmune, and other                    therapeutic areas.

                The Thoracic Surgery Branch                    of the NCI confirmed the synergy between ranpirnase and soluble *Fas*                    ligand (*sFasL*) in inducing significant apoptosis in *sFasL*                    -resistant *Fas+* tumor cells. These results provided rationale for using                    ONCONASE® as a potential treatment of *FasL* -resistant                    tumors and possibly other disorders such as the autoimmune lympho-proliferative                    syndrome (ALPS). Further research in this area is ongoing.

*Evaluation Of                    ONCONASE**®**As An Anti-Viral                    Agent*

                The ribonucleolytic                    activity was the basis for testing ONCONASE® as a potential                    anti-viral agent against HIV. The NIH has performed an independent *in                    vitro* screen of ONCONASE® against the HIV virus type 1. The                    results showed ONCONASE® to inhibit replication of HIV by up to                    99.9% after a four-day incubation period at concentrations not toxic to                    uninfected cells. *In vitro* findings by the NIH revealed that                    ONCONASE® significantly |
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| inhibited production of HIV                    in several persistently infected human cell lines, preferentially breaking down                    viral RNA while not affecting normal cellular ribosomal RNA and messenger RNAs,                    which are essential to cell function.

                Moreover, the NIAID also                    screened ONCONASE® for anti-HIV activity.                    ONCONASE® demonstrated highly significant anti-HIV activity in                    the monocyte/macrophage, or anti-viral, system. Ranpirnase may inhibit viral                    replication at several points during the life cycle of HIV, including its early                    phases. Ranpirnase may inhibit replication of all different HIV-1 subtypes.                    These properties of ranpirnase are particularly relevant in view of the                    extremely high and exponentially increasing rate of mutations of HIV that occur                    during infection, and which are primarily responsible for the development of                    resistance to several currently available anti-viral drugs. At present, over                    50% of clinical isolates of HIV are resistant to both reverse transcriptase,                    mechanisms which combat viral replication, and protease inhibitors drugs, a                    class of anti-viral drugs. An additional 25%, while being sensitive to protease                    inhibitors, are resistant to reverse transcriptase inhibitor drugs.

**COMMERCIAL                    RELATIONSHIPS**

**Marketing and                    Distribution Agreements**

*US                    Pharmacia*

                In July 2007,  we                    entered into a Distribution and Marketing Agreement (the “Distribution                    Agreement”), with USP Pharma Spolka Z.O.O. (the                    “Distributor”), an affiliate of U.S. Pharmacia, pursuant to which                    the Distributor was granted exclusive rights for the marketing, sales, and                    distribution of ONCONASE® for use in oncology in Poland,                    Belarus, Ukraine, Estonia, Latvia, and Lithuania (the “Territory”)                    for an initial term that ends upon the earlier of (i) 10 years from                    the first commercial sale in the Territory and (ii) the date all of the patents                    covering the product in the Territory expire. We received an upfront payment of                    $100,000 and will also be entitled to receive milestone payments based on the                    achievement of certain regulatory approvals and certain sales goals. In                    addition, we will receive a royalty on net sales as well as a transfer price                    for product sold by us to the Distributor. We will be responsible for making                    regulatory filings with and seeking marketing approval of                    ONCONASE® in the Territory and manufacturing and supplying                    ONCONASE® to the Distributor. The Distributor will be                    responsible for all commercial activities and related costs in the                    Territory.

                In connection with the                    Distribution Agreement, we also entered into a Securities Purchase Agreement,                    with Unilab LP, an affiliate of U.S. Pharmacia, pursuant to which we issued a                    total of 553,360 shares of restricted common stock for approximately                    $1.4 million, or $2.53 per share.

*GENESIS Pharma                    S.A.*

                In December 2006,  we                    entered into a Distribution and Marketing Agreement with GENESIS Pharma S.A.                    (“GENESIS”), pursuant to which GENESIS was granted exclusive rights                    for the marketing, sales, and distribution of ONCONASE®                     for use in oncology in Greece, Cyprus, Bulgaria, Romania, Slovenia,                    Croatia, Serbia, and the Former Yugoslavian Republic of Macedonia (the                    “Territory”) for an initial term that ends upon the earlier of                    (i) 10 years from the first commercial sale in the Territory and (ii)                    the date all of the patents covering the product in the Territory expire. We                    will retain ownership of all intellectual property relating to                    ONCONASE®  and responsibility for all regulatory filings                    with EMEA in the European Union (EU), with GENESIS providing assistance with                    regard to regulatory filings in the non-EU countries included in this                    agreement. We will also be responsible for manufacturing and supplying the                    product to GENESIS, which will distribute the product. GENESIS will have lead                    responsibility for all ONCONASE®  commercialization                    activities and will manage all operational aspects of the marketing, sales and                    distribution of the product in the region. We are entitled to receive milestone                    payments based on the achievement of certain regulatory approvals and certain                    sales goals. In addition, we will receive a royalty on net sales as well as a                    transfer price for product sold by us to GENESIS. |
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| **License                    Agreements**

                On July 23, 1991, our Board                    of Directors agreed to pay Kuslima Shogen, the Company’s founder and CEO,                    an amount equal to 15% of any gross royalties which we may receive from any                    license(s) with respect to our lead drug product candidate,                    ONCONASE®, or any other products derived from amphibian source                    extract, produced either as a natural, synthesized, and/or genetically                    engineered drug for which Alfacell 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 we manufacture and market any of these drugs, then Ms. Shogen will                    receive an amount equal to 5% of gross sales from any products sold during the                    term 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 licenses or 5% of net sales relating to sales but not both, unless                    both Alfacell and the licensee market the licensed product.

**Raw                    Materials**

                The major active ingredient                    derived from leopard frog eggs is the protein ranpirnase. We have sufficient                    egg inventory on hand to produce enough ONCONASE® to complete                    the current Phase III clinical trial for malignant mesothelioma and supply                    ONCONASE® for at least two years after commercialization. In                    addition, we have successfully produced ranpirnase in small proof-of-concept                    size batches using recombinant technology. However, this technology requires                    additional testing and it may be determined to not be more cost effective than                    current methods of production.

**Manufacturing**

                We contract with Scientific                    Protein Laboratories to perform the manufacturing process for ranpirnase, Ben                    Venue Laboratories Inc. for vial filling and with Aptuit and Catalent for the                    labeling, storage and shipping of ONCONASE® for use in clinical                    trials. Other than these arrangements we do not have specific arrangements for                    the manufacture of our product, but we have entered into negotiations with                    potential manufacturing partners to meet our potential commercial needs for                    ONCONASE®.

                Products manufactured for                    use in clinical trials and for commercial sale must be manufactured in                    compliance with Current Good Manufacturing Practices. Scientific Protein                    Laboratories, LLC, Ben Venue Laboratories Inc. and Catalent are all licensed or                    approved by the appropriate regulatory agencies and all manufacture in                    accordance with Current Good Manufacturing Practices. For the foreseeable                    future, we intend to rely on these manufacturers, or substitute manufacturers,                    if necessary, to manufacture our product. We believe, however, that there are                    substantial alternative providers for the services for which we contract.                    Because we have not yet received drug approval, we utilize the services of                    these third party manufacturers solely on an as needed basis with prices and                    terms customary for companies in businesses that are similarly situated. In                    order to replace an existing manufacturer, we must amend our Investigational                    New Drug application to notify the appropriate regulatory agencies of the                    change. We are dependent upon our contract manufacturers to comply with Current                    Good Manufacturing Practices and to meet our production requirements. It is                    possible that our contract manufacturers may not comply with Current Good                    Manufacturing Practices or deliver sufficient quantities of our products on                    schedule, or that we may be unable to find suitable and cost effective                    alternative providers if necessary.

**Patents and                    Proprietary Technology**

                We have sought to protect                    our technology by applying for, and obtaining, patents and trademark                    registrations. We have also relied on trade secrets and know-how to protect our                    proprietary technology. We continue to develop our portfolio of patents, trade                    secrets, and know how. We have obtained, and continue to apply for, patents                    concerning our RNase-based technology.

                In addition, we have filed                    (and we intend to continue to file) foreign counterparts to certain U.S. patent                    applications. Generally, we apply for patent protection in the United States,                    Europe, Japan, and certain other foreign countries. |
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|                 We own the following U.S.                    patents: |
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|                                                                                                                                                  |

| Patent No.      |   | Issue Date |   | Subject Matter                                                                                                                                    |   | Expiration ** |
|-----------------|--------|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|
|            |   |       |
| 5,529,775       |   | June 1996  |   | covers                combinations of ONCONASE® with certain other pharmaceuticals                                                            |   | June 2013     |
|       |
| 5,728,805       |   | Mar. 1998  |   | covers a                family of variants of ONCONASE®                                                                                       |   | June 2013     |
|       |
| 5,540,925       |   | July 1996  |   | covers                combinations of ONCONASE ® with certain other pharmaceuticals                                                           |   | July 2013     |
|       |
| 5,559,212       |   | Sept. 1996 |   | covers the                amino acid sequence of                ONCONASE®                                                                     |   | Sept. 2013    |
|       |
| 5,595,734       |   | Jan. 1997  |   | covers                combinations of ONCONASE® with certain other pharmaceuticals                                                            |   | Jan. 2014     |
|       |
| 6,649,392 B1*   |   | Nov. 2003  |   | covers a                family of recombinant variants of ONCONASE®                                                                           |   | Apr. 2016     |
|       |
| 6,649,393 B1*   |   | Nov. 2003  |   | covers nucleic                acids encoding recombinant variants of ONCONASE® and methodology for                producing such variants     |   | Apr. 2016     |
|       |
| 6,290,951 B1    |   | Sept. 2001 |   | covers                alteration of the cell cycle *in vivo*, particularly for inducing apoptosis of                tumor cells                   |   | Aug. 2018     |
|       |
| 6,239,257 B1    |   | May 2001   |   | covers a                family of variants of ONCONASE®                                                                                       |   | Dec. 2018     |
|       |
| 6,175,003 B1    |   | Jan. 2001  |   | covers the                genes of ONCONASE® and a variant of                ONCONASE®                                                    |   | Sept. 2019    |
|       |
| 6,423,515 B1    |   | July 2002  |   | covers                methodology for synthesizing gene sequences of ranpirnase and a genetically                engineered variant of ranpirnase |   | Sept. 2019    |
|       |
| 7,229,824 B1*** |   | June 2007  |   | covers a                vector containing DNA encoding a genetically engineered variant of                ONCONASE®                           |   | May 2024      |

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|                 *We own this patent jointly                    with the U.S. Government. We do not pay maintenance fees to keep this patent in                    force.

                We own the following                    foreign patents in Europe and Japan (European patents are validated in selected                    European nations): |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

| Patent No.                             |        | Subject Matter                                                                         |        | Expiration ** |
|----------------------------------------|--------|----------------------------------------------------------------------------------------|--------|---------------|
||
| EP                0 440 633            |   | covers                ONCONASE® and process technology for making it               |   | Mar. 2009     |
|                              |
| EP 0 500 589                JP 2972334 |   | cover                combinations of ONCONASE® with certain other pharmaceuticals  |   | Oct. 2010     |
|                              |
| EP 0 656 783                JP 3655628 |   | covers                combinations of ONCONASE® with certain other pharmaceuticals |   | July 2013     |
|                              |
| EP 0 837 878                JP 3779999 |   | covers a                variant of ONCONASE®                                       |   | June 2016     |

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|                 **Assumes timely payment of                    all applicable maintenance fees and annuities; excludes term extensions that do                    or may apply.

                ***Includes a term                    extension of 312 days under 35 U.S.C. §154(b).

                We also have patent                    applications pending in the United States, Europe, Japan, and other foreign                    countries. |

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|                 The scope of protection                    afforded by patents for biotechnological inventions can be uncertain, and such                    uncertainty may apply to our patents as well. The patent applications we have                    filed, or that we may file in the future, may not result in patents. Our                    patents may not give us a competitive advantage, may be wholly or partially                    invalidated or held unenforceable, or may be held not to have been infringed by                    products that compete with our products. Patents owned by others may adversely                    affect our ability to do business. Furthermore, others may independently                    develop products that are similar to our products or that duplicate our                    products, and may design around the claims of our patents. Although we believe                    that our patents and patent applications are of substantial value to us, we                    cannot assure you that such patents and patent applications will be of                    commercial benefit to us, will adequately protect us from competing products or                    will not be challenged, declared invalid, or found not to have been infringed                    by competing products. We also rely on proprietary know-how and on trade                    secrets to develop and maintain our competitive position. Others may                    independently develop or obtain access to such know-how or trade secrets.                    Although our employees and consultants having access to proprietary information                    are required to sign agreements that require them to keep such information                    confidential, our employees or consultants may breach these agreements or these                    agreements may be held to be unenforceable.

**Government                    Regulation**

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

                As the initial step in the                    FDA regulatory approval process, preclinical studies are conducted in                    laboratory dishes and animal models to assess the drug’s efficacy and to                    identify potential safety problems. Moreover manufacturing processes and                    controls for the product are required. The manufacturing information along with                    the results of these studies is submitted to the FDA as a part of the                    Investigational New Drug Application, or IND, which is filed to obtain approval                    to begin human clinical testing. The human clinical testing program typically                    involves up to three phases. Data from human trials as well as other regulatory                    requirements such as chemistry, manufacturing and controls, pharmacology and                    toxicology sections, are submitted to the FDA in an NDA or Biologics License                    Application, or BLA. Preparing an NDA or BLA involves considerable data                    collection, verification and analysis. A similar process in accordance with                    EMEA regulations in Europe and with TGA regulations in Australia is required to                    gain marketing approval. Moreover, a commercial entity must be established and                    approved by the EMEA in a member state of the EU at least three months prior to                    filing the Marketing Authorization Application, or MAA.

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

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

**Environmental                    Matters**

                Our operations are subject                    to comprehensive regulation with respect to environmental, safety and similar                    matters by the United States Environmental Protection Agency and similar state                    and local agencies. Failure to comply with applicable laws, regulations and                    permits can result in injunctive actions, damages and civil and criminal                    penalties. If we expand or change our existing operations or propose any new                    operations, we may need to obtain additional or amend existing permits or                    authorizations. We spend time, effort and funds in operating our facilities to                    ensure compliance with environmental and other regulatory                    requirements.

                Such efforts and                    expenditures are common throughout the biotechnology industry and generally                    should have no material adverse effect on our financial condition. The                    principal environmental regulatory requirements and |
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| matters                    known to us requiring or potentially requiring capital expenditures by us do                    not appear likely, individually or in the aggregate, to have a material adverse                    effect on our financial condition. We believe that we are in compliance with                    all current laws and regulations.

**Employees**

                As of July 31, 2007, we had                    fifteen full time employees, of whom eight were engaged in clinical and                    pre-clinical research and development activities and seven were engaged in                    administration and management. We had five employees who held Ph.D. degrees.                    All of our employees are covered by confidentiality agreements. We consider                    relations with our employees to be good. None of our employees is covered by a                    collective bargaining agreement.

**Available                    Information**

                Copies of our Annual Report                    on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on                    Form 8-K and amendments to those reports filed or furnished pursuant to                    Section 13(a) or 15(d) of the Securities Exchange Act of 1934                    are available free of charge through our website (www.alfacell.com) as soon as                    reasonably practicable after we electronically file the material with, or                    furnish it to, the Securities and Exchange Commission (the “SEC”).                    You may read and copy any document we file with the SEC at the SEC’s                    Public Reference Room at 100 F Street, N.W., Washington, DC 20549.                    Please call the SEC at 1-800-SEC-0330 for further information on the Public                    Reference Room. Our SEC filings are also available to the public at the                    SEC’s website at http://www.sec.gov. Additionally, we have also adopted a                    Code of Business Conduct and Ethics applicable to all officers, directors, and                    employees, which is also available on our website.

**ITEM                    1A. RISK FACTORS.**

                *An investment in our                    common stock is speculative and involves a high degree of risk. You should                    carefully consider the risks and uncertainties described below and the other                    information in this Form 10-K and our other SEC filings before deciding whether                    to purchase shares of our common stock. If any of the following risks actually                    occur, our business and operating results could be harmed. This could cause the                    trading price of our common stock to decline, and you may lose all or part of                    your investment.*

**We                    are highly dependent on achieving success in the clinical testing, regulatory                    approval, and commercialization of ONCONASE® and our other                    compounds currently under development. If we fail to obtain the necessary                    regulatory approvals, we will not be allowed to commercialize                    ONCONASE® and our business would be harmed.**

                The FDA and comparable                    regulatory agencies in foreign countries impose substantial pre-market approval                    requirements on the introduction of pharmaceutical products. These requirements                    involve completion of lengthy and detailed pre-clinical and clinical testing                    and other costly and time consuming procedures. Satisfaction of these                    requirements typically takes several years depending on the level of complexity                    and novelty of the product. The length of time required to complete a clinical                    trial depends on several factors including the size of the patient population,                    the ability of patients to get to the site of the clinical study, and the                    criteria for determining which patients are eligible to join the study. A                    significant portion of our expenditures have been devoted, and in the future                    will be devoted, to the clinical trials for our lead product candidate,                    ONCONASE®  and related NDA activities. Although we believe                    we could modify some of our expenditures to reduce our cash outlays in relation                    to our clinical trials and other NDA related expenditures, we cannot quantify                    the amount by which such expenditures might be modified. Hence, a delay in the                    commercial sale of ONCONASE® would increase the time frame of                    our cash expenditure outflows and may require us to seek additional financing.                    Such capital financing may not be available on favorable terms or at                    all.

                We are nearing the                    scheduled completion of our confirmatory Phase IIIb clinical trial of                    ONCONASE® as a treatment for malignant mesothelioma. Data from                    an interim analysis based on the first 105 events (deaths) showed a two-month                    survival advantage of ONCONASE® + doxorubicin (12 months) vs.                    doxorubicin (10 months). These |
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| results                    were consistent with data from the previous Phase III clinical trial and were                    the basis for our decision to continue the trial. The primary endpoint of the                    Phase IIIb clinical trial is survival, which tracks the length of time patients                    enrolled in the study live. According to the protocol, a sufficient number of                    evaluable patient deaths must occur in order to perform the required                    statistical analyses to determine the efficacy of ONCONASE® in                    patients with unresectable (inoperable) malignant mesothelioma. Since it is                    impossible to predict with certainty when these patient deaths in the Phase                    IIIb trial will occur, we can neither determine with certainty when a                    sufficient number of deaths will occur, nor when we will be able to file for                    marketing registrations with the FDA, EMEA and TGA.

                We cannot apply for FDA,                    EMEA or TGA approval to market ONCONASE® until the clinical                    trials and all other registration requirements have been met. Several factors                    could prevent the successful completion or cause significant delays of these                    trials including an inability to enroll a sufficient number of patients or                    failure to demonstrate that the product is safe and effective in humans. Also                    if safety concerns develop, the FDA, EMEA and TGA could stop our trials before                    completion. Drugs in late stages of clinical development may fail to show the                    desired safety and efficacy results despite having progressed through initial                    clinical testing. While previous limited clinical trials with                    ONCONASE® have produced certain favorable results in                    unresectable malignant mesothelioma, we cannot be certain that we will                    successfully complete Phase I, Phase II or Phase III testing of any compound                    within any specific time period, if at all. Furthermore, we or the FDA may                    suspend clinical trials at any time on various grounds, including a finding                    that the subjects or patients are being exposed to an unacceptable health                    risk.

                All statutes and                    regulations governing the conduct of clinical trials are subject to future                    changes by various regulatory agencies, including the FDA, which could affect                    the cost and duration of our clinical trials. Any unanticipated costs or delays                    in our clinical studies would delay our ability to generate product revenues                    and to raise additional capital and could cause us to be unable to fund the                    completion of the studies.

                We may not market or sell                    any product for which we have not obtained regulatory approval. We cannot                    assure you that the FDA or other regulatory agencies will ever approve the use                    of our products that are under development. Even if we receive regulatory                    approval, such approval may involve limitations on the indicated uses for which                    we may market our products. Further, even after approval, discovery of                    previously unknown problems could result in additional restrictions, including                    withdrawal of our products from the market.

                If we fail to obtain the                    necessary regulatory approvals, we cannot market or sell our products in the                    United States, or in other countries and our long-term viability would be                    threatened. If we fail to achieve regulatory approval or foreign marketing                    authorizations for ONCONASE® we will not have a saleable product                    or product revenues for quite some time, if at all, and may not be able to                    continue operations.

                Our profitability will                    depend on our ability to develop, obtain regulatory approvals for, and                    effectively market ONCONASE® as well as entering into strategic                    alliances for the development of new drug candidates from the out-licensing of                    our proprietary RNase technology. The commercialization of our pharmaceutical                    products involves a number of significant challenges. In particular, our                    ability to commercialize ONCONASE® depends on the success of our                    clinical development programs, our efforts to obtain regulatory approval and                    our sales and marketing efforts or those of our marketing partners, if any,                    directed at physicians, patients and third-party payors. A number of factors                    could affect these efforts including: |
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

|   | •     Our                ability to demonstrate clinically that our products have utility and are                safe;  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                  |
|   | •     Delays                or refusals by regulatory authorities in granting marketing approvals;                      |
|        |                                                                                                                                                  |
|   | •     Our                limited financial resources relative to our competitors;                                       |
|        |                                                                                                                                                  |
|   | •     Our                ability to obtain an appropriate marketing partner;                                            |
|        |                                                                                                                                                  |
|   | •     The                availability and level of reimbursement for our products by third party                payors; |
|        |                                                                                                                                                  |
|   | •     Incidents                of adverse reactions to our products;                                                    |
|        |                                                                                                                                                  |
|   | •     Misuse                of our products and unfavorable publicity that could result; and                            |
|        |                                                                                                                                                  |
|   | •     The                occurrence of manufacturing or distribution disruptions.                                       |

| 17 |
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|                 We will seek to generate                    revenue through licensing, marketing and development arrangements prior to                    receiving revenue from the sale of our products. To date we have entered into                    two non-US regional marketing and distribution agreements and we may not be                    able to successfully negotiate any additional agreements. In the past, we have                    entered into several development arrangements which have resulted in limited                    revenues for us. However, we cannot ensure that these arrangements or future                    arrangements, if any, will result in significant amounts of revenue for us in                    the future. We, therefore, are unable to predict the extent of any future                    losses or the time required to achieve profitability, if at all.

**We                    have incurred losses since inception and anticipate that we will incur                    continued losses for the foreseeable future. We do not have a current source of                    product revenue and may never be profitable.**

                We are a development stage                    company and since our inception one of the principal sources of our working                    capital has been private sales of our common stock. Over the past three fiscal                    years, we have incurred aggregate net losses of approximately $23 million and                    since our inception we have incurred aggregate net losses of approximately $92                    million. We expect to incur additional losses and, as our development efforts                    and clinical testing activities continue, our rate of losses may increase. We                    also expect to experience negative cash flows for the foreseeable future as we                    fund our losses and capital expenditures. Our losses have adversely impacted,                    and will continue to adversely impact, our working capital, total assets and                    stockholders’ equity. To date, we have not sold or received approval to                    sell any drug product candidates, and it is possible that revenues from drug                    product sales will never be achieved. We cannot at this time predict when or if                    we will be able to develop other sources of revenue or when or if our                    operations will become profitable, even if we are able to commercialize some of                    our drug product candidates.

**We                    will need additional financing to continue operations, which may not be                    available on acceptable terms, if it is available at all.**

                We estimate that as of July                    31, 2007, our then existing cash reserves should be sufficient to support our                    activities into the first quarter of our fiscal year 2009 based on our expected                    level of expenditures, which assumes timely and successful completion of our                    Phase IIIb clinical trial, and submission and approval of the related NDA.                    Regardless of the results from our current clinical trial, we will need                    additional financing to conduct our business after October 31, 2008. If the                    result of our Phase IIIb clinical trial do not demonstrate the efficacy and                    safety of ONCONASE® for malignant mesothelioma, or if we are                    delayed in submitting the related NDA, our ability to raise additional capital                    could be adversely affected. Factors that would affect the amount and timing of                    additional capital required include, but are not limited to, the                    following: |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|  | • | the rate of progress                        and cost of completing and filing marketing registrations for                        ONCONASE® with the FDA in the United States, with the EMEA                        in Europe and with the TGA in Australia;                                                        |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |        |                                                                                                                                                                                                                                                                                                                   |
|  | • | our degree of success                        in commercializing our drug product candidates, including entering into                        additional marketing and distribution agreements;                                                                                                                          |
|  |        |                                                                                                                                                                                                                                                                                                                   |
|  | • | the rate of                progress and cost of research and development and clinical trial activities                relating to our drug product candidates;                                                                                                                                                         |
|  |        |                                                                                                                                                                                                                                                                                                                   |
|  | • | the costs of preparing,                        filing and prosecuting patent applications, maintaining and enforcing our                        patent claims and other intellectual property rights and investigating and                        defending against infringement claims asserted against us by others; |
|  |        |                                                                                                                                                                                                                                                                                                                   |

|  | •     emergence                of competing technologies and other adverse market developments; |
|--|-------------------------------------------------------------------------------------------------------------------------------|
|  |                                                                                                                          |

|  | • | changes in or                        terminations of our existing licensing, marketing and distribution                        arrangements;                |
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|  |        |                                                                                                                                                        |
|  | • | the amount of milestone                        payments we may receive from current and future collaborators, if any;                        and            |
|  |        |                                                                                                                                                        |
|  | • | the cost of                        manufacturing scale-up and development of marketing operations, if we                        undertake those activities. |

|                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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| Additional financing may                    not be available when we need it or be on terms acceptable to us. If adequate                    financing is not available, we may be required to delay, scale-back, or                    eliminate certain of our research and development programs, to relinquish                    rights to some of our technologies or products, or to grant licenses to third                    parties to |

| 18 |
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| commercialize products or                    technologies that we would otherwise seek to develop ourselves. We could also                    be required to cease operations. If additional capital is raised through the                    sale of equity, our stockholders’ ownership interest could be diluted and                    such newly-issued securities may have rights, preferences, or privileges                    superior to those of our other stockholders. The terms of any debt securities                    we may sell to raise additional capital may place restrictions on our operating                    activities. Failure to secure additional financing may cause us to delay or                    abandon some or all of our development programs.

**Budget constraints may                    force us to delay our efforts to develop certain drug product candidates in                    favor of developing others, which may prevent us from commercializing all drug                    product candidates as quickly as possible.**

                Because we are an emerging                    company with limited resources, and because completing and submitting an NDA is                    an expensive process, we must regularly assess the most efficient allocation of                    our research and development budget. As a result, we may have to further                    prioritize development activities and may not be able to fully realize the                    value of some of our drug product candidates in a timely manner, and they may                    be delayed in reaching the market, if at all. A reduction in spending on our                    other drug product candidates could delay our commercialization efforts and                    negatively impact our ability to diversify our development risk across a broad                    portfolio of drug product candidates.

**Competition in the                    biopharmaceutical field is intense and subject to rapid technological change.                    Our principal competitors have substantially greater resources to develop and                    market products that may be superior to ours.**

                If we obtain regulatory                    approval for any of our drug product candidates, the extent to which they                    achieve market acceptance will depend, in part, on competitive factors.                    Competition in our industry is intense, and it is increased by the rapid pace                    of technological development. Existing drug products or new drug products                    developed by our competitors may be more effective or have fewer side effects,                    or may be more effectively marketed and sold, than any that we may develop. Our                    principal competitors have substantially greater research and development                    capabilities and experience and greater manufacturing, marketing, financial,                    and managerial resources than we do. Competitive drug compounds may render our                    technology and drug product candidates obsolete or noncompetitive prior to our                    recovery of research, development, or commercialization expenses incurred                    through sales of any of our drug product candidates. The FDA’s policy of                    granting “fast track” approval for cancer therapies may also                    expedite the regulatory approval of our competitors’ drug product                    candidates.

                In February 2004, the Food                    and Drug Administration granted Eli Lilly & Company approval to sell its                    Alimta® medication as an orphan drug to treat patients with                    pleural mesothelioma. Alimta® is a multi-targeted antifolate                    that is based upon a different mechanism of action than                    ONCONASE®. To our knowledge, no other company is developing a                    product with the same mechanism of action as ONCONASE®. However,                    there may be other companies, universities, research teams or scientists who                    are developing products to treat the same medical conditions our products are                    intended to treat. To our knowledge, only one other drug is in a Phase III                    trial for the treatment of mesothelioma. The drug, Merck & Co.’s                    Zolinza (vorinostat), is currently in Phase III clinical trials for relapsed                    mesothelioma and advanced malignant pleural mesothelioma.

                We also compete with other                    drug development companies for collaborations with large pharmaceutical and                    other companies.

**Our                    stock price has been and is likely to continue to be volatile, and an                    investment in our common stock could decline in value.**

                The market price of our                    common stock, like that of the securities of many other development stage                    biotechnology companies, has fluctuated over a wide range and it is likely that                    the price of our common stock will fluctuate in the future. Over the past three                    fiscal years, the sale price for our common stock, as reported by Nasdaq and                    the OTC Bulletin Board has fluctuated from a low of $.73 to a high of $7.50.                    The market price of our common stock could be impacted by a variety of factors,                    including: |
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|        |
|--------|
|   |

|  | • | the success or failure                        of our clinical trials, including, but not limited to, the Phase IIIb trial                        involving our lead compound, ONCONASE®, or those of our                        competitors; |
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|  |        |                                                                                                                                                                                                                                             |

|  | •     announcements                        of technological innovations or new drug products by us or our                        competitors;    |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |                                                                                                                                                                           |
|  | •     actual                or anticipated fluctuations in our financial results;                                                                |
|  |                                                                                                                                                                           |
|  | •     our                ability to obtain financing, when needed;                                                                               |
|  |                                                                                                                                                                           |
|  | •                    economic conditions in the US and abroad;                                                                                        |
|  |                                                                                                                                                                           |
|  | •     comments                        by or changes in Company assessments or financial estimates by securities                        analysts; |
|  |                                                                                                                                                                           |
|  | •                    adverse regulatory actions or decisions;                                                                                         |
|  |                                                                                                                                                                           |
|  | •                    losses of key management;                                                                                                        |
|  |                                                                                                                                                                           |
|  | •                    changing governmental regulations;                                                                                               |
|  |                                                                                                                                                                           |
|  | •     our                ability to secure adequate third party reimbursement for products developed by                us;                       |
|  |                                                                                                                                                                           |
|  | •     developments                or disputes concerning patents or other proprietary rights;                                                    |
|  |                                                                                                                                                                           |
|  | •                    product or patent litigation; and                                                                                                |
|  |                                                                                                                                                                           |
|  | •     public                concern as to the safety of products developed by us.                                                                |

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|                 The stock market continues                    to experience extreme price and volume fluctuations and these fluctuations have                    especially affected the market price of many biotechnology companies. Such                    fluctuations have often been unrelated to the operating performance of these                    companies. Volatility or a lack of positive performance in our stock price may                    adversely affect our ability to retain key employees, all of whom have been                    granted stock options. These factors and fluctuations, as well as political and                    market conditions, may materially adversely affect the market price of our                    common stock.

                Additionally, from April                    1999, when we were delisted from Nasdaq, until September 9, 2004, when we were                    relisted on the Nasdaq Capital Market, there was no established trading market                    for our common stock. During that time, our common stock was quoted on the OTC                    Bulletin Board and was thinly traded. There is no assurance that we will be                    able to comply with all of the listing requirements necessary to remain listed                    on the Nasdaq Capital Market. In addition, our stock remains thinly traded at                    times and you may be unable to sell our common stock during times when the                    trading market is limited.

**We                    are and will be dependent upon third parties for manufacturing our products. If                    these third parties do not devote sufficient time and resources to our products                    our revenues and profits may be adversely affected.**

                We do not have the required                    manufacturing facilities to manufacture our product. We presently rely on third                    parties to perform all of the manufacturing processes for the production of                    ONCONASE® for use in clinical trials. Currently, we contract                    with Scientific Protein Laboratories, LLC for the manufacturing of ranpirnase                    (protein drug substance) from the oocytes, or the unfertilized eggs, of the                    *Rana pipiens* frog, which is found in the Northwest United States and is                    commonly called the leopard frog. We contract with Ben Venue Corporation for                    the manufacturing of ONCONASE® and with Catalent and Aptuit for                    the labeling, storage and shipping of ONCONASE® for clinical                    trial use. We utilize the services of these third party manufacturers solely on                    an as needed basis with terms and prices customary for our industry.

                We use FDA GMP licensed                    manufacturers for ranpirnase and ONCONASE®. We have identified                    several alternative service providers for the manufacturing services for which                    we may contract. In order to replace an existing service provider we must amend                    our IND to notify the FDA of the new manufacturer. Although the FDA generally                    will not suspend or delay a clinical trial as a result of replacing an existing                    manufacturer, the FDA has the authority to suspend or delay a clinical trial                    if, among other grounds, human subjects are or would be exposed to an                    unreasonable and significant risk of illness or injury as a result of the                    replacement manufacturer.

                We intend to rely on third                    parties to manufacture our products if they are approved for sale by the                    appropriate regulatory agencies and are commercialized. Third party                    manufacturers may not be able to meet our needs with respect to the timing,                    quantity or quality of our products or to supply products on acceptable                    terms. |

| 20 |
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| **Because we do not have                    marketing, sales or distribution capabilities, we expect to contract with third                    parties for these functions and we will therefore be dependent upon such third                    parties to market, sell and distribute our products in order for us to generate                    revenues.**

                We currently have no sales,                    marketing or distribution capabilities. In order to commercialize any product                    candidates for which we receive FDA or non-US approval, we expect to rely on                    established third party strategic partners to perform these functions. To date,                    we have entered into two marketing and distribution agreements for                    ONCONASE® in regions outside the US. We cannot assure you we                    will be able to maintain these relationships or establish new relationships                    with biopharmaceutical or other marketing companies with existing distribution                    systems and direct sales forces to market any or all of our product candidates                    on acceptable terms, if at all.

                In addition, we expect to                    begin to incur significant expenses in determining our commercialization                    strategy with respect to one or more of our product candidates. The                    determination of our commercialization strategy with respect to a product                    candidate will depend on a number of factors, including: |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|  | • | the extent to which we                        are successful in securing collaborative partners to offset some or all of                        the funding obligations with respect to product candidates;                                                                                 |
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|  |        |                                                                                                                                                                                                                                                                                        |
|  | • | the extent to which our                        agreement with our collaborators permits us to exercise marketing or                        promotion rights with respect to the product candidate;                                                                                          |
|  |        |                                                                                                                                                                                                                                                                                        |
|  | • | how our product                        candidates compare to competitive products with respect to labeling,                        pricing, therapeutic effect, and method of delivery; and                                                                                                 |
|  |        |                                                                                                                                                                                                                                                                                        |
|  | • | whether we are able to                        establish agreements with third party collaborators, including large                        biopharmaceutical or other marketing companies, with respect to any of our                        product candidates on terms that are acceptable |

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| **Our lack of operating                    experience may cause us difficulty in managing our growth.**

                We have no experience in                    selling pharmaceutical or other products or in manufacturing or procuring drug                    products in commercial quantities in compliance with FDA regulations and we                    have only limited experience in negotiating, establishing and maintaining                    collaborative relationships and conducting later stage phases of the regulatory                    approval process. Our ability to manage our growth, if any, will require us to                    improve and expand our management and our operational and financial systems and                    controls. If our management is unable to manage growth effectively, our                    business and financial condition would be adversely affected. In addition, if                    rapid growth occurs, it may strain our operational, managerial and financial                    resources, which are limited.

**Our                    proprietary technology and patents may offer only limited protection against                    infringement and the development by our competitors of competitive                    products.**

                We own two patents jointly                    with the United States government. These patents expire in 2016. We also own                    ten United States patents with expiration dates ranging from 2013 to 2024, four                    European patents with expiration dates ranging from 2009 to 2016 and three                    Japanese patents with expiration dates ranging from 2010 to 2016. We also own                    patent applications that are pending in the United States, Europe, Japan, and                    other foreign countries**.** The scope of protection afforded by patents for                    biotechnological inventions is uncertain, and such uncertainty applies to our                    patents as well. Therefore, our patents may not give us competitive advantages                    or afford us adequate protection from competing products. Furthermore, others                    may independently develop products that are similar to our products, and may                    design around the claims of our patents. Patent litigation and intellectual                    property litigation are expensive and our resources are limited. If we were to                    become involved in litigation, we might not have the funds or other resources                    necessary to conduct the litigation effectively. This might prevent us from                    protecting our patents, from defending against claims of infringement, or both.                    To date, we have not received any threats of litigation regarding patent                    issues. |

| 21 |
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| **We may be sued for                    infringing on the intellectual property rights of others.**

                Our commercial success also                    depends in part on ensuring that we do not infringe the patents or proprietary                    rights of third parties. The biotechnology industry has produced a                    proliferation of patents, and it is not always clear to industry participants,                    including us, which patents cover various types of products. The coverage of                    patents is subject to interpretation by the courts, and the interpretation is                    not always uniform. While we have not been sued for infringing the intellectual                    property rights of others, there can be no assurance that the drug product                    candidates that we have under development do not or will not infringe on the                    patent or proprietary rights of others. Third parties may assert that we are                    employing their proprietary technology without authorization. Moreover, United                    States patent applications filed in recent years are confidential for                    18 months, while older applications are not published until the patent                    issues. Further, some applications are kept secret during the entire length of                    their pendency by request of the applicant in special circumstances. As a                    result, there may be patents of which we are unaware, and avoiding patent                    infringement may be difficult. Patent holders sometimes send communications to                    a number of companies in related fields, suggesting possible infringement. If                    we are sued for patent infringement, we would need to demonstrate that we                    either do not infringe the patent claims of the relevant patent and/or that the                    patent claims are invalid, which we may not be able to do. Proving invalidity,                    in particular, is difficult since it requires a showing of clear and convincing                    evidence to overcome the presumption of validity enjoyed by issued patents.                    Parties making claims against us may be able to obtain injunctive or other                    equitable relief that could effectively block our ability to further develop,                    commercialize and sell products, and such claims could result in the award of                    substantial damages against us. In the event of a successful claim of                    infringement against us, we may be required to pay damages and obtain one or                    more licenses from third parties. We may not be able to obtain these licenses                    at a reasonable cost, if at all. In that event, we could encounter delays in                    product introductions while we attempt to develop alternative methods or                    products or be required to cease commercializing affected products and our                    operating results would be harmed.

                In the future, others may                    file patent applications covering technologies that we may wish to utilize with                    our proprietary technologies, or products that are similar to products                    developed with the use of our technologies. If these patent applications result                    in issued patents and we wish to use the claimed technology, we would need to                    obtain a license from the third party, and this would increase our costs of                    operations and harm our operating results.

**If we                    lose key management personnel or are unable to attract and retain the talent                    required for our business, our business could be harmed.**

                We are highly dependent on                    the principal members of our management staff, including, but not limited to,                    our founder, Chairman and Chief Executive Officer, Kuslima Shogen. None of the                    members of our management staff have employment contracts with us. We do not                    have key man insurance on any of our management. If we were to lose the                    services of Ms. Shogen, or other members of our management staff, and were                    unable to replace them, our product development and the achievement of our                    strategic objectives could be delayed.

                In addition, our success                    will depend on our ability to attract and retain qualified commercial,                    scientific, technical, and managerial personnel. While we have not experienced                    unusual difficulties to date in recruiting and retaining personnel, there is                    intense competition for qualified staff and no assurance can be given that we                    will be able to retain existing personnel or attract and retain qualified staff                    in the future.

**If we                    are unable to obtain favorable reimbursement for our product candidates, their                    commercial success may be severely hindered.**

                Our ability to sell our                    future products may depend in large part on the extent to which reimbursement                    for the costs of our products is available from government entities, private                    health insurers, managed care organizations and others. Third-party payors are                    increasingly attempting to contain their costs. We cannot predict what actions                    third-party payors may take, or whether they will limit the coverage and level                    of reimbursement for our products or refuse to provide any coverage at all.                    Reduced or partial reimbursement coverage could make our products less                    attractive to patients, suppliers and prescribing physicians and may not be                    adequate for us to maintain price levels sufficient to realize an appropriate                    return on our investment in our product candidates or to compete on                    price. |
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|                 In some cases, insurers and                    other healthcare payment organizations try to encourage the use of less                    expensive generic brands and over-the-counter, or OTC, products through their                    prescription benefits coverage and reimbursement policies. These organizations                    may make the generic alternative more attractive to the patient by providing                    different amounts of reimbursement so that the net cost of the generic product                    to the patient is less than the net cost of a prescription brand product.                    Aggressive pricing policies by our generic product competitors and the                    prescription benefits policies of insurers could have a negative effect on our                    product revenues and profitability.

                Many managed care                    organizations negotiate the price of medical services and products and develop                    formularies for that purpose. Exclusion of a product from a formulary can lead                    to its sharply reduced usage in the managed care organization patient                    population. If our products are not included within an adequate number of                    formularies or adequate reimbursement levels are not provided, or if those                    policies increasingly favor generic or OTC products, our market share and gross                    margins could be negatively affected, as could our overall business and                    financial condition.

                The competition among                    pharmaceutical companies to have their products approved for reimbursement may                    also result in downward pricing pressure in the industry or in the markets                    where our products will compete. We may not be successful in any efforts we                    take to mitigate the effect of a decline in average selling prices for our                    products. Any decline in our average selling prices would also reduce our gross                    margins.

                In addition, managed care                    initiatives to control costs may influence primary care physicians to refer                    fewer patients to oncologists and other specialists. Reductions in these                    referrals could have a material adverse effect on the size of our potential                    market and increase costs to effectively promote our products.

                We are subject to new                    legislation, regulatory proposals and managed care initiatives that may                    increase our costs of compliance and adversely affect our ability to market our                    products, obtain collaborators and raise capital.

                There have been a number of                    legislative and regulatory proposals aimed at changing the healthcare system                    and pharmaceutical industry, including reductions in the cost of prescription                    products and changes in the levels at which consumers and healthcare providers                    are reimbursed for purchases of pharmaceutical products. For example, the                    Prescription Drug and Medicare Improvement Act of 2003 provides a Medicare                    prescription drug benefit that began in 2006 and mandates other reforms.                    Although we cannot predict the full effects on our business of the                    implementation of this new legislation, it is possible that the new benefit,                    which will be managed by private health insurers, pharmacy benefit managers and                    other managed care organizations, will result in decreased reimbursement for                    prescription drugs, which may further exacerbate industry-wide pressure to                    reduce the prices charged for prescription drugs. This could harm our ability                    to market our products and generate revenues. It is also possible that other                    proposals will be adopted. As a result of the new Medicare prescription drug                    benefit or any other proposals, we may determine to change our current manner                    of operation, provide additional benefits or change our contract arrangements,                    any of which could harm our ability to operate our business efficiently, obtain                    collaborators and raise capital.

**Our                    product candidates may not be accepted by the market.**

                Even if approved by the FDA                    and other regulatory authorities, our product candidates may not achieve market                    acceptance, which means we would not receive significant revenues from these                    products. Approval by the FDA does not necessarily mean that the medical                    community will be convinced of the relative safety, efficacy and                    cost-effectiveness of our products as compared to other products. In addition,                    third party reimbursers such as insurance companies and HMOs may be reluctant                    to reimburse expenses relating to our products.

**Material weaknesses or                    deficiencies in our internal control over financial reporting could harm                    stockholder and business confidence in our financial reporting, our ability to                    obtain financing, and other aspects of our business.**

                As of April 30, 2007,                    management had concluded that a control deficiency with respect to a lack of                    personnel with financial reporting expertise sufficient to properly record and                    report non-routine and complex |
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| transactions and accounting                    pronouncements constituted a material weakness in internal control over                    financial reporting. A material weakness is a control deficiency, or                    combination of control deficiencies that results in more than a remote                    likelihood that a material misstatement of the annual or interim financial                    statements will not be prevented or detected. This control deficiency resulted                    in an understatement of the amount recorded as compensation expense during the                    first three interim periods of the fiscal year ended July 31, 2006, offset by a                    charge during the final fiscal quarter of 2006.

                During 2007, management                    revised its policies and procedures with respect to its controls over recording                    and reporting non-routine and complex transactions and accounting                    pronouncements to ensure that all reasonable steps will be taken to correct                    this material weakness. As of July 31, 2007, the deficiency was considered to                    be remediated as the new internal controls were operational for a period of                    time, were tested, and management concluded that the controls were operating                    effectively at that time.

                Internal control over                    financial reporting can provide only reasonable and not absolute assurance that                    deficiencies or weaknesses are identified. Additionally, potential control                    deficiencies that are not yet identified could emerge and internal controls                    that are currently deemed to be in place and operating effectively are subject                    to the risk that those controls may become inadequate because of changes in                    conditions, or that the degree of compliance with the policies or procedures                    may deteriorate. Identification and corrections of these types of potential                    control deficiencies could have a material impact on our business, financial                    position, results of operations and disclosures and impact our ability to raise                    funds. |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| **Our investments                        could lose market value and consequently harm our ability to fund                        continuing operations.** |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|                 The primary objective of                    our investment activities is to preserve principal while at the same time                    maximizing yields without significantly increasing risk. To achieve this                    objective, we maintain our portfolio of cash and cash equivalents in a variety                    of securities, including government and corporate obligations and money market                    funds. The market values of these investments may fluctuate due to market                    conditions and other conditions over which we have no control. Fluctuations in                    the market price and valuations of these securities may require us to record                    losses due to impairment in the value of the securities underlying our                    investment. This could result in future charges to our earnings. All of our                    investment securities are denominated in US dollars.

                Investments in both                    fixed-rate and floating-rate interest earning instruments carry varying degrees                    of interest rate risk. Fixed-rate securities may have their fair market value                    adversely impacted due to a rise in interest rates. In general, securities with                    longer maturities are subject to greater interest rate risk than those with                    shorter maturities. While floating-rate securities generally are subject to                    less interest rate risk than fixed-rate securities, floating-rate securities                    may produce less income than expected if interest rates decrease. Due in part                    to these factors, our investment income may fall short of expectations or we                    may suffer losses in principal if securities are sold that have declined in                    market value due to changes in interest rates.

**We                    handle hazardous materials and must comply with environmental laws and                    regulations, which can be expensive and restrict how we do business. We could                    also be liable for damages, penalties, or other forms of censure if we are                    involved in a hazardous waste spill or other accident.**

                Our research and                    development processes involve the controlled storage, use, and disposal of                    hazardous materials and biological hazardous materials. We are subject to                    federal, state, and local laws and regulations governing the use, manufacture,                    storage, handling, and disposal of hazardous materials and certain waste                    products. Although we believe that our safety procedures for handling and                    disposing of these hazardous materials comply with the standards prescribed by                    law and regulation, the risk of accidental contamination or injury from                    hazardous materials cannot be completely eliminated. In the event of an                    accident, even by a third party, we could be held liable for any damages that                    result, and such liability could exceed the $2,000,000 limit of our current                    general liability insurance coverage and our financial resources. In the                    future, we may not be able to maintain insurance on acceptable terms, or at                    all. We could also be required to incur significant costs to comply with                    current or future environmental laws and regulations. |

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| **We                    may be sued for product liability.**

                Our business exposes us to                    potential product liability that may have a negative effect on our financial                    performance and our business generally. The administration of drugs to humans,                    whether in clinical trials or commercially, exposes us to potential product and                    professional liability risks which are inherent in the testing, production,                    marketing and sale of new drugs for humans. Product liability claims can be                    expensive to defend and may result in large judgments or settlements against                    us, which could have a negative effect on our financial performance and                    materially adversely affect our business. We maintain product liability                    insurance to protect our products and product candidates in amounts customary                    for companies in businesses that are similarly situated, but our insurance                    coverage may not be sufficient to cover claims. Furthermore, liability                    insurance coverage is becoming increasingly expensive and we cannot be certain                    that we will always be able to maintain or increase our insurance coverage at                    an affordable price or in sufficient amounts to protect against potential                    losses. A product liability claim, product recall or other claim, as well as                    any claim for uninsured liabilities or claim in excess of insured liabilities,                    may significantly harm our business and results of operations. Even if a                    product liability claim is not successful, adverse publicity and time and                    expense of defending such a claim may significantly interfere with our                    business.

**Our                    incorporation documents may delay or prevent the removal of our current                    management or a change of control that a stockholder may consider                    favorable.**

                We are currently authorized                    to issue 1,000,000 shares of preferred stock. Our Board of Directors is                    authorized, without any approval of the stockholders, to issue the preferred                    stock and determine the terms of the preferred stock. This provision allows the                    board of directors to affect the rights of stockholders, since the board of                    directors can make it more difficult for common stockholders to replace members                    of the board. Because the board of directors is responsible for appointing the                    members of our management, these provisions could in turn affect any attempt to                    replace current management by the common stockholders. Furthermore, the                    existence of authorized shares of preferred stock might have the effect of                    discouraging any attempt by a person, through the acquisition of a substantial                    number of shares of common stock, to acquire control of our company.                    Accordingly, the accomplishment of a tender offer may be more difficult. This                    may be beneficial to management in a hostile tender offer, but have an adverse                    impact on stockholders who may want to participate in the tender offer or                    inhibit a stockholder’s ability to receive an acquisition premium for his                    or her shares.

**Events with respect to                    our share capital could cause the price of our common stock to                    decline.**

                Sales of substantial                    amounts of our common stock in the open market, or the availability of such                    shares for sale, could adversely affect the price of our common stock. We had                    46,280,880 shares of common stock outstanding as of July 31, 2007. The                    following securities that may be exercised into shares of our common stock were                    issued and outstanding as of July 31, 2007: |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

|  | • | Options. Stock options                        to purchase 4,867,039 shares of our common stock at a weighted average                        exercise price of approximately $2.85 per share. |
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|  |        |                                                                                                                                                                                         |
|  | • | Warrants. Warrants to                        purchase 16,070,748 shares of our common stock at a weighted average                        exercise price of approximately $2.00 per share.    |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|                 The shares of our common                    stock that may be issued under the options and warrants are currently                    registered with the SEC or are eligible for sale without any volume limitations                    pursuant to Rule 144(k) under the Securities Act.

**The                    ability of our****stockholders to recover against Armus Harrison & Co.,                    or AHC, may be limited because we have not been able to obtain the reissued                    reports of AHC with respect to the financial statements included in our Form                    10-K, nor have we been able to obtain AHC’s consent to the use of such                    report herein.**

                Section 18 of the                    Securities Exchange Act of 1934 (the “Exchange Act”) provides that                    any person acquiring or selling a security in reliance upon statements set                    forth in a Form 10-K may assert a claim against every accountant who has with                    its consent been named as having prepared or certified any part of the Form                    10-K, or as having prepared or certified any report or valuation that is used                    in connection with the Form 10-K, if that part of the Form |

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| 10-K at                    the time it is filed contains a false or misleading statement of a material                    fact, or omits a material fact required to be stated therein or necessary to                    make the statements therein not misleading (unless it is proved that at the                    time of such acquisition such acquiring person knew of such untruth or                    omission).

                In June 1996, AHC dissolved                    and ceased all operations. Therefore, we have not been able to obtain the                    reissued reports of AHC with respect to the financial statements included in                    the Form 10-K for the fiscal year ended July 31, 2007 nor have we been able to                    obtain AHC’s consent to the use of such report herein. As a result, in                    the event any persons seek to assert a claim against AHC under Section 18 of                    the Exchange Act for any untrue statement of a material fact contained in these                    financial statements or any omissions to state a material fact required to be                    stated therein, such persons will be barred. Accordingly, you may be unable to                    assert a claim against AHC under Section 18 of the Exchange Act for any                    purchases of the Company’s Common Stock made in reliance upon statements                    set forth in the Form 10-K for the fiscal year ended July 31, 2007. In                    addition, the ability of AHC to satisfy any claims properly brought against it                    may be limited as a practical matter due to AHC’s dissolution in                    1996.

**ITEM                    2. PROPERTIES.**

                In March 2007, we entered                    into a lease for 15,410 square feet in an industrial office building located in                    Somerset, New Jersey to replace our facility in Bloomfield, NJ as our principal                    office. The lease term commenced on July 3, 2007 and is scheduled to terminate                    on November 30, 2017. The average monthly rental obligation over the full term                    of the lease is approximately $25,000. We believe that the facility is                    sufficient for our needs in the foreseeable future.

**ITEM                    3. LEGAL PROCEEDINGS.**

                                   None.

**ITEM 4.                     SUBMISSION OF MATTERS TO A VOTE OF SECURITY                    HOLDERS.**

                                   None.

**EXECUTIVE OFFICERS OF                    ALFACELL**

                The following persons were                    executive officers of Alfacell as of October 10, 2007:

                *Kuslima Shogen, 62*,                    has served as our Chief Executive Officer since September 1986, as Chairman of                    the Board since August 1996 and as a Director since our inception in 1981. She                    also served as our Acting Chief Financial Officer from June 23, 1999 until                    March 2004, as our Chief Financial Officer from September 1986 through July                    1994 and as our President from September 1986 through July 1996. Ms. Shogen                    formed the company in 1981 to pursue research that she had initiated while a                    biology student in the University Honors Program at Fairleigh Dickinson                    University. Prior to our founding, from 1976 to 1981 she was founder and                    president of a biomedical research consortium specializing in Good Laboratory                    Practices and animal toxicology. During that time, she also served as a                    consultant for the Lever Brothers Research Group. She earned a B.S. degree in                    1974, M.S. in 1976 and also completed graduate studies in 1978 in embryology                    from Fairleigh Dickinson University.

                *Lawrence A. Kenyon,                    42,* joined us in January 2007, as Executive Vice President, Chief Financial                    Officer and Corporate Secretary. Previously, from September 2000 thru August                    2006, Mr. Kenyon served as Executive Vice President, Chief Financial Officer                    and Corporate Secretary with NeoPharm Inc., a publicly traded biopharmaceutical                    company. From October 1999 until September 2000, he was Senior Vice President                    of the Gabelli Mathers Fund, a regulated investment company, and from March                    1988 until October 1999 he held a variety of positions with Mathers and Company                    Inc. an investment management firm, most recently serving as Chief Financial                    Officer for both Mathers and Company Inc. and Mathers Fund Inc. Mr. Kenyon                    began his career with Arthur Andersen & Co. in 1987 after receiving a                    bachelor’s degree in accounting from the University of Wisconsin --                    Whitewater. |
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| **PART                    II** |
|--------------------------------|
|                           |

| **ITEM                5.** | **MARKET FOR                        REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER                        PURCHASES OF EQUITY SECURITIES.** |
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|                 Our                    common stock is listed on the The Nasdaq Capital Market, or Nasdaq, and has                    traded under the symbol “ACEL” since September 9, 2004. Prior to                    September 9, 2004, our common stock was traded on the OTC Bulletin Board                    (OTCBB). As of October 10, 2007, there were approximately 995 stockholders of                    record of our common stock.

                The                    following table sets forth the range of high and low sale prices of our common                    stock for the two fiscal years ended July 31, 2007 and 2006. The prices were                    obtained from Nasdaq and are believed to be representative of inter-dealer                    quotations, without retail mark-up, mark-down or commission, and may not                    necessarily represent actual transactions. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

|   |                                                             | High   |   | Low    |   |   |
|--------|-------------------------------------------------------------|--------|--------|--------|--------|--------|
||
|   | Year Ended July 31,                2007:                    |   |        |   |   |        |   |   |
|   |      First                Quarter  | $      | 2.09   |   | $      | 1.17   |   |   |
|   |      Second                Quarter |   | 1.95   |   |   | 0.73   |   |   |
|   |      Third                Quarter  |   | 3.74   |   |   | 1.05   |   |   |
|   |      Fourth                Quarter |   | 2.99   |   |   | 2.05   |   |   |
|   |                                                        |   |   |   |   |   |   |   |
|   | Year Ended                July 31, 2006:                    |   |   |   |   |   |   |   |
|   |      First                Quarter  |   | 2.60   |   |   | 1.54   |   |   |
|   |      Second                Quarter |   | 4.99   |   |   | 1.25   |   |   |
|   |      Third                Quarter  |   | 4.49   |   |   | 2.95   |   |   |
|   |      Fourth                Quarter |   | 3.94   |   |   | 1.90   |   |   |

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| **STOCKHOLDER RETURN                        PERFORMANCE GRAPH**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| The following graph                        summarizes the total cumulative return experienced by Alfacell’s                        stockholders during the five-year period ended July 31, 2007, compared to                        the Nasdaq Composite Index and the Nasdaq Pharmaceutical Index. The changes                        for the periods shown in the graph and table are based on the assumption                        that $100.00 was invested in Alfacell Corporation Common Stock and in each                        index below on July 31, 2002 and that all cash dividends were reinvested.                        The table does not forecast performance of our common stock. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| **COMPARISON OF 5 YEAR                CUMULATIVE TOTAL RETURN***                Among Alfacell Corporation, The NASDAQ Composite Index                And The NASDAQ Pharmaceutical Index                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

**$2,500**

**$2,000**

**$1,500**

**$1,000**

**$500**

**$0**

**Alfacell            Corporation**

**NASDAQ            Composite**

**NASDAQ            Pharmaceutical**

**7/02**

**7/03**

**7/04**

**7/05**

**7/06**

**7/07**

|   |
|--------|

|                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * $100 invested on                        7/31/02 in stock or index-including reinvestment of dividends.                        Fis cal year ending July 31. |

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| **Dividends             **

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

**Equity Compensation                    Plan Information**

         The information called for                    by Item 5(a) relating to compensation plan information is incorporated                    herein by reference to Item 12—Security Ownership of Certain Beneficial                    Owners and Management and Related Stock Matters of this Form 10-K.

**Recent Sales of                    Unregistered Securities**

**               **                    None.

**Issuer Purchases of                    Equity Securities**

                We                    did not repurchase any shares of our common stock during the fiscal year                    2007.

**ITEM 6.                    SELECTED FINANCIAL DATA.**

                Set                    forth below is the selected financial data for our company for the five fiscal                    years ended July 31, 2007: |
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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|                                                                  | Year Ended                July 31, |                      |
|-----------------------------------------------------------------------|------------------------------------|---------------------------|
||
||
||
| Investment                income                                      | $                                  | 370,650                   |   | $ | 107,386 |   | $ | 141,708 |   | $ | 42,113 |   | $ | 9,877 |   |
| Other income                (loss)                                    |                               | —                   |   |   | — |   |   | 9,836 |   |   | — |   |   | 30,000 |   |
| Net loss                (1)                                           |                               | (8,755,144                | ) |   | (7,810,175 | ) |   | (6,461,920 | ) |   | (5,070,307 | ) |   | (2,411,532 | ) |
| Dividends                                                             |                               | None                      |   |   | None |   |   | None |   |   | None |   |   | None |   |
| Total                assets                                           |                               | 7,                820,499 |   |   | 11,826,428 |   |   | 4,901,624 |   |   | 10,421,063 |   |   | 495,322 |   |
| Long-term                debt                                         |                               | —                   |   |   | — |   |   | — |   |   | — |   |   | 242,516 |   |
| Total                equity                (deficiency)               |                               | 5,778,480                 |   |   | 9,233,003 |   |   | 3,221,670 |   |   | 8,881,647 |   |   | (2,491,681 | ) |
| Loss per basic                and diluted                common share | $                                  | (0.19                     | ) | $ | (0.21 | ) | $ | (0.18 | ) | $ | (0.17 | ) | $ | (0.10 | ) |
|                                                                  |                                    |                      |  |   |  |   |  |   |  |   |
|                                                                  |                               |                      |   |   |   |   |   |   |   |   |

|  | (1) | Included in the net                        loss of $8,755,144, $7,810,175, $6,461,920 for fiscal years ended July 31,                        2007, 2006 and 2005, respectively, are tax benefits of $510,467, $317,382,                        $287,975, respectively, related to the sale of certain state tax operating                        loss carryforwards. |
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|        |
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|   |

| **ITEM 7.                      ** | **MANAGEMENT’S                        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF                        OPERATIONS.** |
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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    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|           *The following discussion                    of our financial condition and results of operations should be read together                    with our consolidated financial statements and notes to those statements                    included in Item 8 of Part II of this Form 10-K.*

**Overview**

                We are a biopharmaceutical                    company engaged in the research, development, and commercialization of drugs                    for life threatening-diseases, such as malignant mesothelioma and other                    cancers. Our corporate strategy is to become a leader in the discovery,                    development, and commercialization of novel ribonuclease (RNase) therapeutics                    for cancer and other life-threatening diseases.

                We                    are a development stage company as defined in the Financial Accounting                    Standards Board’s Statement of Financial Accounting Standards No. 7,                    “Accounting and Reporting by Development Stage Enterprises.” We are                    devoting substantially all of our present efforts to establishing a new                    business and developing new drug products. Our planned principal operations of                    marketing and/or licensing new drugs have not commenced and, accordingly, we                    have not derived any significant revenue from these operations.

                Since                    our inception in 1981, we have devoted the vast majority of our resources to                    the research and development of ONCONASE®, our lead drug                    candidate, as well as other related drug candidates. In recent years we have                    focused our resources towards the completion of the clinical program for                    ONCONASE® in patients suffering from unresectable, or                    inoperable, malignant mesothelioma (“UMM”). We have incurred losses                    since inception and we have not received Food and Drug Administration                    (“FDA”) approval of any of our drug candidates. We expect to                    continue to incur losses for the foreseeable future as we continue our research                    and development activities, which include the sponsorship of human clinical                    trials for our drug candidates. Until we are able to consistently generate                    revenue through the sale of drug or non-drug products, we anticipate that we                    will be required to fund the development of our pre-clinical compounds and drug                    product candidates primarily by other means, including, but not limited to,                    licensing the development or marketing rights to some of our drug candidates to                    third parties, collaborating with third parties to develop our drug candidates,                    or selling Company issued securities.

                 During                    our fiscal year ended July 31, 2007, management’s efforts were primarily                    focused on our confirmatory continued preparations for a potential                    ONCONASE® New Drug Application (NDA) to be submitted to the FDA                    upon completion of our confirmatory Phase IIIb clinical trial which is expected                    to occur prior to the end of 2007, and our submission of various components of                    the NDA to the FDA as they are completed, which began in February 2007. Changes                    to our executive team in 2007 included the appointment of Lawrence A. Kenyon as                    our Executive Vice President, Chief Financial Officer and Corporate Secretary                    in January. Mr. Kenyon replaced Mr. Robert D. Love who served as Chief                    Financial Officer from May 2005 until his retirement in January                    2007.

                Additionally, in 2007                    management spent significant time attending to commercial matters primarily                    associated with the continued development of relationships with other                    biotechnology and pharmaceutical companies that have expressed an interest in                    assisting us in the potential marketing and distribution of                    ONCONASE® in the event that our clinical trial results lead to                    approval of our NDA by the FDA, and making preparations for the planned Phase                    II clinical trials of ONCONASE® in patients suffering from                    cancers other than UMM which are currently anticipated to begin later in                    2007.

                During fiscal year 2007 we                    entered into our first two commercial agreements for ONCONASE®.                    In December 2006 we entered into a Distribution and Marketing Agreement with                    GENESIS Pharma S.A. (GENESIS), pursuant to which GENESIS was granted exclusive                    rights for the marketing, sales, and distribution of ONCONASE®                     for use in oncology in Greece, Cyprus, Bulgaria, Romania, Slovenia,                    Croatia, Serbia, and the Former Yugoslavian Republic of Macedonia,                    that entitles us to receive milestone payments based on the achievement of                    certain regulatory approvals and certain sales goals. In addition, we will                    receive a royalty on net sales as well as a transfer price for product sold by                    us to GENESIS. In July 2007, we entered into a Distribution and Marketing                    Agreement with USP |

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| Pharma                    Spolka Z.O.O., an affiliate of U.S. Pharmacia, for the exclusive marketing,                    sales, and distribution rights for use of ONCONASE®  in                    oncology in Poland, Belarus, Ukraine, Estonia, Latvia, and Lithuania. Under the                    terms of this agreement, we received a total of $1.5 million, which includes an                    upfront payment of $100,000 and a $1.4 million equity investment in our                    company. We will also be entitled to receive milestone payments based on the                    achievement of certain regulatory approvals and certain sales goals, and a                    royalty on net sales as well as a transfer price for product sold by us to US                    Pharmacia.

                In                    January 2007, ONCONASE® was granted orphan drug designation by                    the FDA. Orphan drug designation permits us to be awarded seven years of                    marketing exclusivity for ONCONASE® for the malignant                    mesothelioma indication upon FDA approval for this indication. Other benefits                    for which we are eligible with the orphan drug designation include protocol                    assistance by the FDA in the preparation of a dossier that will meet regulatory                    requirements, tax credits, research and development grant funding, and reduced                    filing fees for the marketing application. Previously, our                    ONCONASE® development program received Fast Track Designation                    from the FDA for the treatment of malignant mesothelioma patients. We continue                    to have discussions with the FDA to establish mutually agreed upon parameters                    for the NDA to obtain marketing approval for ONCONASE®, assuming                    the Phase IIIb clinical trial for the treatment of malignant mesothelioma                    yields favorable results.

                We                    also have previously received an Orphan Medicinal Product Designation for                    ONCONASE® from the European Agency for the Evaluation of                    Medicinal Products, or EMEA, as well as Orphan Drug Designation for                    ONCONASE® for malignant mesothelioma in Australia from the                    Therapeutics Goods Administration, or TGA. Orphan drug designation from these                    agencies provides benefits such as marketing exclusivity, reduced filing fees                    and regulatory guidance.

                Almost all of the $60.8                    million of research and development expenses we have incurred since our                    inception has gone toward the development of ONCONASE® and                    related drug candidates. For the fiscal years 2007, 2006 and 2005, our research                    and development expenses were approximately $5.5 million, $5.2 million, and                    $5.1 million, respectively, almost all of which were used for the development                    of ONCONASE® and related drug candidates.                    ONCONASE® is currently in an international, centrally                    randomized, confirmatory Phase IIIb registration trial. The primary endpoint of                    the trial is a statistically significant improvement in overall survival. The                    first interim analysis results based on one third of the required events                    (deaths) of the study, which evaluates the efficacy, safety and tolerability of                    the combination of ONCONASE® + doxorubicin as compared to                    doxorubicin alone, have been reported. The median survival time (MST)                    demonstrated a trend favoring the ONCONASE® + doxorubicin                    treatment group (12 months) over the doxorubicin group (10 months). A two month                    improvement in median survival had previously been observed in the Treatment                    Target Group (n=104) analysis from a previously completed Phase III single                    agent study that favored ONCONASE® over doxorubicin treatments                    (11.6 months vs. 9.6 months). The Company’s Phase IIIb confirmatory                    registration trial was designed based on the conclusions drawn from the TTG                    analysis but powered to reach a statistically significant difference in overall                    survival between the ONCONASE® + doxorubicin treatment group and                    the doxorubicin treatment group at 316 evaluable events. The interim data,                    which represented only one third of the planned number of evaluable events, was                    sufficient for us to continue the trial as planned, but was not sufficient for                    supporting our filing for marketing approvals at that time. At this time, we                    cannot predict with certainty when a sufficient number of deaths will occur to                    achieve statistical significance. The timing of when we will be able to file                    for marketing registrations in the US, EU and Australia is data driven.                    Therefore, we cannot predict with certainty what our total cost associated with                    obtaining marketing approvals will be, or when and if such approvals will be                    granted, or when actual sales will occur. We are currently submitting the                    various components of the NDA for ONCONASE® as they are                    completed, which began in February 2007 with our submission of the Chemistry,                    Manufacturing and Controls (CMC) section, in anticipation of potentially                    achieving favorable results from the Phase IIIb trial. We have reached 295                    evaluable events in the Phase IIIb clinical trial, and currently estimate that                    we will reach 316 evaluable events, the point at which we can begin our                    statistical analysis of the clinical trial data, by the end of 2007. Enrollment                    in the trial was completed in September 2007.

                 We fund the research                    and development of our products primarily from cash receipts resulting from the                    sale of our equity securities and convertible debentures in registered                    offerings and private placements. Additionally, we |
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| have                    raised capital through other debt financings, the sale of our tax benefits and                    research products, interest income and financing received from our Chief                    Executive Officer. During the fiscal year ended July 31, 2007, we received net                    proceeds of approximately $2.9 million as a result of private placements of                    common stock and from exercises of stock options and warrants. These proceeds                    will be used primarily to complete our confirmatory Phase IIIb clinical trial                    and support our anticipated filing of an NDA of ONCONASE® for                    malignant mesothelioma, assuming satisfactory results from the ongoing clinical                    trial. We have incurred losses since inception and, to date, we have generated                    only small amounts of capital from marketing and distribution agreements for                    ONCONASE®.

**Results of                    Operations**

*Fiscal Year Ended July                    31, 2007, as compared to Fiscal Year Ended July 31, 2006*

                We are a development stage                    company as defined in the Financial Accounting Standards Board’s                    Statement of Financial Accounting Standards No. 7. We are devoting                    substantially all our present efforts to establishing a new business and                    developing new drug products. Our planned principal operations of marketing of                    new drugs have not commenced and, accordingly, we have not derived any                    significant revenue from these operations. We focus most of our productive and                    financial resources on the development of ONCONASE®. We did not                    record any revenue in fiscal years 2007 or 2006.

                Research and development                    expense for fiscal year 2007 was $5.5 million compared to $5.2 million for                    fiscal year 2006, an increase of approximately $0.3 million, or 5.7%. The                    increase primarily resulted from increased compensation expense related to                    employee salaries and benefits of approximately $0.5 million mostly due to                    increased stock-based compensation expenses in 2007, in addition to an increase                    of approximately $0.2 million in expenses incurred from our ongoing Phase I/II                    ONCONASE® clinical trials that initiated in June 2005 and                    November 2006. These increased expenses were offset by decreased expenses of                    approximately $0.4 million related to preparations for the completion of our                    Phase IIIb ONCONASE® clinical trial and the initiation of the                    related submissions of various sections of our rolling NDA to the                    FDA.

                General and administrative                    expense for fiscal year 2007 was approximately $4.1 million compared to                    approximately $3.0 million for fiscal year 2006, an increase of approximately                    $1.1 million, or 35.7%. This increase was primarily due to increased                    compensation expense associated with employee salaries and benefits of                    approximately $0.7 million related mostly to increased stock-based compensation                    expenses, as well as increased investor relations expenses of approximately                    $0.2 million resulting from our use of an investor relations firm beginning in                    fiscal year 2007. Other general and administrative expenses, including legal,                    audit, consulting, travel and miscellaneous office expenses increased by a                    total of approximately $0.1 million in 2007.

                Investment income for                    fiscal year 2007 was $0.4 million compared to $0.1 million for fiscal year                    2006, an increase of $0.3 million. The increase was due to higher balances of                    cash and cash equivalents on hand during the fiscal year 2007 as compared to                    the same period in 2006.

                New Jersey has enacted                    legislation permitting certain corporations located in New Jersey to sell a                    portion of its state tax loss carryforwards and state research and development                    credits in order to obtain tax benefits. For the state fiscal year 2007 (July                    1, 2006 to June 30, 2007), we had approximately $2.3 million of total available                    state tax benefits that qualified for sale, of which New Jersey permitted us to                    sell approximately $0.6 million. In December 2006, we received approximately                    $0.5 million from the sale of these state tax benefits, which was recognized as                    state tax benefit in the fiscal year ended July 31, 2007.

                For the state fiscal year                    2006 (July 1, 2005 to June 30, 2006), we had approximately $1.9 million of                    total available state tax benefits that were saleable; of which New Jersey                    permitted us to sell approximately $0.4 million. In December 2005, we received                    approximately $0.3 million from the sale of these state tax benefits, which we                    recognized as state tax benefits for the fiscal year ended July 31,                    2006. |
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|                 If still available under                    New Jersey law, we will attempt to sell the remaining $1.8 million of our state                    tax benefits between July 1, 2007 and June 30, 2008 (state fiscal year 2008).                    This amount, which is a carryover of our remaining state tax benefits from                    state fiscal year 2007 and earlier, may increase if we incur additional state                    tax benefits during state fiscal year 2008. We cannot estimate, however, what                    percentage of our saleable state tax benefits New Jersey will permit us to                    sell, how much money we will receive in connection with the sale, if we will be                    able to find a buyer for our state tax benefits or if such funds will be                    available in a timely manner.

                We have incurred net losses                    during each year since our inception. The net loss for fiscal year 2007 was                    approximately $8.8 million as compared to $7.8 million in fiscal year 2006. The                    increased net loss was primarily related to the increased general and                    administrative expenses in 2007. The cumulative loss from the date of                    inception, August 24, 1981, to July 31, 2007 amounted to $92.1 million. Such                    losses are attributable to the fact that we are still in the development stage                    and, accordingly, have not derived sufficient revenues from operations to                    offset the development stage expenses.

*Fiscal Year Ended July                    31, 2006, as compared to Fiscal Year Ended July 31, 2005*

                We did not record any                    revenue in fiscal years 2006 and 2005.

                Research and development                    expense for fiscal year 2006 was approximately $5.2 million compared to                    approximately $5.1 million for fiscal year 2005, an increase of approximately                    $0.1 million, or 3%. The increase was primarily due to increased compensation                    expense of approximately $0.5 which is primarily related to share-based                    compensation. This increase was offset by a decrease in patent expenses of                    approximately $0.2 million and completion of key toxicology requirements and                    key requirements for chemistry, manufacturing and controls for our anticipated                    ONCONASE® NDA resulting in a decrease in expenses of                    approximately $0.1 million, and a decrease in pre-clinical sponsored research                    and development expenses of approximately $0.1 million.

                General and administrative                    expense for fiscal year 2006 was approximately $3.0 million compared to                    approximately $1.8 million for fiscal year 2005, an increase of approximately                    $1.2 million, or 70%. This increase was primarily due to an increase in                    compensation expense of approximately $0.7 million which is primarily related                    to share-based compensation. The increase in general and administrative expense                    also resulted from increased legal fees of approximately $0.3 million and                    increased compensation expense for consultants and board of director fees of                    approximately $0.3 million; offset by decreases in other general and                    administrative expenses of approximately $0.1 million.

                Investment income was                    approximately $0.1 million for each of the fiscal years 2006 and                    2005.

                New Jersey has enacted                    legislation permitting certain corporations located in New Jersey to sell a                    portion of its state tax loss carryforwards and state research and development                    credits in order to obtain tax benefits. For the state fiscal year 2006 (July                    1, 2005 to June 30, 2006), we had approximately $1.9 million of total available                    state tax benefits that were saleable; of which New Jersey permitted us to sell                    approximately $0.4 million. In December 2005, we received approximately $0.3                    million from the sale of these state tax benefits, which we recognized as state                    tax benefits for the fiscal year ended July 31, 2006.

                For the state fiscal year                    2005 (July 1, 2004 to June 30, 2005), we had approximately $1.3 million total                    available state tax benefits that were saleable; of which New Jersey permitted                    us to sell approximately $0.3 million. In December 2004, we received                    approximately $0.3 million from the sale of these state tax benefits, which we                    recognized as state tax benefits for the fiscal year ended July 31,                    2005.

                The net loss for fiscal                    year 2006 was $7.8 million as compared to $6.5 million in fiscal year                    2005. |
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| **Liquidity and Capital                    Resources**

                We have reported cumulative                    net losses of approximately $23 million for the three most recent fiscal years                    ended July 31, 2007. The net losses from date of inception, August 24, 1981, to                    July 31, 2007 amounts to approximately $92 million.

                We have financed our                    operations since inception primarily through the sale of our equity securities                    and convertible debentures in registered offerings and private placements.                    Additionally, we have raised capital through other debt financings, the sale of                    our state tax benefits and research products, and investment income and                    financing received from our Chief Executive Officer. As of July 31, 2007, we                    had approximately $7.0 million in cash and cash equivalents and no debt.                    We currently believe that our cash and cash equivalents on hand at July 31,                    2007 can support our activities into the first quarter of our fiscal year 2009                    based on our expected level of expenditures, which assumes timely and                    successful completion of our Phase IIIb clinical trial, and submission and                    approval of the related NDA.

                The primary use of cash                    over the next 12-15 months will be to fund our regulatory and commercial                    efforts for ONCONASE® and our clinical and pre-clinical research                    and development efforts. The most significant expenses will be incurred in                    relation to completing the work necessary for our rolling NDA submission and                    completion of the ONCONASE® Phase IIIb clinical trial.                    Additional expenses are also expected to be incurred as we continue to move our                    drug product candidates towards the next phase of clinical and pre-clinical                    development.

                We may seek to satisfy                    future funding requirements through public or private offerings of securities                    or with collaborative or other arrangements with corporate partners. Additional                    financing may not be available when needed or on terms acceptable to us. If                    adequate financing is not available, we may be required to delay, scale back,                    or eliminate certain of our research and development programs, relinquish                    rights to certain of our technologies, drugs or products, or license third                    parties to commercialize products or technologies that we would otherwise seek                    to develop ourselves.

**Off-Balance Sheet                    Arrangements**

                We have no debt, no capital                    leases, no exposure to off-balance sheet arrangements, no special purpose                    entities, nor activities that include non-exchange-traded contracts accounted                    for at fair value as of July 31, 2007.

**Contractual Obligations                    and Commercial Commitments**

                Our major outstanding                    contractual obligations relate to our building and equipment operating leases.                    During the fiscal year ended July 31, 2007, we entered into a building and                    equipment operating leases, which obligates us to pay an average of $25,393 per                    month for the building and $1,866 per month for the equipment for ten and five                    years, respectively. Below is a table that presents our contractual obligations                    and commercial commitments as of July 31, 2007: |
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|                                                                                     | Payments Due                by Fiscal Year |      |
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||
||
||
| Building                lease                                                            | $                                          | 3,163,410 |   | $ | 137,280 |   | $ | 275,445 |   | $ | 302,036 |   | $ | 317,446 |   | $ | 317,446 |   | $ | 1,813,757 |   |
|                                                                                |
| Equipment                lease                                                           |                                       | 111,937   |   |   | 25,921 |   |   | 25,921 |   |   | 23,397 |   |   | 18,349 |   |   | 18,349 |   |   | — |   |
|                                                                                     |                                            |      |  |   |  |   |  |   |  |   |  |   |  |   |
| Total                contractual cash                    obligations | $                                          | 3,275,347 |   | $ | 163,201 |   | $ | 301,366 |   | $ | 325,433 |   | $ | 335,795 |   | $ | 335,795 |   | $ | 1,813,757 |   |
|                                                                                     |                                            |      |  |   |  |   |  |   |  |   |  |   |  |   |

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| **Critical Accounting                    Policies**

                In December 2001, the SEC                    requested that all registrants discuss their most “critical accounting                    policies” in management’s discussion and analysis of financial                    condition and results of operations. The SEC indicated that a “critical                    accounting policy” is one which is both important to the portrayal of the                    company’s financial condition and results and requires management’s                    most difficult, subjective or complex judgments, often as a result of the need                    to make estimates about the effect of matters that are inherently uncertain.                    The accounting policies set forth below have been considered critical because                    changes to certain judgments, estimates and assumptions could significantly                    affect our financial statements.

*Use                    of Estimates*

                The                    preparation of financial statements in conformity with U.S. generally accepted                    accounting principles requires management to make estimates and assumptions                    that affect the reported amounts of assets and liabilities and disclosure of                    contingent assets and liabilities at the date of the financial statements and                    the reported amounts of revenue and expense during the reporting period. Actual                    results could differ from those estimates.

*Cash                    Equivalents*

                We                    consider all highly liquid investments purchased with an original maturity of                    three months or less to be cash equivalents. The carrying value of these                    investments approximates their fair market value due to their short maturity                    and liquidity.

*Property and                    Equipment*

                Property                    and equipment is recorded at cost and is depreciated using the straight-line                    method over the estimated useful lives of the respective assets. Maintenance                    and repairs that do not extend the life of assets are charged to expense when                    incurred. 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 in which the                    transaction takes place.

                Long-lived                    assets are reviewed for impairment whenever events or changes in circumstances                    indicate the carrying amount of an asset may not be recoverable. Recoverability                    of assets to be held and used is measured by a comparison of the carrying                    amount of an asset to estimated undiscounted cash flows expected to be                    generated by the asset. If the carrying amount exceeds its estimated future                    cash flows, an impairment charge is recognized by the amount by which the                    carrying amount exceeds the fair value of the asset.

*Income                    Taxes*

                Income                    taxes are accounted for under the provisions of Statement of Financial                    Accounting Standards (“SFAS”) No. 109, “Accounting for Income                    Taxes”. Under this method, deferred tax assets and liabilities are                    recognized for the future tax consequences attributable to differences between                    the financial statement carrying amounts of existing assets and liabilities and                    their respective tax bases and operating loss and tax credit carryforwards.                    Deferred tax assets and liabilities are measured using enacted tax rates                    expected to apply to taxable income in the years in which those temporary                    differences are expected to be recovered or settled. The effect on deferred tax                    assets and liabilities of a change in tax rates is recognized in income in the                    period that includes the enactment date. Management provides valuation                    allowances against the deferred tax assets for amounts which are not considered                    “more likely than not” to be realized.

*Revenue                    Recognition*

                We                    recognize revenue in accordance with Staff Accounting Bulletin                    (“SAB”) No. 104, “Revenue Recognition,” issued by the                    staff of the SEC. Under SAB No. 104, revenue is recognized when persuasive                    evidence of an arrangement exists, delivery has occurred and/or services have                    been rendered, the sales price is fixed or determinable, and collectibility is                    reasonably assured. |
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|                 We                    enter into marketing and distribution agreements, which contain multiple                    deliverables. Under the provisions of Emerging Issues Task Force                    (“EITF”) No. 00-21, “Accounting for Revenue Arrangements with                    Multiple Deliverables” we evaluate whether these deliverables constitute                    separate units of accounting to which total arrangement consideration is                    allocated. A deliverable qualifies as a separate unit of accounting when the                    item delivered to the customer has standalone value, there is objective and                    reliable evidence of fair value of items that have not been delivered to the                    customer, and, if there is a general right of return for the items delivered to                    the customer, delivery or performance of the undelivered items is considered                    probable and substantially in the control of the company. Arrangement                    consideration is allocated to units of accounting on a relative fair-value                    basis or the residual method if the company is unable to determine the fair                    value of all deliverables in the arrangement. Consideration allocated to a unit                    of accounting is limited to the amount that is not contingent upon future                    performance by the company. Upon determination of separate units of accounting                    and allocated consideration, the general criteria for revenue recognition are                    applied to each unit of accounting.

*Research and                    Development*

                Research                    and development costs are expensed as incurred. These costs include, among                    other things, consulting fees and costs related to the conduct of human                    clinical trials. We also allocate indirect costs, consisting primarily of                    operational costs for administering research and development activities, to                    research and development expenses.

*Share-Based                    Compensation*

                In December 2004, the                    Financial Accounting Standards Board issued SFAS No. 123(R) (revised 2004),                    “Share-Based Payment” (“SFAS 123(R)”), which amends                    SFAS 123. The new standard requires all share-based payments, including stock                    option grants to employees, to be recognized as an operating expense in the                    statement of operations. The expense is recognized over the requisite service                    period based on fair values measured on the date of grant. We adopted SFAS                    123(R) effective August 1, 2005 using the modified prospective method and,                    accordingly, prior period amounts have not been restated. Under the modified                    prospective method, the fair value of all new stock options issued after July                    31, 2005 and the unamortized fair value of unvested outstanding stock options                    at August 1, 2005 are recognized as expense as services are                    rendered.

*Leases*

                With                    respect to our operating leases, we apply the provisions of SFAS 13                    “Accounting for Leases” and FASB Technical Bulletin                    (“FTB”) 88-1 “Issues Relating to Accounting for                    Leases”, recognizing rent expense on a straight-line basis over the lease                    term due to escalating lease payments and landlord incentives.

*Contingencies*

                Liabilities                    for loss contingencies arising from claims, assessments, litigation, fines, and                    penalties and other sources are recorded when it is probable that a liability                    has been incurred and the amount of the liability can be reasonably estimated.                    Recoveries from other parties are recorded when realized.

*Fair                    Value of Financial Instruments*

                Financial instruments                    consist of cash, cash equivalents, accounts receivable, and accounts payable.                    The carrying value of these financial instruments is a reasonable estimate of                    fair value.

**Recently Issued                    Accounting Pronouncements**

                In June 2007, the Financial                    Accounting Standards Board (“FASB”) issued EITF Issue No. 07-03,                    “Accounting for Nonrefundable Advance Payments for Goods or Services to                    Be Used in Future Research and Development Activities” (“EITF                    07-03”). EITF 07-03 addresses the diversity that exists with |
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| respect                    to the accounting for the nonrefundable portion of a payment made by a research                    and development entity for future research and development activities. The EITF                    concluded that an entity must defer and capitalize nonrefundable advance                    payments made for research and development activities and expense these amounts                    as the related goods are delivered or the related services are performed. EITF                    07-03 will be effective for interim or annual reporting periods in fiscal years                    beginning after December 15, 2007. We are currently evaluating the                    impact that the adoption of EITF 07-03 will have, if any, on our financial                    statements.

                In February 2007, the FASB                    issued SFAS 159 “The Fair Value Option for Financial Assets and Financial                    Liabilities” (“SFAS 159”). SFAS 159 permits entities to                    choose to measure many financial instruments and certain other items at fair                    value that are not currently required to be measured at fair value. SFAS 159                    will be effective for our company on August 1, 2008. We are currently                    evaluating the impact of the adoption of SFAS 159 will have, if any, on our                    financial statements.

                In December 2006, the FASB                    issued a FASB Staff Position (“FSP”) EITF Issue No. 00-19-2                    “Accounting for Registration Payment Arrangements” (“FSP                    00-19-2”) which addresses an issuer’s accounting for registration                    payment arrangements. FSP 00-19-2 specifies that the contingent obligation to                    make future payments or otherwise transfer consideration under a registration                    payment arrangement, whether issued as a separate agreement or included as a                    provision of a financial instrument or other agreement, should be separately                    recognized and measured in accordance with FASB Statement No.5                    “Accounting for Contingencies.” The guidance in FSP 00-19-2 amends                    FASB Statements No. 133, “Accounting for Derivative Instruments and                    Hedging Activities”, and No.150, “Accounting for Certain Financial                    Instruments with Characteristics of both Liabilities and Equity”, and                    FASB Interpretation No.45, “Guarantor’s Accounting and Disclosure                    Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of                    Others” to include scope exceptions for registration payment                    arrangements. FSP 00-19-2 is effective immediately for registration payment                    arrangements and the financial instruments subject to those arrangements that                    are entered into or modified subsequent to the date of issue of FSP 00-19-2.                    For registration payment arrangements and financial instruments subject to                    those arrangements that were entered into prior to the issuance of FSP 00-19-2,                    this is effective for financial statements issued for fiscal years beginning                    after December 15, 2006, and interim periods within those fiscal years. We have                    analyzed the provisions of FSP 00-19-2 and determined that it will not have an                    effect on our financial statements.

                In September 2006, the FASB                    issued SFAS 157 “Fair Value Measurements” (“SFAS 157”).                    SFAS 157 defines fair value, establishes a framework for measuring fair value,                    and expands disclosures about fair value measurements. SFAS 157 does not                    require new fair value measurements. We are required to adopt SFAS 157 as of                    August 1, 2008, and are currently evaluating the impact that the adoption of                    SFAS 157 will have, if any, on our reported financial results.

                In September 2006, the                    Securities and Exchange Commission (“SEC”) issued Staff Accounting                    Bulletin No. 108 “Quantifying Misstatements in Financial                    Statements” (“SAB 108”). Under SAB 108, we are required to                    use a combination of the two previously-acceptable approaches for quantifying                    misstatements, and to adjust our financial statements if this combined approach                    results in a conclusion that an error is material. We adopted SAB 108 and                    determined that it did not have a material impact on our reported financial                    results.

                 In June 2006, the                    FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income                    Taxes - an Interpretation of FASB Statement No. 109” (“FIN                    48”). FIN 48 clarifies the accounting for uncertainty in income taxes                    recognized in a company’s financial statements in accordance with                    Statement No. 109, “Accounting for Income Taxes.” FIN 48 prescribes                    a recognition threshold and measurement attribute for the financial statement                    recognition and measurement of a tax position taken or expected to be taken in                    a company’s tax return. FIN 48 is effective for fiscal years beginning                    after December 15, 2006 and will, therefore, be effective for our fiscal                    quarter ending October 31, 2007, the first quarter of fiscal year ending July                    31, 2008. The adoption of FIN 48 is not expected to have a material impact on                    our reported financial results. |
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| **ITEM                    7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                    RISK.**

                As                    of July 31, 2007, we were exposed to market risks, primarily changes in U.S.                    interest rates. As of July 31, 2007, we held total cash and cash equivalents of                    approximately $7.0 million. All cash equivalents have a maturity less than                    90 days. Declines in interest rates over time would reduce our interest                    income from our investments. Based upon our balance of cash and cash                    equivalents as of July 31, 2007, a decrease in interest rates of 1.0% would                    cause a corresponding decrease in our annual interest income of approximately                    $70,000.

**ITEM                    8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY                    DATA.**

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

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

                There have been no changes                    in or disagreements with accountants on accounting or financial disclosures in                    the past two fiscal years.

                On December 1, 1993,                    certain stockholders of Armus Harrison & Co., or AHC, terminated their                    association with AHC, or the AHC termination, and AHC ceased performing                    accounting and auditing services, except for limited accounting services to be                    performed on our behalf. In June 1996, AHC dissolved and ceased all operations.                    The report of J.H. Cohn LLP with respect to our financial statements from                    inception to July 31, 2007 is based on the report of KPMG LLP from August 1,                    1992 to July 31, 2002 and of AHC for the period from inception to July 31,                    1992, although AHC has not consented to the use of such report herein and will                    not be available to perform any subsequent review procedures with respect to                    such report. Accordingly, investors will be barred from asserting claims                    against AHC under Section 18 of the Exchange Act on the basis of the use of                    such report in any Form 10-K into which such report is incorporated by                    reference. In addition, in the event any persons seek to assert a claim against                    AHC for false or misleading financial statements and disclosures in documents                    previously filed by us, such claim will be adversely affected and possibly                    barred. Furthermore, as a result of the lack of a consent from AHC to the use                    of its audit report herein, or to its incorporation by reference into a Form                    10-K, our officers and directors will be unable to rely on the authority of AHC                    as experts in auditing and accounting in the event any claim is brought against                    such persons under Section 18 of the Exchange Act based on alleged false and                    misleading Financial Statements and disclosures attributable to AHC. The                    discussion regarding certain effects of the AHC termination is not meant and                    should not be construed in any way as legal advice to any party and any                    potential purchaser should consult with his, her or its own counsel with                    respect to the effect of the AHC termination on a potential investment in our                    common stock or otherwise.

**ITEM                    9A. CONTROLS AND PROCEDURES.**

CONCLUSION REGARDING THE                    EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES

As of                    the end of the period covered by this annual report, we carried out an                    evaluation, under the supervision and with the participation of our management,                    including our Chief Executive Officer and Chief Financial Officer, of the                    effectiveness of the design and operation of our disclosure controls and                    procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)                    and 15d-15(e)). Based upon the foregoing evaluation, our Chief Executive                    Officer and Chief Financial Officer have concluded that our disclosure controls                    and procedures are effective to ensure that information required to be                    disclosed by us in the reports that we file or submit under the Exchange Act is                    recorded, processed, summarized and reported within the time periods specified                    in the rules and forms of the Securities and Exchange Commission.

MANAGEMENT’S REPORT                    ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our                    management is responsible for establishing and maintaining adequate internal                    control over financial reporting and for the assessment of the effectiveness of                    internal control over financial reporting. As defined by the                    Securities |
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|----|

| and                    Exchange Commission, internal control over financial reporting is a process                    designed by, or under the supervision of our principal executive and principal                    financial officers and effected by our Board of Directors, management and other                    personnel, to provide reasonable assurance regarding the reliability of                    financial reporting and the preparation of the financial statements in                    accordance with U.S. generally accepted accounting principles.

Our                    internal control over financial reporting includes those policies and                    procedures that (1) pertain to the maintenance of records that, in reasonable                    detail, accurately and fairly reflect our transactions and dispositions of our                    assets; (2) provide reasonable assurance that transactions are recorded as                    necessary to permit preparation of the financial statements in accordance with                    generally accepted accounting principles, and that our receipts and                    expenditures are being made only in accordance with authorizations of our                    management and directors; and (3) provide reasonable assurance regarding                    prevention or timely detection of unauthorized acquisition, use or disposition                    of our assets that could have a material effect on the financial                    statements.

Because                    of its inherent limitations, internal control over financial reporting may not                    prevent or detect misstatements. Also, projections of any evaluation of                    effectiveness to future periods are subject to the risk that controls may                    become inadequate because of changes in conditions, or that the degree of                    compliance with the policies or procedures may deteriorate.

In                    connection with the preparation of our annual financial statements, management                    has undertaken an assessment of the effectiveness of our internal control over                    financial reporting as of July 31, 2007, based on criteria established in                    Internal Control - Integrated Framework issued by the Committee of Sponsoring                    Organizations of the Treadway Commission, or the COSO Framework.                    Management’s assessment included an evaluation of the design of our                    internal control over financial reporting and testing of the operational                    effectiveness of those controls.

Based on                    this evaluation, management has concluded that our internal control over                    financial reporting was effective as of July 31, 2007, in that they ensure                    that information required to be disclosed by us in the reports that we file or                    submit under the Exchange Act is (1) recorded, processed, summarized and                    reported within the time periods specified in the Commission’s rules and                    forms, and (2) accumulated and communicated to our management, including                    our chief executive officer and chief financial officer, as appropriate to                    allow timely decisions regarding required disclosure.

J.H.                    Cohn LLP, the independent registered public accounting firm that audited our                    financial statements included elsewhere in our report on Form10-K, has issued                    their report on management’s assessment of and the effectiveness of                    internal control over financial reporting, a copy of which is included                    below.

CHANGES IN INTERNAL                    CONTROLS

There                    has been no change in the Company’s internal control over financial                    reporting during the quarter ended July 31, 2007 that has materially affected,                    or is reasonably likely to materially affect, the Company’s internal                    control over financial reporting subsequent to the date of the evaluation                    referred to above.

Management’s                    assessment of the effectiveness of the Company’s internal control over                    financial reporting as of July 31, 2007 has been audited by J.H. Cohn LLP, an                    independent registered public accounting firm, as stated in their report which                    is included herein.

REPORT                    OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors                    and Stockholders                    Alfacell Corporation

We have                    audited management’s assessment, included in the accompanying                    “Management’s Report on Internal Control Over Financial                    Reporting”, that Alfacell Corporation maintained effective internal                    control over financial reporting as of July 31, 2007, based on the *criteria                    established in Internal Control – Integrated Framework issued by the                    Committee of Sponsoring Organizations of the Treadway Commission (COSO).*                    Alfacell Corporation’s management |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 39 |
|----|

| is                    responsible for maintaining effective internal control over financial reporting                    and for its assessment of the effectiveness of internal control over financial                    reporting. Our responsibility is to express an opinion on management’s                    assessment and an opinion on the effectiveness of Alfacell Corporation’s                    internal control over financial reporting based on our audit.

We                    conducted our audit in accordance with the standards of the Public Company                    Accounting Oversight Board (United States). Those standards require that we                    plan and perform the audit to obtain reasonable assurance about whether                    effective internal control over financial reporting was maintained in all                    material respects. Our audit included obtaining an understanding of internal                    control over financial reporting, evaluating management’s assessment,                    testing and evaluating the design and operating effectiveness of internal                    control, and performing such other procedures as we consider necessary in the                    circumstances. We believe that our audit provides a reasonable basis for our                    opinion.

A                    company’s internal control over financial reporting is a process designed                    to provide reasonable assurance regarding the reliability of financial                    reporting and the preparation of financial statements for external purposes in                    accordance with accounting principles generally accepted in the United States                    of America. A company’s internal control over financial reporting                    includes those policies and procedures that (1) pertain to the maintenance of                    records that, in reasonable detail, accurately and fairly reflect the                    transactions and dispositions of the assets of the company; (2) provide                    reasonable assurance that transactions are recorded as necessary to permit                    preparation of financial statements in accordance with accounting principles                    generally accepted in the United States of America, and that receipts and                    expenditures of the company are being made only in accordance with                    authorizations of management and directors of the company; and (3) provide                    reasonable assurance regarding prevention or timely detection of unauthorized                    acquisition, use, or disposition of the company’s assets that could have                    a material effect on the financial statements.

Because                    of its inherent limitations, internal control over financial reporting may not                    prevent or detect misstatements. Also, projections of any evaluation of                    effectiveness to future periods are subject to the risk that controls may                    become inadequate because of changes in conditions, or that the degree of                    compliance with the policies or procedures may deteriorate.

In our                    opinion, management’s assessment that Alfacell Corporation maintained                    effective internal control over financial reporting as of July 31, 2007, is                    fairly stated, in all material respects, based on the *criteria established                    in Internal Control – Integrated Framework issued by the Committee of                    Sponsoring Organizations of the Treadway Commission (COSO).* Also in our                    opinion, Alfacell Corporation maintained, in all material respects, effective                    internal control over financial reporting as of July 31, 2007, based on                    criteria established in Internal Control – Integrated Framework issued by                    the Committee of Sponsoring Organizations of the Treadway Commission                    (COSO).

We have                    also audited, in accordance with the standards of the Public Company Accounting                    Oversight Board (United States), the 2007 balance sheet and related statements                    of operations, stockholders’ equity (deficiency) and cash flows of                    Alfacell Corporation and our report dated October 4, 2007 expressed an                    unqualified opinion on those financial statements. |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| /s/ J.H. Cohn LLP    |
|----------------------|
| Roseland, New Jersey |
| October 4, 2007      |

|                                                                                                                                                                    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ITEM                    9B. OTHER INFORMATION.**

                                   None. |

| 40 |
|----|

| **PART III**

                The                    information required by Item 10 –                    Directors and Executive Officers of the Registrant;                    Item 11 – Executive Compensation; Item 12                    – Security Ownership of Certain Beneficial Owners and Management and                    Related Stockholder Matters; Item 13 – Certain                    Relationships and Related Transactions and Item 14 –                    Principal Accounting Fees and Services is incorporated into Part III of this                    Annual Report on Form 10-K by reference to the Proxy Statement for the 2008                    Annual Meeting of Stockholders, which is to be filed within 120 days of the                    Company’s fiscal year ended July 31, 2007. |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| **ITEM                12.****    ** | **SECURITY                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER                MATTERS** |
|---------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 In addition to the                    materials to be incorporated into this Item 12 by reference to the Proxy                    Statement for the 2008 Annual Meeting of Stockholders, the following table                    provides additional information on the Company’s equity based                    compensation plans as of July 31, 2007: |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| Plan Category                                                                                      | Number                of securities to                be issued upon exercise                of outstanding options,                warrants and rights |      | Weighted-average                exercise price of                outstanding options,                warrants and rights |   | Number                of securities                remaining available for                future issuance under                equity compensation plans                (excluding securities                reflected in column (a)) |   |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
||
||
||
| Equity                compensation plans                approved bysecurity                holders |                                                                                                                                                    | 4,867,039 |                                                                                                                     | $      | 2.85                                                                                                                                                                                                                                  |   |   | 5,785,011 |   |
| Equity                compensation plans                not approved by security holders           |                                                                                                                                                    | 12,500    | (1)                                                                                                                      | $      | 3.10                                                                                                                                                                                                                                  |   |   | - 0                - |   |

|  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | (1)    | During the fiscal year                        ended July 31, 2005, we issued 12,500 warrants to a vendor in consideration                        for services to be rendered. 5,000 of these warrants vested immediately and                        have an exercise price of $2.50 per share and 7,500 warrants vested on the                        91st day from the grant date and have an exercise price of $3.50                        per share. These warrants will expire on April 25, 2008, 36 months from the                        date of grant. |

|                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------|
| **PART                    IV**

**ITEM                    15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.** |
|                                                                                                              |

| (a)(1) and (2) | The response to these                        portions of Item 15 is submitted as a separate section of this report                        commencing on page F-1. |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |
|--------|

| (a)(3)                         |   | Exhibits                (numbered in accordance with Item 601 of Regulation S-K).                                                                                                                                                                                     |
|--------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |   |                                                                                                                                                                                                                                                                  |   |   |
| **Exhibit                No.** |   | **Item                Title**                                                                                                                                                                                                                                         |   | **Filed Herewith or                Incorporated by Reference** |
|                                |   |                                                                                                                                                                                                                                                                       |   |  |
|                      |
| 3.1                            |   | Certificate of                Incorporation, dated June 12, 1981 (incorporated by reference to Exhibit 3.1 to the                Company’s Registration Statement on Form S-1, File No. 333-112865, filed on                February 17, 2004)                  |   | * |
|                           |   |                                                                                                                                                                                                                                                                  |   |   |
| 3.2                            |   | Amendment to Certificate of                Incorporation, dated February 18, 1994 (incorporated by reference to Exhibit 3.2 to                the Company’s Registration Statement on Form S-1, File No. 333-112865, filed                on February 17, 2004) |   | * |

| 41 |
|----|

| **Exhibit                No.** |   | **Item                Title**                                                                                                                                                                                                                                                                           |   | **Filed Herewith or                Incorporated by Reference** |
|--------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                                |   |                                                                                                                                                                                                                                                                                                         |   |                                                                |
|                      |
| 3.3                            |   | Amendment to                Certificate of Incorporation, dated December 26, 1997 (incorporated by reference to                Exhibit 3.3 to the Company’s Registration Statement on Form S-1, File No.                333-112865, filed on February 17, 2004)                                   |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 3.4                            |   | Amendment to                Certificate of Incorporation, dated January 14, 2004 (incorporated by reference to                Exhibit 3.4 to the Company’s Registration Statement on Form S-1, File No.                333-112865, filed on February 17, 2004)                                    |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 3.5                            |   | Certificate of                Designation for Series A Preferred Stock, dated September 2, 2003 (incorporated by                reference to Exhibit 3.5 to the Company’s Registration Statement on Form S-1,                File No. 333-112865, filed on February 17, 2004)                     |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 3.6                            |   | Certificate of                Elimination of Series A Preferred Stock, dated February 3, 2004 (incorporated by                reference to Exhibit 3.6 to the Company’s Registration Statement on Form S-1,                File No. 333-112865, filed on February 17, 2004)                       |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 3.7                            |   | By-Laws                (incorporated by reference to Exhibit 3.4 to Registration Statement on Form S-1,                File No. 333-111101, filed on December 11, 2003)                                                                                                                                 |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.1                           |   | 1993 Stock                Option Plan and Form of Option Agreement (incorporated by reference to Exhibit                10.10 to Registration Statement on Form SB-2, File No. 33-76950, filed on August 1,                1994)                                                                        |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.2                           |   | 1997 Stock                Option Plan (incorporated by reference to Exhibit 10.2 to Registration Statement on                Form S-1, File No. 333-111101, filed on December 11, 2003)                                                                                                                 |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.3                           |   | 2004 Stock                Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s                Registration Statement on Form S-1, File No. 333-112865, filed on February 17,                2004)                                                                           |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.4                           |   | Form of                Subscription Agreement and Warrant Agreement used in Private Placements completed                in February 2000 (incorporated by reference to Exhibit 10.21 to the Company’s                Annual Report on Form 10-K, filed on October 30, 2000)                       |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.5                           |   | Form of                Subscription Agreement and Warrant Agreement used in the August and September 2000                Private Placements (incorporated by reference to Exhibit 10.24 to the                Company’s Quarterly Report on Form 10-Q, filed on December 15,                2000) |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.6                           |   | Form of                Subscription Agreement and Warrant Agreement used in the April 2001 Private                Placements (incorporated by reference to Exhibit 10.23 to Registration Statement on                Form S-1, File No. 333-38136, filed on July 30, 2001)                              |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.7                           |   | Form of                Convertible Note entered into in April 2001 (incorporated by reference to Exhibit                10.24 to Registration Statement on Form S-1, File No. 333-38136, filed on July 30,                2001)                                                                         |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.8                           |   | Form of                Subscription Agreement and Warrant Agreement used in the July 2001 Private                Placements (incorporated by reference to Exhibit 10.25 to Registration Statement on                Form S-1, File No. 333-38136, filed on July 30, 2001)                               |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                    |   |                                                           |
| 10.9                           |   | Form of                Subscription Agreement and Warrant Agreement used in the August and October 2001                private placement (incorporated by reference to Exhibit 10.26 to Registration                Statement on Form S-1, File No. 333-38136, filed on December 14, 2001)              |   | *                                                              |

| 42 |
|----|

| **Exhibit                No.** |   | **Item                Title**                                                                                                                                                                                                                                                                                                                                                                  |   | **Filed Herewith or                Incorporated by Reference** |
|--------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                                |   |                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                |
|                      |
| 10.10                          |   | Form of                Subscription Agreement and Warrant Agreement used in the September 2001, November                2001 and January 2002 private placements (incorporated by reference to Exhibit                10.27 to Registration Statement on Form S-1, File No. 333-38136, filed on February                21, 2002)                                                              |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.11                          |   | Warrant issued                in the February 2002 private placement (incorporated by reference to Exhibit 10.28                to Registration Statement on Form S-1, File No. 333-38136, filed on February 21,                2002)                                                                                                                                                          |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.12                          |   | Form of                Subscription Agreement and Warrant Agreement used in the March 2002, April 2002 and                May 2002 private placements (incorporated by reference to Exhibit 10.29 to                Registration Statement on Form S-1, File No. 333-89166, filed on May 24,                2002)                                                                              |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.13                          |   | Form of                Subscription Agreement and Warrant Agreement used in the June 2002 and October 2002                private placements (incorporated by reference to Exhibit 10.30 to the                Post-Effective Amendment to Registration Statement on Form S-1, File No. 333-38136,                filed on March 3, 2003)                                                      |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.14                          |   | Form of Note                Payable and Warrant Certificate entered into April, June, July, September, November                and December 2002 (incorporated by reference to Exhibit 10.31 to the Post-Effective                Amendment to Registration Statement on Form S-1, File No. 333-38136, filed on March                3, 2003)                                                  |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.15                          |   | Form of Note                Payable and Warrant Certificate entered into November 2001, January, March and May                2003 (incorporated by reference to Exhibit 10.23 to the Company’s Annual                Report on Form 10-K, filed on October 29, 2003)                                                                                                                    |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.16                          |   | Form of                Subscription Agreement and Warrant Agreement used in the February 2003 and April                through August 2003 private placements (incorporated by reference to Exhibit 10.24                to the Company’s Annual Report on Form 10-K, filed on October 29,                2003)                                                                          |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.17                          |   | Form of                Amended Notes Payable which amends the November 2001, April 2002, June 2002, July                2002, September 2002, November 2002 December 2002, January 2003, March 2003 and May                2003 notes payable (incorporated by reference to Exhibit 10.27 to The                Company’s Annual Report on Form 10-K, filed on October 29, 2003)         |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.18                          |   | Securities                Purchase Agreement and Warrant Agreement used in September 2003 private placement                and Form of Warrant Certificate issued on January 16, 2004 and January 29, 2004 to                SF Capital Partners Ltd. (incorporated by reference to Exhibit 10.25 to the                Company’s Annual Report on Form 10-K, filed on October 29, 2003) |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.19                          |   | Registration                Rights Agreement used in September 2003 private placement with SF Capital Partners                Ltd. (incorporated by reference to Exhibit 10.26 to the Company’s Annual                Report on Form 10-K, filed on October 29, 2003)                                                                                                                    |   | *                                                              |
|                           |   |                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                           |
| 10.20                          |   | Form of                Securities Purchase Agreement used in May 2004 private placement with Knoll Capital                Fund II, Europa International, Inc. and Clifford and Phyllis Kalista JTWROS                (incorporated by reference to Exhibit 4.3 to Registration Statement on Form S-1,                File No. 333-112865, filed on May 18, 2004)                               |   | *                                                              |

| 43 |
|----|

| **Exhibit                No.**             |   | **Item                Title**                                                                                                                                                                                                                                                                                                                                    |   | **Filed Herewith or                Incorporated by Reference** |
|--------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                                            |   |                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                |
|         |
| 10.21                                      |   | Form of                Registration Rights Agreement used in May 2004 private placement with Knoll Capital                Fund II, Europa International, Inc. and Clifford and Phyllis Kalista JTWROS                (incorporated by reference to Exhibit 4.4 to Registration Statement on Form S-1,                File No. 333-112865, filed on May 18, 2004) |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.22                                      |   | Form of                Warrant Certificate issued on May 11, 2004 to Knoll Capital Fund II, Europa                International, Inc. and Clifford and Phyllis Kalista JTWROS (incorporated by                reference to Exhibit 4.5 to Registration Statement on Form S-1, File No.                333-112865, filed on May 18, 2004)                         |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.23                                      |   | Form of Stock                Option Agreement issued to the Company’s Board of Directors under the                Company’s 1997 Stock Option Plan (incorporated by reference to Exhibit 10.23                to the Company’s quarterly report on Form 10-Q filed on June 9,                2005)                                             |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.24                                      |   | Form of Stock                Option Agreement issued to the Company’s Executive Officers under the                Company’s 1997 Stock Option Plan (incorporated by reference to Exhibit 10.24                to the Company’s quarterly report on Form 10-Q filed on June 9,                2005)                                             |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.25                                      |   | Separation                Agreement and General Release with Andrew Savadelis dated May 26, 2005                (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on                Form 10-K, filed on October 15, 2005)                                                                                                         |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.26                                      |   | Securities                Purchase Agreement used in May 2005 private placement with Jeffrey D’Onofrio                dated May 1, 2006                                                                                                                                                                                                                    |   | +                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.27                                      |   | Form of                Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current                Report on Form 8-K, filed on July 19, 2006)                                                                                                                                                                                               |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.28                                      |   | Registration                Rights Agreement dated July 17, 2006 (incorporated by reference to Exhibit 4.2 to                the Company’s Current Report on Form 8-K, filed on July 19, 2006)                                                                                                                                                             |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.29                                      |   | Agreement to                Amend Knoll Warrant dated July 17, 2006 (incorporated by reference to Exhibit 4.3                to the Company’s Current Report on Form 8-K, filed on July 19,                2006)                                                                                                                                           |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.30                                      |   | Form of                Amended Knoll Warrant (incorporated by reference to Exhibit 4.4 to the                Company’s Current Report on Form 8-K, filed on July 19, 2006)                                                                                                                                                                                 |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.31                                      |   | Agreement to                Amend SF Capital Warrant dated July 17, 2006 (incorporated by reference to Exhibit                4.5 to the Company’s Current Report on Form 8-K, filed on July 19,                2006)                                                                                                                                      |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.32                                      |   | Form of                Amended Warrant for SF Capital Partners, Ltd. (incorporated by reference to Exhibit                4.6 to the Company’s Current Report on Form 8-K, filed on July 19,                2006)                                                                                                                                          |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.33                                      |   | Securities                Purchase Agreement dated July 17, 2006 (incorporated by reference to Exhibit 10.1                to the Company’s Current Report on Form 8-K, filed on July 19,                2006)                                                                                                                                             |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.34                                      |   | Form of Stock                Option Agreement for Executive Officers under the Company’s 2004 Stock                Incentive Plan                                                                                                                                                                                                                          |   | *                                                              |
|                                       |   |                                                                                                                                                                                                                                                                                                                                                             |   |                                                           |
| 10.35                                      |   | Offer letter                agreement with Lawrence A. Kenyon dated January 16, 2007                                                                                                                                                                                                                                                                             |   | *                                                              |

| 44 |
|----|

| **Exhibit                No.** |   | **Item                Title**                                                                                                                                              |   | **Filed Herewith or                Incorporated by Reference** |
|--------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|
|                                |   |                                                                                                                                                                            |   |                                                                |
|                      |
| 10.36                          |   | Summary of the                Company’s Non-Employee Director Compensation Policy                                                                                    |   | *                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 10.37                          |   | Royalty                Agreement between the Company and Kuslima Shogen, dated July 24, 1991 and Amendment                to Royalty Agreement, dated April 16, 2001  |   | *                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 10.38                          |   | Office Lease                Agreement, dated March 14, 2007, between I&G Garden State, LLC and the                Company                                              |   | *                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 10.39                          |   | Form                of Distribution and Marketing Agreement, dated July 25, 2007, between the Company                and USP Pharma Spolka Z.O.O.                          |   | +^                                                             |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 10.40                          |   | Form                of Securities Purchase Agreement, dated July 25, 2007, between the Company and                Unilab LP.                                               |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 21.1                           |   | Subsidiaries                of Registrant                                                                                                                                  |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 23.1                           |   | Consent                of J.H. Cohn LLP                                                                                                                                    |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 23.2                           |   | Consent                of KPMG LLP                                                                                                                                         |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 31.1                           |   | Certification                of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of                2002                                       |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 31.2                           |   | Certification                of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of                2002                                       |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 32.1                           |   | Certification                of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of                2002                                       |   | +                                                              |
|                           |   |                                                                                                                                                                       |   |                                                           |
| 32.2                           |   | Certification                of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of                2002                                       |   | +                                                              |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *              Previously                    filed; incorporated herein by reference

+                                 Filed herewith

^                                 Portions of this exhibit have been redacted and filed separately with the SEC                    pursuant to a confidential                                                       treatment request. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

| 45 |
|----|

| **SIGNATURE**

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

|                                   |   |                                    |
|----------------------------------------|--------|-----------------------------------------|
|                                   |   | **ALFACELL                CORPORATION** |
|                                   |   |                                    |   |
| Dated: October                15, 2007 |   | By:                                     | /s/ KUSLIMA                SHOGEN |
|                                   |   |                                    | Kuslima Shogen, Chief                Executive Officer and Chairman of the Board |

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

| Dated: October                15, 2007 |   | /s/ KUSLIMA                SHOGEN                                                                                             |
|----------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------|
|                                   |   | Kuslima Shogen, Chief                Executive Officer and Chairman of the Board (Principal Executive                Officer) |

|                                   |   |                                                                                                                                     |
|----------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|
| Dated: October                15, 2007 |   | /s/ LAWRENCE A.                KENYON                                                                                                    |
|                                   |   | Lawrence A. Kenyon, Chief                Financial Officer (Principal Financial Officer and Principal Accounting                Officer) |
|                                   |   |                                                                                                                                     |

| Dated: October                15, 2007 |   |  /s/ JOHN                P. BRANCACCIO |
|----------------------------------------|--------|---------------------------------------------|
|                                   |   | John P. Brancaccio,                Director |
|                                   |   |                                        |

| Dated: October                15, 2007 |   | /s/ STEPHEN K.                CARTER                   |
|----------------------------------------|--------|--------------------------------------------------------|
|                                   |   |  Stephen K. Carter, M.D.,                Director |
|                                   |   |                                                   |

| Dated: October                15, 2007 |   | /s/ DONALD R.                CONKLIN             |
|----------------------------------------|--------|--------------------------------------------------|
|                                   |   |  Donald R. Conklin,                Director |
|                                   |   |                                             |

| Dated: October                15, 2007 |   | /s/ JAMES J.                LOUGHLIN       |
|----------------------------------------|--------|--------------------------------------------|
|                                   |   | James J. Loughlin,                Director |
|                                   |   |                                       |

| Dated: October                15, 2007 |   | /s/ DAVID                SIDRANSKY             |
|----------------------------------------|--------|------------------------------------------------|
|                                   |   | David Sidransky, M.D.,                Director |
|                                   |   |                                           |

| Dated: October                15, 2007 |   | /s/ PAUL M.                WEISS              |
|----------------------------------------|--------|-----------------------------------------------|
|                                   |   | Paul M. Weiss, Ph.D.,                Director |
|                                   |   |                                          |

| 46 |
|----|

| Alfacell                    Corporation

Index to                    Financial Statements |
|-------------------------------------------------------------------------------------------|
|                                                                                      |

|                                                                                                                                                                                                                                                          | Page   |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                                                                                                                                                     |   |        |   |
|                                                                                                                                                                                                                                                |
| Audited Financial                Statements:                                                                                                                                                                                                             |   |        |   |
|                                                                                                                                                                                                                                                |
| Report of                Independent Registered Public Accounting Firm: J.H. Cohn LLP                                                                                                                                                                    |   | F-2    |   |
|                                                                                                                                                                                                                                                |
| Report of                Independent Registered Public Accounting Firm: KPMG LLP                                                                                                                                                                         |   | F-4    |   |
|                                                                                                                                                                                                                                                |
| Independent                Auditors’ Report of Armus, Harrison & Co.                                                                                                                                                                           |   | F-5    |   |
|                                                                                                                                                                                                                                                |
| Balance Sheets -                July 31, 2007 and 2006                                                                                                                                                                                                   |   | F-7    |   |
|                                                                                                                                                                                                                                                |
| Statements of                Operations - Years ended July 31, 2007, 2006,     and 2005 and the Period from August                24, 1981     (Date of Inception) to July 31,                2007     |   | F-8    |   |
|                                                                                                                                                                                                                                                |
| Statement of                Stockholders’ Equity (Deficiency)     Period from August 24, 1981     (Date of Inception) to July 31,                2007                                            |   | F-9    |   |
|                                                                                                                                                                                                                                                |
| Statements of                Cash Flows - Years ended July 31, 2007, 2006,     and 2005 and Period from August 24,                1981     (Date of Inception) to July 31,                2007         |   | F-16   |   |
|                                                                                                                                                                                                                                                |
| Notes to                Financial Statements - Years ended July 31, 2007,     2006 and 2005 and the Period from                August 24, 1981     (Date of Inception) to July 31,                2007 |   | F-19   |   |

| F-1 |
|-----|

| Report                    of Independent Registered Public Accounting Firm

The Board of Directors                    and Stockholders                    Alfacell Corporation

We have                    audited the accompanying balance sheets of Alfacell Corporation (a development                    stage company) as of July 31, 2007 and 2006, 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, 2007 and for the period from                    August 24, 1981 (date of inception) to July 31, 2007. 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, 2002 were audited by other auditors whose                    reports dated November 4, 2002 and December 9, 1992, except for Note 18 which                    is as of July 19, 1993 and Note 3 which is as of October 28, 1993, expressed                    unqualified opinions on those statements with explanatory paragraphs relating                    to the Company’s ability to continue as a going concern.

We                    conducted our audits in accordance with the standards of the Public Company                    Accounting Oversight Board (United States). 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 include 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, and as well as                    evaluating the overall financial statement presentation. We believe that our                    audits provide a reasonable basis for our opinion.

In our                    opinion, based on our audits and, for the effect on the period from August 24,                    1981 (date of inception) to July 31, 2007 of the amounts for the period from                    August 24, 1981 (date of inception) to July 31, 2002, on the reports 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, 2007 and 2006, and the results of its operations and its cash flows for                    each of the years in the three-year period ended July 31, 2007 and for the                    period from August 24, 1981 (date of inception) to July 31, 2007 in conformity                    with accounting principles generally accepted in the United States of                    America. |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-2 |
|-----|

| We have                    also audited, in accordance with the Standards of the Public Company Accounting                    Oversight Board (United States), Alfacell Corporation’s internal control                    over financial reporting as of July 31, 2007, based on the *criteria                    established in Internal Control – Integrated Framework issued by the                    Committee of Sponsoring Organization of the Treadway Commission (COSO)* and                    our report dated October 4, 2007 expressed an unqualified opinion on                    management’s assessment of internal control over financial reporting and                    an unqualified opinion on the effectiveness of internal control over financial                    reporting.

/s/ J.H.                    Cohn LLP                    Roseland, New Jersey                    October 4, 2007 |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-3 |
|-----|

| Report                    Of Independent Registered Public Accounting Firm

The                    Stockholders and Board of Directors                    Alfacell Corporation:

We have                    audited the statements of operations, stockholders’ equity (deficiency),                    and cash flows for the period from August 24, 1981 (date of inception) to July                    31, 2002 (not presented herein) of Alfacell Corporation (a development stage                    company). 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 audit. The financial statements of                    Alfacell Corporation for the period from August 24, 1981 to July 31, 1992 were                    audited by other auditors who have ceased operations and 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 audit in accordance with the standards of the Public Company                    Accounting Oversight Board (United States). 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, based on our audit 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 who have ceased operations, the                    financial statements referred to above present fairly, in all material                    respects, the results of operations and cash flows for the period from August                    24, 1981 to July 31, 2002 (not presented herein) of Alfacell Corporation in                    conformity with U.S. generally accepted accounting principles.

The                    accompanying financial statements have been prepared assuming that the Company                    will continue as a going concern. As discussed in Note 2 to the financial                    statements, the Company has suffered recurring losses from operations, 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-4 |
|-----|

| 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 or other filings, 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.

Independent                    Auditors’ Report

Board of Directors                    Alfacell Corporation                    Bloomfield, New Jersey

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

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

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

| F-5 |
|-----|

| 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 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 or 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-6 |
|-----|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Balance                    Sheets

July 31,                    2007 and 2006 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                   |

|                                                                                                                                                                                                                                                                                                                                                                                                                                               | 2007   |        | 2006   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|--------|--------|
||
| ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |             |   |   |  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Current                assets:                                                                                                                                                                                                                                                                                                                                                                                                                |   |        |   |   |   |   |
|     Cash                and cash equivalents                                                                                                                                                                                                                                                                                                                                                                              | $      | 6,968,172   |   | $      | 11,518,540 |   |
|     Prepaid                expenses                                                                                                                                                                                                                                                                                                                                                                                       |   | 150,207     |   |   | 67,090 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|         Total                current assets                                                                                                                                                                                                                                                                                                                                                           |   | 7,118,379   |   |   | 11,585,630 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Property and                equipment, net of accumulated depreciation and                    amortization of $290,581 in 2007 and $1,090,715 in                2006                                                                                                                                                                                                                                                      |   | 136,723     |   |   | 69,928 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Loan                receivable, related party                                                                                                                                                                                                                                                                                                                                                                                                 |   | 180,397     |   |   | 170,870 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Other                assets                                                                                                                                                                                                                                                                                                                                                                                                                   |   | 385,000     |   |   | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
|        Total                assets                                                                                                                                                                                                                                                                                                                                                                         | $      | 7,820,499   |   | $      | 11,826,428 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| LIABILITIES                AND STOCKHOLDERS’ EQUITY                                                                                                                                                                                                                                                                                                                                                                                     |   |        |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Current                liabilities:                                                                                                                                                                                                                                                                                                                                                                                                           |   |        |   |   |   |   |
|     Accounts                payable                                                                                                                                                                                                                                                                                                                                                                                       | $      | 432,786     |   | $      | 1,286,170 |   |
|     Accrued                clinical trial expenses                                                                                                                                                                                                                                                                                                                                                                        |   | 898,134     |   |   | 758,267 |   |
|     Accrued                professional service fees                                                                                                                                                                                                                                                                                                                                                                      |   | 322,051     |   |   | 217,764 |   |
|     Accrued                compensation expense                                                                                                                                                                                                                                                                                                                                                                           |   | 143,369     |   |   | 87,935 |   |
|     Other                accrued expenses                                                                                                                                                                                                                                                                                                                                                                                 |   | 33,560      |   |   | 243,289 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|         Total                current liabilities                                                                                                                                                                                                                                                                                                                                                      |   | 1,829,900   |   |   | 2,593,425 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Other                liabilities:                                                                                                                                                                                                                                                                                                                                                                                                             |   |        |   |   |   |   |
|     Deferred                rent                                                                                                                                                                                                                                                                                                                                                                                          |   | 112,119     |   |   | — |   |
|     Deferred                revenue                                                                                                                                                                                                                                                                                                                                                                                       |   | 100,000     |   |   | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|        Total                other liabilities                                                                                                                                                                                                                                                                                                                                                              |   | 212,119     |   |   | — |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
|        Total                liabilities                                                                                                                                                                                                                                                                                                                                                                    |   | 2,042,019   |   |   | 2,593,425 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
| Stockholders’                equity:                                                                                                                                                                                                                                                                                                                                                                                                    |   |        |   |   |   |   |
|     Preferred                stock, $.001 par value. Authorized and unissued,                       1,000,000 shares at July 31, 2007 and                2006                                                                                                                                                                                                                          |   | —     |   |   | — |   |
|     Common                stock $.001 par value. Authorized 100,000,000 shares at                       July 31, 2007 and 2006; issued and                outstanding 46,280,880                       shares and 44,289,161 shares at July 31,                2007 and 2006,                       respectively |   | 46,281      |   |   | 44,289 |   |
|     Capital                in excess of par value                                                                                                                                                                                                                                                                                                                                                                         |   | 97,803,954  |   |   | 92,505,325 |   |
|     Deficit                accumulated during development stage                                                                                                                                                                                                                                                                                                                                                           |   | (92,071,755 | )      |   | (83,316,611 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|         Total                stockholders’ equity                                                                                                                                                                                                                                                                                                                                               |   | 5,778,480   |   |   | 9,233,003 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |        |   |   |   |   |
|         Total                liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                                                               | $      | 7,820,499   |   | $      | 11,826,428 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |        |        |   |

|                                                               |
|--------------------------------------------------------------------|
| See accompanying notes                    to financial statements. |

| F-7 |
|-----|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

 Statements                    of Operations

Years                    ended July 31, 2007, 2006 and 2005                    and the Period from August 24, 1981                    (Date of Inception) to July 31, 2007 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                    |

|                                                                                                                               | 2007   |       | 2006   |   | 2005       |   | August 24,                1981                (date of                inception)                to July 31, 2007 |       |
|-------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|------------|--------|------------------------------------------------------------------------------------------------------------------|------------|
||
||
| Sales                                                                                                                         | $      | —    |   | $      | —    |   | $                                                                                                                | —    |   | $ | 553,489 |   |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                                  |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
| Operating                expenses:                                                                                            |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
|     Cost of                sales                                                                          |   | —    |   |   | —    |   |                                                                                                             | —    |   |   | 336,495 |   |
|     Research                and development                                                               |   | 5,543,175  |   |   | 5,229,996  |   |                                                                                                             | 5,082,339  |   |   | 60,810,422 |   |
|     General                and administrative                                                             |   | 4,092,990  |   |   | 3,004,835  |   |                                                                                                             | 1,771,379  |   |   | 32,735,413 |   |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                                  |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
|          Total                operating expenses                                 |   | 9,636,165  |   |   | 8,234,831  |   |                                                                                                             | 6,853,718  |   |   | 93,882,330 |   |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                                  |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
| Loss from                operations                                                                                           |   | (9,636,165 | )      |   | (8,234,831 | )      |                                                                                                             | (6,853,718 | ) |   | (93,328,841 | ) |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
| Investment                income                                                                                              |   | 370,650    |   |   | 107,386    |   |                                                                                                             | 141,708    |   |   | 2,048,857 |   |
| Other                income                                                                                                   |   | —    |   |   | —    |   |                                                                                                             | 9,836      |   |   | 99,939 |   |
| Interest                expense:                                                                                              |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
|  Related                parties                                                                                          |   | —    |   |   | —    |   |                                                                                                             | —    |   |   | (1,147,547 | ) |
|  Others                                                                                                                  |   | (96        | )      |   | (112       | )      |                                                                                                             | (47,721    | ) |   | (2,874,172 | ) |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                                  |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
| Loss before                state tax benefit                                                                                  |   | (9,265,611 | )      |   | (8,127,557 | )      |                                                                                                             | (6,749,895 | ) |   | (95,201,764 | ) |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
| State tax                benefit                                                                                              |   | 510,467    |   |   | 317,382    |   |                                                                                                             | 287,975    |   |   | 3,130,009 |   |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                                  |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
| Net                loss                                                                                                       | $      | (8,755,144 | )      | $      | (7,810,175 | )      | $                                                                                                                | (6,461,920 | ) | $ | (92,071,755 | ) |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                                  |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
|  Loss per                basic and diluted                    common share                                | $      | (0.19      | )      | $      | (0.21      | )      | $                                                                                                                | (0.18      | ) |   |   |   |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                             |       |
|                                                                                                                          |   |       |   |   |       |   |                                                                                                             |       |   |   |   |   |
|  Weighted                average number of shares                   outstanding – basic and diluted |   | 44,958,000 |   |   | 37,308,000 |   |                                                                                                             | 35,379,000 |   |   |   |   |
|                                                                                                                          |        |       |        |   |            |   |                                                                                                             |       |

|                                                               |
|--------------------------------------------------------------------|
| See accompanying notes                    to financial statements. |

| F-8 |
|-----|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency)                    Period from August 24, 1981                    (Date of Inception) to July 31, 2007 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                     |

|                                                                                                                                                                                    |      |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                                                                                                                                                    |           |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Issuance                of shares to officers and stockholders                  for equipment, research and development,                  and expense reimbursement | 712,500   |         | $                                                            | 713          |                                                    | $            | 212,987                                                                                                  |         |                                   | —      |                                                                                 | $            | —                                                                                    |         | $ | — |   | $ | — |   | $ | 213,700 |   |
| Issuance of shares for                organizational legal service                                                                                                                      | 50,000    |         |                                                         | 50           |                                                    |         | 4,950                                                                                                    |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 5,000 |   |
| Sale of shares for cash,                net                                                                                                                                             | 82,143    |         |                                                         | 82           |                                                    |         | 108,418                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 108,500 |   |
| Adjustment for 3 for 2 stock                split declared                   September 8, 1982                                                                                | 422,321   |         |                                                         | 422          |                                                    |         | (422                                                                                                     | )            |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | — |   |
| Net loss                                                                                                                                                                                | —   |         |                                                         | —      |                                                    |         | —                                                                                                  |         |                                   | —      |                                                                                 |         | (121,486                                                                                   | )            |   | — |   |   | — |   |   | (121,486 | ) |
|                                                                                                                                                                                    |           |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1982                                                                                                                                                 | 1,266,964 |         |                                                         | 1,267        |                                                    |         | 325,933                                                                                                  |         |                                   | —      |                                                                                 |         | (121,486                                                                                   | )            |   | — |   |   | — |   |   | 205,714 |   |
|                                                                                                                                                                                    |      |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |
| Issuance of shares for                equipment                                                                                                                                         | 15,000    |         |                                                         | 15           |                                                    |         | 13,985                                                                                                   |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 14,000 |   |
| Sale of shares to private                investors                                                                                                                                      | 44,196    |         |                                                         | 44           |                                                    |         | 41,206                                                                                                   |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 41,250 |   |
| Sale of shares in public                offering, net                                                                                                                                   | 660,000   |         |                                                         | 660          |                                                    |         | 1,307,786                                                                                                |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 1,308,446 |   |
| Issuance of shares under                stock grant program                                                                                                                             | 20,000    |         |                                                         | 20           |                                                    |         | 109,980                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 110,000 |   |
| Exercise of warrants,                net                                                                                                                                                | 1,165     |         |                                                         | 1            |                                                    |         | 3,494                                                                                                    |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 3,495 |   |
| Net loss                                                                                                                                                                                | —   |         |                                                         | —      |                                                    |         | —                                                                                                  |         |                                   | —      |                                                                                 |         | (558,694                                                                                   | )            |   | — |   |   | — |   |   | (558,694 | ) |
|                                                                                                                                                                                    |           |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1983                                                                                                                                                 | 2,007,325 |         |                                                         | 2,007        |                                                    |         | 1,802,384                                                                                                |         |                                   | —      |                                                                                 |         | (680,180                                                                                   | )            |   | — |   |   | — |   |   | 1,124,211 |   |
|                                                                                                                                                                                    |      |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |
| Exercise of warrants,                net                                                                                                                                                | 287,566   |         |                                                         | 287          |                                                    |         | 933,696                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 933,983 |   |
| Issuance of shares under                stock grant program                                                                                                                             | 19,750    |         |                                                         | 20           |                                                    |         | 101,199                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 101,219 |   |
| Issuance of shares under                stock bonus plan for                   directors and consultants                                                                      | 130,250   |         |                                                         | 131          |                                                    |         | 385,786                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 385,917 |   |
| Net loss                                                                                                                                                                                | —   |         |                                                         | —      |                                                    |         | —                                                                                                  |         |                                   | —      |                                                                                 |         | (1,421,083                                                                                 | )            |   | — |   |   | — |   |   | (1,421,083 | ) |
|                                                                                                                                                                                    |           |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1984                                                                                                                                                 | 2,444,891 |         |                                                         | 2,445        |                                                    |         | 3,223,065                                                                                                |         |                                   | —      |                                                                                 |         | (2,101,263                                                                                 | )            |   | — |   |   | — |   |   | 1,124,247 |   |
|                                                                                                                                                                                    |      |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |
| Issuance of shares under                stock grant program                                                                                                                             | 48,332    |         |                                                         | 48           |                                                    |         | 478,057                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 478,105 |   |
| Issuance of shares under                stock bonus plan for                   directors and consultants                                                                      | 99,163    |         |                                                         | 99           |                                                    |         | 879,379                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 879,478 |   |
| Shares canceled                                                                                                                                                                         | (42,500   | )            |                                                         | (42          | )                                                       |         | (105,783                                                                                                 | )            |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | (105,825 | ) |
| Exercise of warrants,                net                                                                                                                                                | 334,957   |         |                                                         | 335          |                                                    |         | 1,971,012                                                                                                |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 1,971,347 |   |
| Net loss                                                                                                                                                                                | —   |         |                                                         | —      |                                                    |         | —                                                                                                  |         |                                   | —      |                                                                                 |         | (2,958,846                                                                                 | )            |   | — |   |   | — |   |   | (2,958,846 | ) |
|                                                                                                                                                                                    |           |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1985                                                                                                                                                 | 2,884,843 |         |                                                         | 2,885        |                                                    |         | 6,445,730                                                                                                |         |                                   | —      |                                                                                 |         | (5,060,109                                                                                 | )            |   | — |   |   | — |   |   | 1,388,506 |   |
|                                                                                                                                                                                    |      |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |
| Issuance of shares under                stock grant program                                                                                                                             | 11,250    |         |                                                         | 12           |                                                    |         | 107,020                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 107,032 |   |
| Issuance of shares under                stock bonus plan for                   directors and consultants                                                                      | 15,394    |         |                                                         | 15           |                                                    |         | 215,385                                                                                                  |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 215,400 |   |
| Exercise of warrants,                net                                                                                                                                                | 21,565    |         |                                                         | 21           |                                                    |         | 80,977                                                                                                   |         |                                   | —      |                                                                                 |         | —                                                                                    |         |   | — |   |   | — |   |   | 80,998 |   |
| Net loss                                                                                                                                                                                | —   |         |                                                         | —      |                                                    |         | —                                                                                                  |         |                                   | —      |                                                                                 |         | (2,138,605                                                                                 | )            |   | — |   |   | — |   |   | (2,138,605 | ) |
|                                                                                                                                                                                    |           |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31, 1986                (carried forward)                                                                                                                               | 2,933,052 |         |                                                         | 2,933        |                                                    |         | 6,849,112                                                                                                |         |                                   | —      |                                                                                 |         | (7,198,714                                                                                 | )            |   | — |   |   | — |   |   | (346,669 | ) |

| F-9 |
|-----|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency), Continued |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |

|                                                                                                               |   |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|--------------------------------------------------------------------------------------------------------------------|--------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                                                                               |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
|                                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |
| Balance at                July 31, 1986 (brought forward)                                                          |   | 2,933,052    |                                                         | $            | 2,933                                                   |         | $                                                                                                        | 6,849,112    |                                   |         | —                                                                              |         | $                                                                                          | (7,198,714   | ) | $ | — |   | $ | — |   | $ | (346,669 | ) |
|                                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Exercise of                warrants,net                                                                            |   | 14,745       |                                                         |         | 15                                                      |         |                                                                                                     | 147,435      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 147,450 |   |
| Issuance of shares under                stock bonus plan for                   directors and consultants |   | 5,000        |                                                         |         | 5                                                       |         |                                                                                                     | 74,995       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 75,000 |   |
| Issuance of shares for                services                                                                     |   | 250,000      |                                                         |         | 250                                                     |         |                                                                                                     | 499,750      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 500,000 |   |
| Sale of shares to private                investors, net                                                            |   | 5,000        |                                                         |         | 5                                                       |         |                                                                                                     | 24,995       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 25,000 |   |
| Net loss                                                                                                           |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (2,604,619   | ) |   | — |   |   | — |   |   | (2,604,619 | ) |
|                                                                                                               |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1987                                                                            |   | 3,207,797    |                                                         |         | 3,208                                                   |         |                                                                                                     | 7,596,287    |                                   |         | —                                                                              |         |                                                                                       | (9,803,333   | ) |   | — |   |   | — |   |   | (2,203,838 | ) |
|                                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for legal                and consulting services                                                |   | 206,429      |                                                         |         | 207                                                     |         |                                                                                                     | 724,280      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 724,487 |   |
| Issuance of shares under                employment                   incentive program                   |   | 700,000      |                                                         |         | 700                                                     |         |                                                                                                     | 2,449,300    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (2,450,000 | ) |   | — |   |
| Issuance of shares under                stock grant program                                                        |   | 19,000       |                                                         |         | 19                                                      |         |                                                                                                     | 66,481       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 66,500 |   |
| Exercise of options,                net                                                                            |   | 170,000      |                                                         |         | 170                                                     |         |                                                                                                     | 509,830      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 510,000 |   |
| Issuance of shares for                litigation settlement                                                        |   | 12,500       |                                                         |         | 12                                                      |         |                                                                                                     | 31,125       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 31,137 |   |
| Exercise of                warrants,net                                                                            |   | 63,925       |                                                         |         | 64                                                      |         |                                                                                                     | 451,341      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 451,405 |   |
| Sale of shares to private                investors                                                                 |   | 61,073       |                                                         |         | 61                                                      |         |                                                                                                     | 178,072      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 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                                                                            |   | 4,440,724    |                                                         |         | 4,441                                                   |         |                                                                                                     | 12,006,716   |                                   |         | —                                                                              |         |                                                                                       | (13,076,106  | ) |   | — |   |   | (2,000,833 | ) |   | (3,065,782 | ) |
|                                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares for                litigation settlement                                                            |   | 135,000      |                                                         |         | 135                                                     |         |                                                                                                     | 1,074,703    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,074,838 |   |
| Conversion of debentures,                net                                                                       |   | 133,333      |                                                         |         | 133                                                     |         |                                                                                                     | 399,867      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 400,000 |   |
| Sale of shares to private                investors                                                                 |   | 105,840      |                                                         |         | 106                                                     |         |                                                                                                     | 419,894      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 420,000 |   |
| Exercise of options,                net                                                                            |   | 1,000        |                                                         |         | 1                                                       |         |                                                                                                     | 3,499        |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 3,500 |   |
| Issuance of shares under                employment                   agreement                           |   | 750,000      |                                                         |         | 750                                                     |         |                                                                                                     | 3,749,250    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (3,750,000 | ) |   | — |   |
| Issuance of shares under the                1989 Stock Plan                                                        |   | 30,000       |                                                         |         | 30                                                      |         |                                                                                                     | 149,970      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (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                                                                            |   | 5,595,897    |                                                         |         | 5,596                                                   |         |                                                                                                     | 17,803,899   |                                   |         | —                                                                              |         |                                                                                       | (16,028,975  | ) |   | — |   |   | (4,850,077 | ) |   | (3,069,557 | ) |
|                                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Issuance of shares for legal                and consulting                   services                    |   | 52,463       |                                                         |         | 52                                                      |         |                                                                                                     | 258,725      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 258,777 |   |
| Issuance of shares under the                1989 Stock Plan                                                        |   | 56,000       |                                                         |         | 56                                                      |         |                                                                                                     | 335,944      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (336,000 | ) |   | — |   |
| Sale of shares for                litigation settlement                                                            |   | 50,000       |                                                         |         | 50                                                      |         |                                                                                                     | 351,067      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 351,117 |   |
| Exercise of options at,                net                                                                         |   | 105,989      |                                                         |         | 106                                                     |         |                                                                                                     | 345,856      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 345,962 |   |

| F-10 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency), Continued |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |

|                                                                                               |   |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|----------------------------------------------------------------------------------------------------|--------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                                                               |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
|                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |
| Sale of shares to private                investors                                                 |   | 89,480       |                                                         | $            | 90                                                      |         | $                                                                                                        | 354,990      |                                   |         | —                                                                              |         | $                                                                                          | —      |   | $ | — |   | $ | — |   | $ | 355,080 |   |
| Issuance of shares under                employment                   agreement           |   | 750,000      |                                                         |         | 750                                                     |         |                                                                                                     | 3,749,250    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (3,750,000 | ) |   | — |   |
| Conversion of debentures,                net                                                       |   | 100,000      |                                                         |         | 100                                                     |         |                                                                                                     | 499,900      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 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                                                            |   | 6,799,829    |                                                         |         | 6,800                                                   |         |                                                                                                     | 23,699,631   |                                   |         | —                                                                              |         |                                                                                       | (20,889,091  | ) |   | — |   |   | (5,920,516 | ) |   | (3,103,176 | ) |
|                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Exercise of options,                net                                                            |   | 16,720       |                                                         |         | 16                                                      |         |                                                                                                     | 108,664      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 108,680 |   |
| Issuance of shares for legal                consulting services                                    |   | 87,000       |                                                         |         | 87                                                      |         |                                                                                                     | 358,627      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 358,714 |   |
| Issuance of shares under the                1989 Stock Plan                                        |   | 119,000      |                                                         |         | 119                                                     |         |                                                                                                     | 475,881      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (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                                                            |   | 7,022,549    |                                                         |         | 7,022                                                   |         |                                                                                                     | 24,642,803   |                                   |         | —                                                                              |         |                                                                                       | (26,091,393  | ) |   | — |   |   | (3,504,955 | ) |   | (4,946,523 | ) |
|                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Exercise of options at,                net                                                         |   | 1,000        |                                                         |         | 1                                                       |         |                                                                                                     | 3,499        |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 3,500 |   |
| Sale of shares to private                investors                                                 |   | 70,731       |                                                         |         | 71                                                      |         |                                                                                                     | 219,829      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 219,900 |   |
| Conversion of debentures,                net                                                       |   | 94,000       |                                                         |         | 94                                                      |         |                                                                                                     | 469,906      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 470,000 |   |
| Issuance of shares for                services                                                     |   | 45,734       |                                                         |         | 46                                                      |         |                                                                                                     | 156,944      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 156,990 |   |
| Issuance of shares under the                1989 Stock Plan                                        |   | 104,000      |                                                         |         | 104                                                     |         |                                                                                                     | 285,896      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (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                                                            |   | 7,338,014    |                                                         |         | 7,338                                                   |         |                                                                                                     | 25,778,877   |                                   |         | —                                                                              |         |                                                                                       | (30,864,219  | ) |   | — |   |   | (744,229 | ) |   | (5,822,233 | ) |
|                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors                                                 |   | 352,667      |                                                         |         | 353                                                     |         |                                                                                                     | 735,147      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 735,500 |   |
| Issuance of shares for legal                services                                               |   | 49,600       |                                                         |         | 50                                                      |         |                                                                                                     | 132,180      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 132,230 |   |
| Issuance of shares for                services                                                     |   | 5,000        |                                                         |         | 5                                                       |         |                                                                                                     | 9,995        |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (10,000 | ) |   | — |   |
| Issuance of shares under the                1989 Stock Plan                                        |   | 117,000      |                                                         |         | 117                                                     |         |                                                                                                     | 233,883      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | (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                                                            |   | 7,862,281    |                                                         |         | 7,863                                                   |         |                                                                                                     | 26,890,082   |                                   |         | —                                                                              |         |                                                                                       | (33,221,569  | ) |   | — |   |   | (323,500 | ) |   | (6,647,124 | ) |
|                                                                                               |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Conversion of debentures,                net                                                       |   | 425,400      |                                                         |         | 425                                                     |         |                                                                                                     | 1,701,575    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,702,000 |   |
| Sale of shares to private                investors, net                                            |   | 743,000      |                                                         |         | 743                                                     |         |                                                                                                     | 1,710,048    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,710,791 |   |
| Conversion of short-term                borrowings                                                 |   | 72,800       |                                                         |         | 73                                                      |         |                                                                                                     | 181,927      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 182,000 |   |
| Issuance of shares for                services                                                     |   | 16,200       |                                                         |         | 16                                                      |         |                                                                                                     | 43,334       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 43,350 |   |

| F-11 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency), Continued |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |

|                                                                                                                                                                   |   |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                                                                                                                                   |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
|                                                                                                                                                                   |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |
| Issuance of shares under the                1989 Stock Plan,                   for services                                                                  |   | 5,000        |                                                         | $            | 5                                                       |         | $                                                                                                        | 14,995       |                                   |         | —                                                                              |         | $                                                                                          | —      |   | $ | — |   | $ | — |   | $ | 15,000 |   |
| Issuance of options to                related parties upon                   conversion of accrued interest, payroll                  and expenses |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 3,194,969    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 3,194,969 |   |
| Repurchase of stock options                from related party                                                                                                          |   | —      |                                                         |         | —                                                 |         |                                                                                                     | (198,417     | )                                      |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | (198,417 | ) |
| Issuance of options upon                conversion of                   accrued interest                                                                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 142,441      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 142,441 |   |
| Common stock to be                issued                                                                                                                               |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | 50,000                                                                               |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 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                                                                                                                                |   | 9,124,681    |                                                         |         | 9,125                                                   |         |                                                                                                     | 33,680,954   |                                   |         | 50,000                                                                               |         |                                                                                       | (35,455,997  | ) |   | — |   |   | (58,500 | ) |   | (1,774,418 | ) |
|                                                                                                                                                                   |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                                                                                                |   | 961,000      |                                                         |         | 961                                                     |         |                                                                                                     | 2,023,241    |                                   |         | (50,000                                                                              | )            |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,974,202 |   |
| Conversion of short-term                borrowings                                                                                                                     |   | 17,600       |                                                         |         | 17                                                      |         |                                                                                                     | 43,983       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 44,000 |   |
| Issuance of shares for                services                                                                                                                         |   | 30,906       |                                                         |         | 31                                                      |         |                                                                                                     | 77,234       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 77,265 |   |
| Exercise of options,                net                                                                                                                                |   | 185,000      |                                                         |         | 185                                                     |         |                                                                                                     | 437,015      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 437,200 |   |
| Common stock to be                issued                                                                                                                               |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | 339,008                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 339,008 |   |
| Common stock to be issued,                for services                                                                                                                 |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | 4,800                                                                                |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 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                                                                                                                                |   | 10,319,187   |                                                         |         | 10,319                                                  |         |                                                                                                     | 36,262,427   |                                   |         | 343,808                                                                              |         |                                                                                       | (37,449,120  | ) |   | — |   |   | — |   |   | (832,566 | ) |
|                                                                                                                                                                   |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                                                                                                |   | 2,953,327    |                                                         |         | 2,953                                                   |         |                                                                                                     | 8,969,655    |                                   |         | (339,008                                                                             | )            |                                                                                       | —      |   |   | — |   |   | — |   |   | 8,633,600 |   |
| Issuance of shares for                services                                                                                                                         |   | 19,995       |                                                         |         | 20                                                      |         |                                                                                                     | 70,858       |                                   |         | (4,800                                                                               | )            |                                                                                       | —      |   |   | — |   |   | — |   |   | 66,078 |   |
| Exercise of options,                net                                                                                                                                |   | 566,700      |                                                         |         | 567                                                     |         |                                                                                                     | 1,657,633    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,658,200 |   |
| Sale of warrants                                                                                                                                                       |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 12,084       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 12,084 |   |
| Issuance of options/warrants                for services                                                                                                               |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 50,872       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 50,872 |   |
| Common stock to be                issued                                                                                                                               |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | 258,335                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 258,335 |   |
| Subscription                receivable                                                                                                                                 |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | (254,185 | ) |   | — |   |   | (254,185 | ) |
| Net loss                                                                                                                                                               |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (2,942,152   | ) |   | — |   |   | — |   |   | (2,942,152 | ) |
|                                                                                                                                                                   |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1996                                                                                                                                |   | 13,859,209   |                                                         |         | 13,859                                                  |         |                                                                                                     | 47,023,529   |                                   |         | 258,335                                                                              |         |                                                                                       | (40,391,272  | ) |   | (254,185 | ) |   | — |   |   | 6,650,266 |   |
|                                                                                                                                                                   |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                                                                                                |   | 112,000      |                                                         |         | 112                                                     |         |                                                                                                     | 503,888      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 504,000 |   |
| Issuance of options for                services                                                                                                                        |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 76,504       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 76,504 |   |
| Exercise of options,                net                                                                                                                                |   | 729,134      |                                                         |         | 729                                                     |         |                                                                                                     | 2,620,359    |                                   |         | (258,335                                                                             | )            |                                                                                       | —      |   |   | 254,185 |   |   | — |   |   | 2,616,938 |   |
| Exercise of warrants,                net                                                                                                                               |   | 147,450      |                                                         |         | 148                                                     |         |                                                                                                     | 737,102      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 737,250 |   |
| Net loss                                                                                                                                                               |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (5,018,867   | ) |   | — |   |   | — |   |   | (5,018,867 | ) |
|                                                                                                                                                                   |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31, 1997                (carried forward)                                                                                                              |   | 14,847,793   |                                                         |         | 14,848                                                  |         |                                                                                                     | 50,961,382   |                                   |         | —                                                                              |         |                                                                                       | (45,410,139  | ) |   | — |   |   | — |   |   | 5,566,091 |   |

| F-12 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency), Continued |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |

|                                                                                         |   |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|----------------------------------------------------------------------------------------------|--------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                                                         |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
|                                                                                         |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |
| Balance at                July 31, 1997 (brought forward)                                    |   | 14,847,793   |                                                         | $            | 14,848                                                  |         | $                                                                                                        | 50,961,382   |                                   |         | —                                                                              |         | $                                                                                          | (45,410,139  | ) | $ | — |   | $ | — |   | $ | 5,566,091 |   |
|                                                                                         |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                      |   | 2,337,150    |                                                         |         | 2,337                                                   |         |                                                                                                     | 4,199,877    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 4,202,214 |   |
| Issuance of options for                services                                              |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 199,954      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 199,954 |   |
| Exercise of warrants,                net                                                     |   | 4,950        |                                                         |         | 5                                                       |         |                                                                                                     | 11,080       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 11,085 |   |
| Issuance of shares for                services, net                                          |   | 50,000       |                                                         |         | 50                                                      |         |                                                                                                     | 99,950       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 100,000 |   |
| Net loss                                                                                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (6,387,506   | ) |   | — |   |   | — |   |   | (6,387,506 | ) |
|                                                                                         |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1998                                                      |   | 17,239,893   |                                                         |         | 17,240                                                  |         |                                                                                                     | 55,472,243   |                                   |         | —                                                                              |         |                                                                                       | (51,797,645  | ) |   | — |   |   | — |   |   | 3,691,838 |   |
|                                                                                         |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Issuance of options for                services                                              |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 205,593      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 205,593 |   |
| Issuance                of shares for services, net                                          |   | 46,701       |                                                         |         | 46                                                      |         |                                                                                                     | 16,359       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 16,405 |   |
| Net loss                                                                                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (3,156,636   | ) |   | — |   |   | — |   |   | (3,156,636 | ) |
|                                                                                         |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                1999                                                      |   | 17,286,594   |                                                         |         | 17,286                                                  |         |                                                                                                     | 55,694,195   |                                   |         | —                                                                              |         |                                                                                       | (54,954,281  | ) |   | — |   |   | — |   |   | 757,200 |   |
|                                                                                         |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                      |   | 875,000      |                                                         |         | 875                                                     |         |                                                                                                     | 547,417      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 548,292 |   |
| Exercise of options,                net                                                      |   | 95,000       |                                                         |         | 95                                                      |         |                                                                                                     | 45,755       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 45,850 |   |
| Issuance of shares for                services, net                                          |   | 174,965      |                                                         |         | 175                                                     |         |                                                                                                     | 92,009       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 92,184 |   |
| Vesting of options                previously issued                   for services |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 146,912      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 146,912 |   |
| Net loss                                                                                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (1,722,298   | ) |   | — |   |   | — |   |   | (1,722,298 | ) |
|                                                                                         |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                2000                                                      |   | 18,431,559   |                                                         |         | 18,431                                                  |         |                                                                                                     | 56,526,288   |                                   |         | —                                                                              |         |                                                                                       | (56,676,579  | ) |   | — |   |   | — |   |   | (131,860 | ) |
|                                                                                         |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                      |   | 863,331      |                                                         |         | 863                                                     |         |                                                                                                     | 955,561      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 956,424 |   |
| Exercise of options,                net                                                      |   | 165,555      |                                                         |         | 166                                                     |         |                                                                                                     | 83,565       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 83,731 |   |
| Issuance of shares for                services, net                                          |   | 11,800       |                                                         |         | 12                                                      |         |                                                                                                     | 10,018       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 10,030 |   |
| Exercise of convertible                debentures, net                                       |   | 330,000      |                                                         |         | 330                                                     |         |                                                                                                     | 296,670      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 297,000 |   |
| Issuance of warrants with                convertible debt                                    |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 178,807      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 178,807 |   |
| Issuance of options for                services                                              |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 160,426      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 160,426 |   |
| Net loss                                                                                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (2,294,936   | ) |   | — |   |   | — |   |   | (2,294,936 | ) |
|                                                                                         |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                2001                                                      |   | 19,802,245   |                                                         |         | 19,802                                                  |         |                                                                                                     | 58,211,335   |                                   |         | —                                                                              |         |                                                                                       | (58,971,515  | ) |   | — |   |   | — |   |   | (740,378 | ) |
|                                                                                         |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                      |   | 2,622,122    |                                                         |         | 2,623                                                   |         |                                                                                                     | 1,047,925    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,050,548 |   |
| Exercise of stock options                and warrants                                        |   | 186,000      |                                                         |         | 186                                                     |         |                                                                                                     | 92,814       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 93,000 |   |
| Issuance of shares for                services, net                                          |   | 78,340       |                                                         |         | 78                                                      |         |                                                                                                     | 64,048       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 64,126 |   |
| Exercise of convertible                debentures, net                                       |   | 72,214       |                                                         |         | 72                                                      |         |                                                                                                     | 64,921       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 64,993 |   |
| Vesting of options                previously issued                   for services |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 173,436      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 173,436 |   |
| Net loss                                                                                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (2,591,162   | ) |   | — |   |   | — |   |   | (2,591,162 | ) |
|                                                                                         |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31, 2002                (carried forward)                                    |   | 22,760,921   |                                                         |         | 22,761                                                  |         |                                                                                                     | 59,654,479   |                                   |         | —                                                                              |         |                                                                                       | (61,562,677  | ) |   | — |   |   | — |   |   | (1,885,437 | ) |

| F-13 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency), Continued |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |

|                                                                                                                 |   |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|----------------------------------------------------------------------------------------------------------------------|--------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                                                                                 |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
|                                                                                                                 |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |
| Balance at July 31, 2002                (brought forward)                                                            |   | 22,760,921   |                                                         | $            | 22,761                                                  |         | $                                                                                                        | 59,654,479   |                                   |         | —                                                                              |         | $                                                                                          | (61,562,677  | ) | $ | — |   | $ | — |   | $ | (1,885,437 | ) |
|                                                                                                                 |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                                              |   | 1,315,000    |                                                         |         | 1,315                                                   |         |                                                                                                     | 652,312      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 653,627 |   |
| Exercise of stock options                and warrants                                                                |   | 764,000      |                                                         |         | 764                                                     |         |                                                                                                     | 376,896      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 377,660 |   |
| Issuance of shares for                payment of accounts                  payable                              |   | 186,208      |                                                         |         | 186                                                     |         |                                                                                                     | 94,037       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 94,223 |   |
| Issuance of options for                services rendered                                                             |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 75,521       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 75,521 |   |
| Vesting of options                previously issued for                   services                         |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 10,038       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 10,038 |   |
| Issuance of warrants in                connection with                   debt issuances                    |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 594,219      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 594,219 |   |
| Net loss                                                                                                             |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (2,411,532   | ) |   | — |   |   | — |   |   | (2,411,532 | ) |
|                                                                                                                 |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                2003                                                                              |   | 25,026,129   |                                                         |         | 25,026                                                  |         |                                                                                                     | 61,457,502   |                                   |         | —                                                                              |         |                                                                                       | (63,974,209  | ) |   | — |   |   | — |   |   | (2,491,681 | ) |
|                                                                                                                 |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                                              |   | 3,035,200    |                                                         |         | 3,036                                                   |         |                                                                                                     | 10,732,942   |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 10,735,978 |   |
| Exercise of stock options                and warrants                                                                |   | 3,100,160    |                                                         |         | 3,100                                                   |         |                                                                                                     | 4,155,397    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 4,158,497 |   |
| Issuance of shares for                payment of accounts                   payable                        |   | 14,703       |                                                         |         | 15                                                      |         |                                                                                                     | 52,161       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 52,176 |   |
| Issuance of shares for                conversion of                   subordinated debentures              |   | 3,042,817    |                                                         |         | 3,043                                                   |         |                                                                                                     | 924,829      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 927,872 |   |
| Issuance of shares for                services rendered                                                              |   | 128,876      |                                                         |         | 128                                                     |         |                                                                                                     | 288,372      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 288,500 |   |
| Issuance of options for                services rendered                                                             |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 280,612      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 280,612 |   |
| Net loss                                                                                                             |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (5,070,307   | ) |   | — |   |   | — |   |   | (5,070,307 | ) |
|                                                                                                                 |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                2004                                                                              |   | 34,347,885   |                                                         |         | 34,348                                                  |         |                                                                                                     | 77,891,815   |                                   |         | —                                                                              |         |                                                                                       | (69,044,516  | ) |   | — |   |   | — |   |   | 8,881,647 |   |
|                                                                                                                 |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Exercise of stock options                and warrants, net                                                           |   | 438,372      |                                                         |         | 438                                                     |         |                                                                                                     | 306,717      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 307,155 |   |
| Issuance of shares and                warrants for                   conversion of subordinated debentures |   | 1,744,978    |                                                         |         | 1,745                                                   |         |                                                                                                     | 462,754      |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 464,499 |   |
| Issuance of shares for                services rendered                                                              |   | 3,000        |                                                         |         | 3                                                       |         |                                                                                                     | 13,497       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 13,500 |   |
| Issuance of options and                warrants for                  services rendered                     |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 16,789       |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 16,789 |   |
| Net loss                                                                                                             |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (6,461,920   | ) |   | — |   |   | — |   |   | (6,461,920 | ) |
|                                                                                                                 |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                2005                                                                              |   | 36,534,235   |                                                         |         | 36,534                                                  |         |                                                                                                     | 78,691,572   |                                   |         | —                                                                              |         |                                                                                       | (75,506,436  | ) |   | — |   |   | — |   |   | 3,221,670 |   |
|                                                                                                                 |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |   |   |   |   |   |   |   |   |
| Sale of shares to private                investors, net                                                              |   | 6,632,099    |                                                         |         | 6,632                                                   |         |                                                                                                     | 10,977,288   |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 10,983,920 |   |
| Exercise of stock options                and warrants, net                                                           |   | 1,122,827    |                                                         |         | 1,123                                                   |         |                                                                                                     | 1,347,201    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,348,324 |   |
| Issuance of stock options                and warrants                   for services rendered              |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 1,489,264    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,489,264 |   |
| Net loss                                                                                                             |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (7,810,175   | ) |   | — |   |   | — |   |   | (7,810,175 | ) |
|                                                                                                                 |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31, 2006                (carried forward)                                                            |   | 44,289,161   |                                                         |         | 44,289                                                  |         |                                                                                                     | 92,505,325   |                                   |         | —                                                                              |         |                                                                                       | (83,316,611  | ) |   | — |   |   | — |   |   | 9,233,003 |   |

| F-14 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statement                    of Stockholders’ Equity (Deficiency), Continued |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                         |

|                                                       |   |    | Capital In                Excess of par                Value |    | Common                Stock to be                Issued |    | Deficit                Accumulated                During                Development                Stage |    | Subscription                Receivable |    | Deferred                compensation,                restricted                stock |    | Total                Stockholders’                Equity                (Deficiency) |    |
|------------------------------------------------------------|--------|--------------|--------------------------------------------------------------|--------------|---------------------------------------------------------|--------------|----------------------------------------------------------------------------------------------------------|--------------|----------------------------------------|--------------|--------------------------------------------------------------------------------------|--------------|--------------------------------------------------------------------------------------------|--------------|
||
||
||
|                                                       |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
|                                                       |   |         |                                                         |         |                                                    |         |                                                                                                     |         |                                   |         |                                                                                 |         |                                                                                       |         |   |   |
| Balance at July 31, 2006                (brought forward)  |   | 44,289,161   |                                                         | $            | 44,289                                                  |         | $                                                                                                        | 92,505,325   |                                   |         | —                                                                              |         | $                                                                                          | (83,316,611  | ) | $ | — |   | $ | — |   | $ | 9,233,003 |   |
|                                                  |
| Sale of shares to private                investors, net    |   | 553,360      |                                                         |         | 553                                                     |         |                                                                                                     | 1,368,104    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,368,657 |   |
| Exercise of stock options                and warrants, net |   | 1,438,359    |                                                         |         | 1,439                                                   |         |                                                                                                     | 1,504,261    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 1,505,700 |   |
| Stock-based compensation                expense            |   | —      |                                                         |         | —                                                 |         |                                                                                                     | 2,426,264    |                                   |         | —                                                                              |         |                                                                                       | —      |   |   | — |   |   | — |   |   | 2,426,264 |   |
| Net loss                                                   |   | —      |                                                         |         | —                                                 |         |                                                                                                     | —      |                                   |         | —                                                                              |         |                                                                                       | (8,755,144   | ) |   | — |   |   | — |   |   | (8,755,144 | ) |
|                                                       |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |
| Balance at July 31,                2007                    |   | 46,280,880   |                                                         | $            | 46,281                                                  |         | $                                                                                                        | 97,803,954   |                                   |         | —                                                                              |         | $                                                                                          | (92,071,755  | ) | $ | — |   | $ | — |   | $ | 5,778,480 |   |
|                                                       |        |         |                                                              |         |                                                         |         |                                                                                                          |         |                                        |         |                                                                                      |         |                                                                                            |         |  |   |

|                                                           |
|----------------------------------------------------------------|
| See accompanying notes to                financial statements. |

| F-15 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statements                    of Cash Flows

Years                    ended July 31, 2007, 2006 and 2005                    and the Period from August 24, 1981                    (Date of Inception) to July 31, 2007 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                              |

|                                                                                                                                                                                                 | 2007   |            | 2006   |        | 2005       |        | August 24,                1981 (date of                inception) to                July 31, 2007 |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|------------|--------|---------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                                                 |
| Cash flows from operating                activities:                                                                                                                                                 |   |            |   |   |            |   |                                                                                              |            |   |   |  |   |
|   Net                loss                                                                                                                                                                  | $      | (8,755,144 | )      | $      | (7,810,175 | )      | $                                                                                                 | (6,461,920 | ) | $ | (92,071,755 | ) |
|   Adjustments to                reconcile net loss to net cash                    used in operating activities:                                                        |   |            |   |   |            |   |                                                                                              |            |   |   |  |   |
|       Gain on                sale of marketable equity securities                                                                                                      |   | —    |   |   | —    |   |                                                                                              | —    |   |   | (25,963 | ) |
|       Depreciation                and amortization                                                                                                                     |   | 39,063     |   |   | 29,703     |   |                                                                                              | 28,917     |   |   | 1,659,040 |   |
|       Loss on                disposal of property and equipment                                                                                                        |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 18,926 |   |
|       Loss on                lease termination                                                                                                                         |   | 30,964     |   |   | —    |   |                                                                                              | —    |   |   | 30,964 |   |
|       Stock-based                compensation expense                                                                                                                  |   | 2,426,264  |   |   | 1,489,264  |   |                                                                                              | 30,289     |   |   | 10,632,541 |   |
|       Amortization                of deferred rent expense, net                                                                                                        |   | 14,155     |   |   | —    |   |                                                                                              | —    |   |   | 14,155 |   |
|       Amortization                of debt discount                                                                                                                     |   | —    |   |   | —    |   |                                                                                              | 34,120     |   |   | 594,219 |   |
|       Amortization                of deferred compensation                                                                                                             |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 11,442,000 |   |
|       Changes                in assets and liabilities:                                                                                                                |   |            |   |   |            |   |                                                                                              |            |   |   |  |   |
|         (Increase)                decrease in prepaid expenses                                                                                               |   | (83,117    | )      |   | 129,846    |   |                                                                                              | (132,165   | ) |   | (210,074 | ) |
|         Increase                in loans receivable, related party                                                                                           |   | (9,527     | )      |   | (9,528     | )      |                                                                                              | (9,527     | ) |   | (84,346 | ) |
|         Increase                in other assets                                                                                                              |   | (385,000   | )      |   | —    |   |                                                                                              | —    |   |   | (385,000 | ) |
|         Increase                in loans and interest payable, related                          party      |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 744,539 |   |
|         (Decrease)                increase in accounts payable                                                                                               |   | (853,384   | )      |   | 889,907    |   |                                                                                              | (145,337   | ) |   | 939,421 |   |
|         Increase                in accrued payroll and expenses, related                           parties |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 2,348,145 |   |
|         Increase                in accrued expenses                                                                                                          |   | 89,859     |   |   | 23,564     |   |                                                                                              | 722,985    |   |   | 2,115,998 |   |
|         Increase                in deferred revenue                                                                                                          |   | 100,000    |   |   | —    |   |                                                                                              | —    |   |   | 100,000 |   |
|                                                                                                                                                                                                 |
|            Net                cash used in operating activities                                                                               |   | (7,385,867 | )      |   | (5,257,419 | )      |                                                                                              | (5,932,638 | ) |   | (62,137,190 | ) |
|                                                                                                                                                                                                 |
|                                                                                                                                                                                                 |   |            |   |   |            |   |                                                                                              |            |   |   |  |   |
| Cash flows from investing                activities:                                                                                                                                                 |   |            |   |   |            |   |                                                                                              |            |   |   |  |   |
|       Purchase                of marketable equity securities                                                                                                          |   | —    |   |   | —    |   |                                                                                              | —    |   |   | (290,420 | ) |
|       Purchase                of short-term investments                                                                                                                |   | —    |   |   | —    |   |                                                                                              | —    |   |   | (1,993,644 | ) |
|       Proceeds                from sale of marketable equity securities                                                                                                |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 316,383 |   |
|       Proceeds                from sale of short-term investments                                                                                                      |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 1,993,644 |   |
|       Capital                expenditures                                                                                                                              |   | (38,858    | )      |   | (19,236    | )      |                                                                                              | (52,529    | ) |   | (1,570,996 | ) |
|       Patent                costs                                                                                                                                      |   | —    |   |   | —    |   |                                                                                              | —    |   |   | (97,841 | ) |
|                                                                                                                                                                                                 |
|            Net                cash used in investing activities                                                                               |   | (38,858    | )      |   | (19,236    | )      |                                                                                              | (52,529    | ) |   | (1,642,874 | ) |
|                                                                                                                                                                                                 |

| F-16 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statements of Cash Flows,                    Continued |
|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                             |

|                                                                                                                                                                                                                                                                             |   |   | 2007   |            | 2006   |        | 2005       |        | August 24,                1981 (date of                inception) to                July 31, 2007 |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|------------|--------|--------|------------|--------|---------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                                             |   |   |
| Cash flows from financing                activities:                                                                                                                                                                                                                             |   |   |   |            |   |   |            |   |                                                                                              |            |   |   |  |   |
|     Proceeds from                short-term borrowings                                                                                                                                                                                                       |   |   | $      | —    |   | $      | —    |   | $                                                                                                 | —    |   | $ | 874,500 |   |
|     Payment of short-term                borrowings                                                                                                                                                                                                          |   |   |   | —    |   |   | —    |   |                                                                                              | —    |   |   | (653,500 | ) |
|     Increase in loans                payable, related party, net                                                                                                                                                                                             |   |   |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 2,628,868 |   |
|     Proceeds from bank                debt and other long-term                     debt, net of deferred debt costs                                                                                                                      |   |   |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 3,667,460 |   |
|     Reduction of bank                debt and long-term debt                                                                                                                                                                                                 |   |   |   | —    |   |   | —    |   |                                                                                              | (6,731     | ) |   | (2,966,568 | ) |
|     Proceeds from                issuance of common stock, net                                                                                                                                                                                               |   |   |   | 1,368,657  |   |   | 10,983,920 |   |                                                                                              | —    |   |   | 53,102,893 |   |
|     Proceeds from                exercise of stock options and                       warrants, net                                                                                                                             |   |   |   | 1,505,700  |   |   | 1,348,324  |   |                                                                                              | 307,155    |   |   | 13,380,590 |   |
|     Proceeds from                issuance of convertible debentures,                       related party                                                                                                                       |   |   |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 297,000 |   |
|     Proceeds from                issuance of convertible debentures,                       unrelated party                                                                                                                     |   |   |   | —    |   |   | —    |   |                                                                                              | —    |   |   | 416,993 |   |
|                                                                                                                                                                                                                                                                             |   |   |
|           Net                cash provided by financing activities                                                                                                                                                             |   |   |   | 2,874,357  |   |   | 12,332,244 |   |                                                                                              | 300,424    |   |   | 70,748,236 |   |
|                                                                                                                                                                                                                                                                             |   |   |
|           Net                increase (decrease) in cash and cash                                            equivalents                                           |   |   |   | (4,550,368 | )      |   | 7,055,589  |   |                                                                                              | (5,684,743 | ) |   | 6,968,172 |   |
| Cash and cash equivalents at                beginning of period                                                                                                                                                                                                                  |   |   |   | 11,518,540 |   |   | 4,462,951  |   |                                                                                              | 10,147,694 |   |   | — |   |
|                                                                                                                                                                                                                                                                             |   |   |
| Cash and cash equivalents at                end of period                                                                                                                                                                                                                        |   |   | $      | 6,968,172  |   | $      | 11,518,540 |   | $                                                                                                 | 4,462,951  |   | $ | 6,968,172 |   |
|                                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                                        |
| Supplemental disclosure of                cash flow                      information – interest paid                                                                                                                                              |   |   | $      | 96         |   | $      | 112        |   | $                                                                                                 | 305        |   | $ | 1,714,226 |   |
|                                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                                        |
| Noncash investing and                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 |   |
|                                                                                                                                                                                                                                                                             |   |   |
|                                                                                                                                                                                                                                                                        |
|   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                                                                                                                                                                                                       |   |   | $      | —    |   | $      | —    |   | $                                                                                                 | —    |   | $ | 506,725 |   |
|                                                                                                                                                                                                                                                                             |   |   |

| F-17 |
|------|

| ALFACELL                    CORPORATION                    (A Development Stage Company)

Statements of Cash Flows,                    Continued |
|--------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                             |

|                                                                                                                                                                                                                                                                              |   |   | 2007 |         | 2006   |   | 2005    |        | August 24,                1981 (date of                inception) to                July 31, 2007 |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------|---------|--------|---|---------|--------|---------------------------------------------------------------------------------------------------|---------|
|                                                                                                                                                                                                                                                                              |   |   |
||
|  Conversion of notes                payable, bank and accrued                    interest to long-term debt                                                                                                                                              |   |   | $    | — |   | $ | — |   | $                                                                                                 | — |   | $ | 1,699,072 |   |
|                                                                                                                                                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                                         |
|  Conversion of loans                and interest payable, related                    party and accrued payroll and expenses, related parties                    to long-term accrued payroll and other, related                party |   |   | $    | — |   | $ | — |   | $                                                                                                 | — |   | $ | 1,863,514 |   |
|                                                                                                                                                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                                         |
|  Issuance of common                stock and warrants upon the                    conversion of convertible subordinated debentures                    and accrued  interest, other                              |   |   | $    | — |   | $ | — |   | $                                                                                                 | 464,499 |   | $ | 1,584,364 |   |
|                                                                                                                                                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                                         |
|  Issuance of common                stock for services rendered                                                                                                                                                                                                               |   |   | $    | — |   | $ | — |   | $                                                                                                 | — |   | $ | 2,460 |   |
|                                                                                                                                                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                                         |
|  Lease incentive                allowance                                                                                                                                                                                                                                    |   |   | $    | 67,000  |   | $ | — |   | $                                                                                                 | — |   | $ | 67,000 |   |
|                                                                                                                                                                                                                                                                              |   |   |
|                                                                                                                                                                                                                                                                         |
|  Issuance of warrants                with notes payable                                                                                                                                                                                                                      |   |   | $    | — |   | $ | — |   | $                                                                                                 | — |   | $ | 594,219 |   |
|                                                                                                                                                                                                                                                                              |   |   |

| See                accompanying notes to financial statements. |
|----------------------------------------------------------------|

| F-18 |
|------|

| Notes to                    Financial Statements

Years                    ended July 31, 2007, 2006 and 2005                    and the Period From August 24, 1981                    (Date of Inception) to July 31, 2007 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                         |

| (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 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 is engaged                        in the research, development, and commercialization of drugs for the                        treatment of various forms of cancer and other life threatening diseases.                        As of July 31, 2007, the Company is currently conducting human clinical                        trials for its lead drug product candidate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|      | The Company is                        continuing to develop its drug product candidates, which require                        substantial capital for research, product development, and market                        development activities. The Company has not yet initiated marketing of a                        commercial drug product. Future product development will require clinical                        testing, regulatory approval, and substantial additional investment prior                        to commercialization. The future success of the Company is dependent on its                        ability to make progress in the development of its drug product candidates                        and, ultimately, upon its ability to attain future profitable operations                        through the successful manufacturing and marketing of those drug product                        candidates. There can be no assurance that the Company will be able to                        obtain the necessary financing or regulatory approvals to be able to                        successfully develop, manufacture, and market its products, or attain                        successful future operations. Accordingly, the Company’s future                        success is uncertain.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|      | The Company expects                        that its cash balances as of July 31, 2007, will be sufficient to support                        its activities into the first quarter of its fiscal year 2009 based on its                        expected level of expenditures. The Company’s long-term 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®, licensing of its proprietary                        RNase technology and its ability to realize revenues from its technology                        and its drug candidates via out-licensing agreements with other companies.                        Such additional funds may not become available as the Company may need them                        or be available on acceptable terms. Insufficient funds could require the                        Company to delay, scale back, or eliminate one or more of its research and                        development programs or to license third parties to commercialize drug                        product candidates or technologies that the Company would otherwise seek to                        develop without relinquishing its rights thereto. Until and unless the                        Company’s operations generate significant revenues, the Company                        expects to continue to fund operations from equity financing. There can be                        no assurance that the Company will be able to raise the capital it needs on                        terms which are acceptable, if at all. The Company may also obtain                        additional capital through the exercise of outstanding options and warrants                        and the sale of its tax benefits, although it cannot provide any assurance                        of such exercises or sale or the amount of capital it will receive, if                        any. |
|           |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|      | In addition,                        uncertainty exists as to the Company’s ability to protect its rights                        to patents and its proprietary information. There can also be no assurance                        that research and discoveries by others will not render some or all of the                        Company’s technology or drug product candidates noncompetitive or                        obsolete. Nor can there be any assurance that unforeseen problems will not                        develop with the Company’s technologies or applications, or that the                        Company will be able to address successfully technological challenges it                        encounters in its research and development programs. While the Company                        maintains insurance to cover the use of its drug product candidates in                        clinical trials, it does not maintain insurance covering the sale of its                        products nor is there any assurance that it will be able to obtain or                        maintain such insurance on acceptable terms or with adequate coverage                        against potential liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| F-19 |
|------|

|   | *Reclassifications* |
|--------|---------------------|

|   |
|--------|

|   | Certain                        reclassifications have been made to prior-year amounts to conform to the                        current-year presentations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Use of                Estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The preparation of                        financial statements in conformity with U.S. generally accepted accounting                        principles requires management to make estimates and assumptions that                        affect the reported amounts of assets and liabilities and disclosure of                        contingent assets and liabilities at the date of the financial statements                        and the reported amounts of revenue and expense during the reporting                        period. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Cash                Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The Company considers                        all highly liquid investments purchased with an original maturity of three                        months or less to be cash equivalents. The carrying value of these                        investments approximates their fair market value due to their short                        maturity and liquidity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Property                and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Property and equipment                        is recorded at cost and is depreciated using the straight-line method over                        the estimated useful lives of the respective assets. Maintenance and                        repairs that do not extend the life of assets are charged to expense when                        incurred. 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 in which                        the transaction takes place. Total depreciation and amortization expense                        for the years ended July 31, 2007, 2006 and 2005, was $39,063, $29,703, and                        $28,917, respectively. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Long-lived assets are                        reviewed for impairment whenever events or changes in circumstances                        indicate the carrying amount of an asset may not be recoverable.                        Recoverability of assets to be held and used is measured by a comparison of                        the carrying amount of an asset to estimated undiscounted cash flows                        expected to be generated by the asset. If the carrying amount exceeds its                        estimated future cash flows, an impairment charge is recognized in the                        amount by which the carrying amount exceeds the fair value of the                        asset.                                                                                                                                        |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Other                Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Other assets                consist of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   |   | Lease security deposit held by                a bank as collateral for a standby letter of credit                      in favor of the Company. The cash held by the                bank is restricted as to use                      for the term of the standby letter of                credit | $      | 350,000 |   |   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|--------|--------|
|   |   | Deferred                private placement costs                                                                                                                                                                                                                                                                                                               |   | 35,000  |   |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |        |    |   |
|   |   | Total                                                                                                                                                                                                                                                                                                                                                         | $      | 385,000 |   |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |        |    |   |

|   | Income                Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Income taxes are                        accounted for under the asset and liability method. Deferred tax assets and                        liabilities are recognized for the future tax consequences attributable to                        differences between the financial statement carrying amounts of existing                        assets and liabilities and their respective tax bases and operating loss                        and tax credit carryforwards. Deferred tax assets and liabilities are                        measured using enacted tax rates expected to apply to taxable income in the                        years in which those temporary differences are expected to be recovered or                        settled. The effect on deferred tax assets and liabilities of a change in                        tax rates is recognized in income in the period that includes the enactment                        date. Management provides valuation allowances against the deferred tax                        assets for amounts which are not considered “more likely than                        not” to be realized. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Revenue                Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | The Company recognizes                        revenue in accordance with Staff Accounting Bulletin (“SAB”)                        No. 104, “Revenue Recognition” issued by the staff of the SEC.                        Under SAB No. 104, revenue is recognized when persuasive                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |

| F-20 |
|------|

|   | evidence of an                        arrangement exists, delivery has occurred and/or services have been                        rendered, the sales price is fixed or determinable, and collectibility is                        reasonably assured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | The Company enters into                        marketing and distribution agreements, which contain multiple deliverables.                        Under the provisions of Emerging Issues Task Force (“EITF”) No.                        00-21, Accounting for Revenue Arrangements with Multiple Deliverables, the                        Company evaluates whether these deliverables constitute separate units of                        accounting to which total arrangement consideration is allocated. A                        deliverable qualifies as a separate unit of accounting when the item                        delivered to the customer has standalone value, there is objective and                        reliable evidence of fair value of items that have not been delivered to                        the customer, and, if there is a general right of return for the items                        delivered to the customer, delivery or performance of the undelivered items                        is considered probable and substantially in the control of the Company.                        Arrangement consideration is allocated to units of accounting on a relative                        fair-value basis or the residual method if the Company is unable to                        determine the fair value of all deliverables in the arrangement.                        Consideration allocated to a unit of accounting is limited to the amount                        that is not contingent upon future performance by the Company. Upon                        determination of separate units of accounting and allocated consideration,                        the general criteria for revenue recognition are applied to each unit of                        accounting. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | The Company has entered                        into an agreement with USP Pharma Spolka Z.O.O. (USP) to market, sell and                        distribute ONCONASE® in Poland and other countries in                        Eastern Europe. The Company received a $0.1 million upfront nonrefundable                        fee in July 2007 and is entitled to receive future additional fees,                        milestone payments and royalties. USP is responsible for all commercial                        costs in the territory. The Company has agreed to provide or arrange for                        contract manufacture of a commercial supply of ONCONASE®                        upon receipt of marketing approval in the territory. The up-front                        nonrefundable fee received by the Company will be recognized ratably as                        revenue once the general criteria for revenue recognition has been met for                        the unit of accounting to which the fee has been allocated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Research and                        Development                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Research and                        development costs are expensed as incurred. These costs include, among                        other things, consulting fees and costs related to the conduct of human                        clinical trials. The Company also allocates indirect costs, consisting                        primarily of operational costs for administering research and development                        activities, to research and development expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Share-Based                        Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | In December 2004, the                        Financial Accounting Standards Board issued Statement of Financial                        Accounting Standards (“SFAS”) No. 123(R) (revised 2004),                        “Share-Based Payment” (“SFAS 123(R)”), which amends                        SFAS 123. The new standard requires all share-based payments, including                        stock option grants to employees, to be recognized as an operating expense                        in the statement of operations. The expense is recognized over the                        requisite service period based on fair values measured on the date of                        grant. The Company adopted SFAS 123(R) effective August 1, 2005 using the                        modified prospective method and, accordingly, prior period amounts have not                        been restated. Under the modified prospective method, the fair value of all                        new stock options issued after July 31, 2005 and the unamortized fair value                        of unvested outstanding stock options at August 1, 2005 are recognized as                        expense as services are rendered.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | Accounting For                        Warrants Issued With Convertible Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The Company accounts                        for the intrinsic value of beneficial conversion rights arising from the                        issuance of convertible debt instruments with non-detachable conversion                        rights that are in-the-money at the commitment date pursuant to the                        consensuses of EITF Issue No. 98-5 and EITF Issue No. 00-27. Such value is                        allocated to additional paid–in capital and the resulting debt                        discount is charged to interest expense over the terms of the notes                        payable. Such value is determined after first allocating an appropriate                        portion of the proceeds received to warrants or any other detachable                        instruments included in the exchange. |

| F-21 |
|------|

|        | Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | With respect to its                        operating leases, the Company applies the provisions of SFAS 13                        “Accounting for Leases” and FASB Technical Bulletin                        (“FTB”) 88-1 “Issues Relating to Accounting for                        Leases”, recognizing rent expense on a straight-line basis over the                        lease term due to escalating lease payments and landlord incentives. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | Liabilities for loss                        contingencies arising from claims, assessments, litigation, fines, and                        penalties and other sources are recorded when it is probable that a                        liability has been incurred and the amount of the liability can be                        reasonably estimated. Recoveries from other parties are recorded when                        realized.                                                   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Fair Value of                        Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Financial instruments                        consist of cash, cash equivalents, accounts receivable, and accounts                        payable. The carrying value of these financial instruments approximates                        fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Recent Accounting                        Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In June 2007, the                        Financial Accounting Standards Board (“FASB”) issued EITF Issue                        No. 07-03, “Accounting for Nonrefundable Advance Payments for Goods                        or Services to Be Used in Future Research and Development Activities”                        (“EITF 07-03”). EITF 07-03 addresses the diversity that exists                        with respect to the accounting for the nonrefundable portion of a payment                        made by a research and development entity for future research and                        development activities. The EITF concluded that an entity must defer and                        capitalize nonrefundable advance payments made for research and development                        activities and expense these amounts as the related goods are delivered or                        the related services are performed. EITF 07-03 will be effective for                        interim or annual reporting periods in fiscal years beginning after                        December 15, 2007. The Company is currently evaluating the impact that                        the adoption of EITF 07-03 will have, if any, on its financial                        statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In February 2007, the                        FASB issued SFAS 159 “The Fair Value Option for Financial Assets and                        Financial Liabilities” (“SFAS 159”). SFAS 159                        permits entities to choose to measure many financial instruments and                        certain other items at fair value that are not currently required to be                        measured at fair value. SFAS 159 will be effective for the Company on                        August 1, 2008. The Company is currently evaluating the impact of the                        adoption of SFAS 159 will have, if any, on its financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In December 2006, the                        FASB issued FASB Staff Position (“FSP”) EITF Issue No. 00-19-2                        “Accounting for Registration Payment Arrangements” (“FSP                        00-19-2”) which addresses an issuer’s accounting for                        registration payment arrangements. FSP 00-19-2 specifies that the                        contingent obligation to make future payments or otherwise transfer                        consideration under a registration payment arrangement, whether issued as a                        separate agreement or included as a provision of a financial instrument or                        other agreement, should be separately recognized and measured in accordance                        with FASB Statement No.5 “Accounting for Contingencies.” The                        guidance in FSP 00-19-2 amends FASB Statements No. 133, “Accounting                        for Derivative Instruments and Hedging Activities”, and No.150,                        “Accounting for Certain Financial Instruments with Characteristics of                        both Liabilities and Equity”, and FASB Interpretation No.45,                        “Guarantor’s Accounting and Disclosure Requirements for                        Guarantees, Including Indirect Guarantees of Indebtedness of Others”                        to include scope exceptions for registration payment arrangements. FSP                        00-19-2 is effective immediately for registration payment arrangements and                        the financial instruments subject to those arrangements that are entered                        into or modified subsequent to the date of issue of FSP 00-19-2. For                        registration payment arrangements and financial instruments subject to                        those arrangements that were entered into prior to the issuance of FSP                        00-19-2, this is effective for financial statements issued for fiscal years                        beginning after December 15, 2006, and interim periods within those fiscal                        years. The Company has analyzed the provisions of FSP 00-19-2 and                        determined that it will not have an effect on the Company’s financial                        statements. |

| F-22 |
|------|

|   | In September 2006, the                        FASB issued SFAS 157 “Fair Value Measurements” (“SFAS                        157”). SFAS 157 defines fair value, establishes a framework for                        measuring fair value, and expands disclosures about fair value                        measurements. SFAS 157 does not require new fair value measurements. The                        Company is required to adopt SFAS 157 as of August 1, 2008, and is                        currently evaluating the impact that the adoption of SFAS 157 will have, if                        any, on its reported financial results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | In September 2006, the                        Securities and Exchange Commission (“SEC”) issued Staff                        Accounting Bulletin No. 108 “Quantifying Misstatements in Financial                        Statements” (“SAB 108”). Under SAB 108, the Company is                        required to use a combination of the two previously-acceptable approaches                        for quantifying misstatements, and to adjust its financial statements if                        this combined approach results in a conclusion that an error is material.                        The Company adopted SAB 108 and determined that it did not have a material                        impact on its reported financial results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |  In June 2006, the                        FASB issued Interpretation No. 48, “Accounting for Uncertainty in                        Income Taxes - an Interpretation of FASB Statement No. 109”                        (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in                        income taxes recognized in a company’s financial statements in                        accordance with Statement No. 109, “Accounting for Income                        Taxes.” FIN 48 prescribes a recognition threshold and                        measurement attribute for the financial statement recognition and                        measurement of a tax position taken or expected to be taken in a                        company’s tax return. The provisions of FIN 48 are effective for                        fiscal years beginning after December 15, 2006 and will, therefore, be                        effective for the Company’s fiscal quarter ending October 31, 2007,                        the first quarter of fiscal year ending July 31, 2008. The adoption of FIN                        48 is not expected to have a material impact, if any, on the                        Company’s reported financial results. |

|                                                                     |
|--------------------------------------------------------------------------|
|  (2)                       Net Loss Per Common Share |
|                                                                     |

|   | The following                table sets forth the computation of basic and diluted net loss per common                share: |
|--------|------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                         |

|        |                                                                                                                  | Year Ended July                31, |            |
|--------|------------------------------------------------------------------------------------------------------------------|------------------------------------|------------|
||
||
|        |                                                                                                                  |                                    |            |  |  |  |  |
|        |                                                                                                                  |                               |            |   |  |   |  |
|   | Numerator:                                                                                                       |                               |       |   |   |   |   |   |   |   |
|   |      Net                loss                                                            | $                                  | (8,755,144 | ) | $ | (7,810,175 | ) | $ | (6,461,920 | ) |
|   | Denominator:                                                                                                     |                               |       |   |   |   |   |   |   |   |
|   | Weighted                average number of common                     shares outstanding |                               | 44,958,000 |   |   | 37,308,000 |   |   | 35,379,000 |   |
|        |                                                                                                                  |                                    |            |  |  |  |  |
|        |                                                                                                                  |                               |            |   |  |   |  |
|   | Loss per                common share - basic and diluted                                                         | $                                  | (0.19      | ) | $ | (0.21 | ) | $ | (0.18 | ) |
|        |                                                                                                                  |                                    |            |  |  |  |  |
|   |                                                                                                             |                               |       |   |   |   |   |   |   |   |
|   | Potentially                dilutive securities:                                                                  |                               |       |   |   |   |   |   |   |   |
|   |      Warrants                                                                           |                               | 16,070,748 |   |   | 18,119,598 |   |   | 12,744,674 |   |
|   |      Stock                options                                                       |                               | 4,867,039  |   |   | 3,830,350 |   |   | 3,497,845 |   |
|        |                                                                                                                  |                                    |            |  |  |  |  |
|   | Total                potentially dilutive securities                                                             |                               | 20,937,787 |   |   | 21,949,948 |   |   | 16,242,519 |   |
|        |                                                                                                                  |                                    |            |  |  |  |  |

|   |                                                                                                                                                                                                                                                                               |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | As the Company has                        incurred a net loss for all periods presented, basic and diluted per common                        share amounts are the same, since the inclusion of all potentially dilutive                        securities would be anti-dilutive. |

|      |                                                                                  |
|-----------|---------------------------------------------------------------------------------------|
|  (3) | Property                and Equipment                                                 |
|      |                                                                                  |
|      | Property and                equipment, at cost, consists of the following at July 31: |
|           |                                                                                  |

|        |                                                               | 2007   |          | 2006   |        |
|--------|---------------------------------------------------------------|--------|----------|--------|--------|
|        |                                                               |        |          |        |        |
|   |                                                          |   |     |   |   |   |   |
|   | Laboratory                equipment                           | $      | 276,202  |   | $      | 774,757 |   |
|   | Office                equipment                               |   | 84,102   |   |   | 288,053 |   |
|   | Leasehold                improvements                         |   | 67,000   |   |   | 97,833 |   |
|   | Less                accumulated depreciation and amortization |   | (290,581 | )      |   | (1,090,715 | ) |
|        |                                                               |        |          |        |        |
|   | Property and                equipment, net                    | $      | 136,723  |   | $      | 69,928 |   |
|        |                                                               |        |          |        |        |

|   |                                                                                                                                                                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | During the fiscal year                        ended July 31, 2007, the Company wrote off the following fully depreciated                        and unusable property and equipment:  |

| F-23 |
|------|

|   |                                       | Amount |    | Accumulated                Depreciation |   |    |
|--------|---------------------------------------|--------|---------|-----------------------------------------|--------|---------|
||
|   |                                  |   |    |                                    |   |    |   |   |
|   | Laboratory                equipment   | $      | 505,869 |                                    | $      | 505,869 |   |   |
|   | Office                equipment       |   | 235,495 |                                    |   | 235,495 |   |   |
|   | Leasehold                improvements |   | 97,833  |                                    |   | 97,833  |   |   |
|   |                                  |        |    |                                         |   |    |
|   |   Total                     | $      | 839,197 |                                    | $      | 839,197 |   |   |
|   |                                  |        |    |                                         |   |    |

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|-----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (4)       | Loan Receivable,                        related party                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|      | Amounts due from the                        Company’s CEO totaling $180,397 and $170,870 at July 31, 2007 and                        2006, respectively, 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. In each of the fiscal years ended July 31, 2007, 2006 and                        2005, the Company earned 8% interest in the amount of approximately $9,500                        on the unpaid principal balance. |
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|  (5) | 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 were 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 were 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. By July 31, 1986, all such warrants were exercised and the                        Company received proceeds of approximately $180,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| F-24 |
|------|

|   | 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 Company also issued 12,500                        shares of common stock in connection with the settlement of certain                        litigation. The fair value of such 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 and 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

| F-25 |
|------|

|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

| F-26 |
|------|

|   | of the options ranged                        from $2.27 to $2.50, which had been reduced from $3.50 and $5.00,                        respectively, during fiscal 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In June 1996, the                        Company sold in a private placement 1,515,330 shares of common stock and                        three-year warrants to purchase 313,800 shares of common stock at an                        exercise price of $7.50 per share. Of these shares, 12,000 were issued for                        services rendered to the Company. The common stock was sold alone at a per                        share price of $3.70, in combination with warrants at a per unit price of                        $12.52 and warrants were sold alone at a per warrant price of $1.42. Each                        unit consisted of three shares of common stock and one warrant. The Company                        received proceeds of approximately $5.7 million. The warrants expired                        during the fiscal year 2000.                                                                                                                                                                        |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | In June 1996, the                        Company issued 10,000 five-year stock options as payment for services                        rendered. The options vested immediately and had 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 an investor resulting in net proceeds of $504,000 to                        the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| F-27 |
|------|

|   | In May 1997, the                        Company issued 100,000 stock options to Dr. Stephen Carter, 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 vested as follows: 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 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, 40,000 expired as of the fiscal year ended July                        31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|   | 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 vested as follows: 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. A total general and                        administrative expense of $185,600 was amortized on a straight –line                        basis over a five-year period, which commenced in October 1997. Of these                        options, 30,000 expired as of the fiscal year ended July 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | 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 vested monthly and were 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.                        These options expired during the fiscal year ended July 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|   | 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 was                        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 were 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. |
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|   | In February 1998, the                        Company completed a 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 net proceeds of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

| F-28 |
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|   | approximately                        $4,202,000. The placement agent 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|   | In March 1998, the                        Company converted an outstanding payable into 50,000 shares of the                        Company’s Common Stock. The fair value of the Common Stock                        approximated the outstanding payable amount of $100,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | 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 rendered. These                        options vested as follows: 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. A total general and administrative expense of                        $138,100 was amortized on a straight-line basis over a five-year period,                        which commenced in March 1998. As of July 31, 2003, the expense was fully                        amortized and recorded, 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. Of these options, 10,000 expired during the fiscal                        year ended July 31, 2003 and 65,000 were exercised during the fiscal year                        ended July 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   | 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 had 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | 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. An equal                        portion of these options vested monthly and a total general and                        administrative expense of $30,000 was 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. 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 they vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | 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 vested as follows: an                        aggregate of 20,000 vested on October 1, 1999; an aggregate of 2,500 of                        such options vested on the last day of each month over the first twelve                        months after the Effective Date of the Agreement; the remaining 150,000                        options vested on the third anniversary of the Effective Date of the                        Agreement. The Company recorded approximately $49,300 of general                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| F-29 |
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|   | and administrative                        expense based upon the fair value of the vested options through July 31,                        2000. During the fiscal year ended July 31, 2000, the Agreement was                        terminated which resulted in the cancellation of 150,000 options. The                        remaining 50,000 options were exercised during the fiscal year ended July                        31, 2004, which resulted in gross proceeds of $50,000 to the                        Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | During the fiscal year                        ended July 31, 1999, the Company issued 5,000 three-year stock options as                        payment for services rendered. 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. These options were exercised during the                        fiscal year ended July 31, 2000, which resulted in gross proceeds of $7,150                        to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|   | 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.                        These warrants expired in May 2003 and May 2005.                                                                                                                                                                                                                                                                                                                                 |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|   | 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. Of these warrants, 418,887 expired and                        277,778 were exercised.                                                                                                                                                                                                                                                                                                                                                            |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|   | 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 had 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. These options were exercised during the fiscal                        year ended July 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|   | 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 to conform with private placements to                        unrelated parties. These warrants were exercised as of July 31,                        2006. |

| F-30 |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | 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 had 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. These options were exercised as of                        July 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
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|   | 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 September 2007. As of July 31, 2007, 1,733,638 of                        these warrants were exercised and 654,070 warrants expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|   | 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. Of these warrants, 250,000 were                        exercisable at $.50 per share, 650,000 were exercisable at $1.00 per share                        and 600,000 were exercisable at $1.50 per share. In February 2002, the                        Company recorded an expense equal to the fair market value of the first                        500,000 warrants which vested immediately, 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 remaining 1,000,000                        warrants were to become exercisable if Roan Meyers was successful in                        helping the Company raise capital. However, Roan Meyers was not successful                        in raising additional capital from a third party. During the fiscal year                        ended July 31, 2002, Roan Meyers exercised warrants to purchase an                        aggregate of 186,000 shares of common stock, at an exercise price of $0.50                        per share, resulting in aggregate gross proceeds of $93,000 to the Company.                        During the fiscal year ended July 31, 2003, the vesting of the 600,000                        warrants was amended to vest immediately and the exercise price was amended                        from $1.50 to $0.50 per share due to the price change of the                        Company’s common stock. Roan Meyers exercised these warrants and was                        issued 600,000 shares of common stock. The Company also issued 40,000                        shares of common stock upon the exercise of warrants by Roan Meyers at an                        exercise price of $.50 per share. The Company realized aggregate gross                        proceeds of $320,000 from these capital raising transactions. During the                        fiscal year ended July 31, 2004, the exercise price of 250,000 warrants was                        amended from $1.00 to $0.50 per share due to the price change of the                        Company’s common stock and the vesting of the 400,000 warrants was                        amended to vest immediately. Roan Meyers exercised the remaining 674,000                        warrants which resulted in the issuance of 674,000 shares of common stock                        by the Company. The Company realized gross proceeds of $537,000 in this                        capital raising transaction. |
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|   | 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. As of July 31, 2005, 25,000 of                        these options were exercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | During the fiscal year                        ended July 31, 2002, the Company issued a note payable to an unrelated                        party in an aggregate amount of $300,000. The note was due in thirty days                        bearing interest at 8% per annum. In addition, the lender received warrants                        to purchase 300,000 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

| F-31 |
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|   | were extended for                        eighteen months at a conversion price of $0.40 per share plus a five-year                        warrant for each share of the Company’s common stock issued upon                        conversion at an exercise price of $1.00 per share. These notes were                        converted into shares of the Company’s common stock and warrants in                        fiscal year 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   | During the fiscal year                        ended July 31, 2003, the Company issued an aggregate of 764,000 shares of                        common stock upon the exercise of warrants and stock options by unrelated                        parties which resulted in gross proceeds of approximately $378,000 to the                        Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
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|   | During the fiscal year                        ended July 31, 2003, the Company issued an aggregate 186,208 shares of                        common stock in settlement of accounts payable in the aggregate amount of                        $94,223. In addition, one of the vendors was granted five-year options to                        purchase 50,000 shares of common stock at an exercise price of $1.25 per                        share. The Company recorded $17,581 non-cash research and development                        expenses for these options, based upon the fair value on the date of the                        issuance as estimated by the Black-Scholes options-pricing model. The                        settled accounts payable amount was credited to equity as the value of the                        common stock and options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|   | During the fiscal year                        ended July 31, 2003, the Company issued 25,000 five-year stock options to                        an unrelated party as an incentive for lending the Company an aggregate of                        $25,000, which was fully paid as of April 30, 2003. The stock options                        vested immediately and have an exercise price of $0.23 per share. The total                        non-cash interest expense recorded for these stock options was $2,503. In                        addition, the Company issued 140,000 five-year stock options for services                        rendered. These stock options vested immediately and have exercise prices                        of $0.84 and $1.25 per share. The total non-cash charge relating to these                        options was $55,437. The total value of these options was based upon the                        fair value of such options on the date of issuance as estimated by the                        Black-Scholes options-pricing model. Of these options, 20,000 were                        exercised during the fiscal year ended July 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | During the fiscal year                        ended July 31, 2003, the Company issued 8% convertible notes payable to                        unrelated parties with principal balances totaling an aggregate of                        $915,000. These notes payable were due to mature on various dates from                        April 2004 through May 2005 and were convertible into the Company’s                        common stock at conversion prices ranging from $0.20 to $0.50 per share and                        an equal number of five year warrants with an exercise price of $1.00 per                        share. With the issuance of the notes payable, the Company issued to the                        unrelated parties five year warrants to purchase an aggregate of 665,000                        shares of the Company’s common stock, at an exercise price of $0.60                        per share. In addition, the Company issued on the due date of the notes                        payable five year warrants to purchase an aggregate of 915,000 shares of                        the Company’s common stock at per share exercise prices of $1.00 and                        $1.10. The Company valued these warrants at a total of $219,259 based on                        the fair value determined by using the Black-Scholes method relative to the                        fair value of the notes payable. At the issuance dates of the notes                        payable, the fair market values of the Company’s shares exceeded the                        effective conversion prices. Accordingly, the Company initially increased                        additional paid-in capital by $219,259 for the relative fair value of the                        warrants and reduced the carrying value of the notes payable for the same                        amount for the debt discount attributable to the fair value of the                        warrants. The Company also increased its additional paid-in capital and                        debt discount by $374,960 for beneficial conversion rights issued in                        connection with the issuances of these notes. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | During the fiscal year                        ended July 31, 2003, the Company sold an aggregate of 1,315,000 shares of                        common stock to private investors at prices ranging from $0.20 to $0.73 per                        share resulting in net proceeds of $653,627 to the Company. In addition,                        the private investors were granted warrants to purchase an aggregate of                        1,315,000 shares of common stock at per share exercise prices ranging from                        $1.00 to $1.50. The warrants will expire during the period commencing                        January 2008 and ending in October 2008. As of July 31, 2007, 820,000 of                        these warrants were exercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
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|   | On January 14, 2004, at                        the Company’s annual meeting of stockholders, the Company’s                        stockholders approved an amendment to the Company’s Certificate of                        Incorporation, as amended, to increase the number of shares of common stock                        authorized from 40,000,000 to 100,000,000. Since no notes payable had been                        converted as of such date, the terms of the Company’s notes payable                        relating to conversion and exercise which were amended to authorize                        conversion to Series A Preferred Stock because there were an insufficient                        number of authorized shares of common stock available for issuance upon                        conversion, reverted to their original terms so that they were again                        convertible into shares of common stock, rather than shares of Series A                        Preferred Stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

| F-32 |
|------|

|   | On January 14, 2004, at                        the Company’s annual meeting of stockholders, the Company’s                        stockholders approved the 2004 Stock Incentive Plan (the “2004                        Plan”). The total number of shares of common stock authorized for                        issuance under the 2004 Plan is 8,500,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | During the fiscal year                        ended July 31, 2004, the Company issued an aggregate of 120,000 shares of                        common stock to private investors resulting in aggregate gross proceeds of                        $60,000 to the Company. In addition, the private investors were granted                        five-year warrants to purchase 120,000 shares of common stock at an                        exercise price of $1.25 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | During the fiscal year                        ended July 31, 2004, the Company issued 3,996 five-year stock options to a                        consultant as payment for services rendered. The options vested immediately                        and have a per share exercise price of $0.60. The Company recorded a total                        of $5,235 of 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. These options were exercised during the fiscal year ended                        July 31, 2004 resulting in gross proceeds of $2,398 to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | During the fiscal year                        ended July 31, 2004, the Company entered into a two-part financing                        agreement with SF Capital Partners, Ltd. for the private placement of                        1,704,546 shares of common stock and warrants to purchase 852,273 shares of                        common stock, at an exercise price of $1.50 per share. As consideration,                        the Company received $1,500,000. In addition, the Company granted SF                        Capital Partners, Ltd. a warrant to invest an additional $1,500,000 to                        purchase the Company’s common stock at an exercise price based upon a                        20-day trailing average of the closing price per share of the                        Company’s common stock (the “Additional Warrants”).                        During the fiscal year ended July 31, 2004, SF Capital Partners, Ltd.                        exercised the Additional Warrants at a 20-day trailing average exercise                        price of $3.96 which resulted in gross proceeds of $1,500,000 and the                        issuance of 379,170 shares of common stock and an Exercise Warrant to                        purchase an additional 189,585 shares of common stock at a per share                        exercise price of $4.75. The Company also issued an aggregate of 53,876                        shares of restricted common stock to a third party as finder’s fee.                        During the fiscal year ended July 31, 2006, the exercise price of the                        Exercise Warrant to purchase an additional 189,585 shares of common stock                        was reduced from $4.75 to $2.88 per share. As of July 31, 2007, none of                        these options were exercised. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | During the fiscal year                        ended July 31, 2004, the Company issued 25,000 five-year stock options to a                        board member as payment for non-board related services and 110,000                        five-year stock options to various consultants for services rendered. The                        options vested immediately and have a per share exercise price of $3.46.                        The Company recorded a total of $275,377 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. As of July 31, 2007, 5,000 of                        these options were exercised.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
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|   | During the fiscal year                        ended July 31, 2004, the Company issued an aggregate of 14,703 restricted                        shares of common stock as payment of accounts payable in the amount of                        $52,176.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|   | During the fiscal year                        ended July 31, 2004, the Company issued an aggregate of 75,000 restricted                        shares of common stock as payment for services rendered in an aggregate                        amount of $288,500.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
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|   | During the fiscal year                        ended July 31, 2004, the Company issued 1,210,654 shares of common stock to                        an existing institutional investor, resulting in gross proceeds of                        $10,000,000 to the Company. In addition, the institutional investor was                        granted five-year warrants to purchase 1,210,654 shares of Common Stock at                        an exercise price of $12.39 per share. The Company paid a 5% finder’s                        fee to a third party in connection with the private placement, which                        included a five-year warrant to purchase 60,533 shares of common stock at                        an exercise price of $12.39 per share. During the fiscal year ended July                        31, 2006, the exercise price of the warrants to purchase an aggregate of                        1,185,000 shares of common stock was reduced from $12.39 to $2.88 per                        share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
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|   | During the fiscal year                        ended July 31, 2004, the Company increased its outstanding shares by 40,000                        shares of common stock for replacement of previously issued stock.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | During the fiscal year                        ended July 31, 2004, the Company issued an aggregate of 3,042,817 shares of                        restricted common stock and five-year warrants to purchase 3,733,839 shares                        of common stock with exercise prices ranging from $1.00 to $1.10 per share                        upon the conversion of notes payable and accrued interest in the amount of                        approximately $927,872.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

| F-33 |
|------|

|   | During the fiscal year                        ended July 31, 2004, the Company issued an aggregate of 2,676,994 shares of                        common stock upon the exercise of warrants by unrelated parties and stock                        options by unrelated parties, employees, a director and former director at                        per share exercise prices ranging from $0.26 to $4.74. The Company realized                        aggregate gross proceeds of $2,656,099 from these exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2004, the Company incurred an aggregate of $824,022 of costs                        relating to various private placements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2005, the Company issued an aggregate of 1,744,978 shares of                        common stock and five-year warrants to purchase an aggregate of 2,044,978                        shares of common stock with an exercise price of $1.00 per share upon the                        conversion of notes payable and its accrued interest in an aggregate amount                        of $464,499.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2005, the Company issued an aggregate of 438,372 shares of                        common stock upon the exercise of stock options and warrants by unrelated                        parties, employees and a director at per share exercise prices ranging from                        $0.26 to $1.91. The Company realized aggregate net proceeds of $307,155                        from these exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2005, the Company issued 3,000 shares of restricted common                        stock as payment for services rendered. A non-cash expense of $13,500 was                        recorded by the Company for these shares, based upon the fair value of the                        common stock at the date of issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|   | During the fiscal year                        ended July 31, 2005, the Company issued 12,500 warrants to a vendor in                        consideration for services to be rendered. 5,000 of these warrants which                        vested immediately have an exercise price of $2.50 per share and 7,500                        warrants which vested on the 91st day from the grant date have                        an exercise price of $3.50 per share. These warrants will expire 24 months                        from the date the registration statement registering the shares underlying                        the warrants is declared effective or 36 months from the date of grant,                        whichever comes first. The Company recorded a total of $13,552 of non-cash                        expense for these warrants, based upon the fair value at July 31, 2005 as                        estimated by the Black-Scholes option pricing model.       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2005, the Company issued an aggregate of 20,000 ten-year                        stock options to consultants as payment for continuing services. The                        options will vest 25% each year starting on the first anniversary of the                        commencement of the services of the consultants provided they remain as                        consultants on the relevant vesting dates. The stock options have an                        exercise price of $2.05 per share. The Company recorded a total of $3,237                        of non-cash expense for these options, based upon the fair value at July                        31, 2005 as estimated by the Black-Scholes option pricing model. During the                        fiscal year ended July 31, 2006, the Company recorded under EITF 96-18, a                        total of $15,066 of non-cash expense for these options. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2006, the Company issued an aggregate of 1,122,827 shares of                        common stock upon the exercise of warrants and stock options by unrelated                        parties, consultants, employees, directors and an executive officer at per                        share exercise prices ranging from $0.26 to $3.46. The Company realized                        aggregate gross proceeds of $1,348,324 from these exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
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|   | During the fiscal year                        ended July 31, 2006, the Company issued 25,000 ten-year stock options to a                        consultant as payment for services rendered. The options vested immediately                        and have an exercise price of $1.32 per share. The Company recorded a total                        of $23,166 of non-cash expense for these options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2006, the Company issued 25,000 ten-year stock options to a                        consultant as payment for services rendered. The options vested immediately                        and have an exercise price of $3.37 per share. The Company recorded a total                        of $58,387 of non-cash expense for these options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2006, the Company issued 50,000 five-year stock options to a                        consultant as payment for services to be rendered. These options vest over                        a one year period, 50% of which vested immediately and 12.5% will vest                        equally for the next four quarters following the grant date. The stock                        options have an exercise price of $2.04 per share and are subject to                        variable accounting under EITF 96-18. The fair value of these options is                        being expensed over the service period. During the fiscal year ended July                        31, 2006,                                                                                                                                                                                                                                            |

| F-34 |
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|   | the Company recorded a                        total of $74,253 of non-cash expense for these options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   | During the fiscal year                        ended July 31, 2006, the Company issued 174,927 shares of restricted common                        stock to a private investor resulting in gross proceeds of $600,000 to the                        Company for a purchase price of $3.43 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
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|   | During the fiscal year                        ended July 31, 2006, the Company completed a private placement to various                        institutional investors which resulted in the issuance of an aggregate of                        6,457,172 shares of restricted common stock for a purchase price of $1.75                        per share. The institutional investors also received warrants to purchase                        up to an additional 6,457,172 shares of common stock of the Company. The                        fair value of the warrants at the grant date was approximately $12,962,000                        as estimated using the Black-Scholes options pricing model. The warrants                        have a term of five years and were issued in two separate series. The first                        series of warrants (to purchase 3,228,590 shares of common stock) are                        exercisable beginning on January 19, 2007, and the second series of                        warrants (to purchase 3,228,582 shares of common stock) are also                        exercisable beginning on January 19, 2007. Both sets of warrants have an                        exercise price equal to $2.88 per share. If the Company enters into a                        strategic corporate collaboration as outlined in the second series of                        warrants by December 31, 2006, the second series of warrants will be                        cancelled upon notification by the Company to the holders of the warrants                        that it has entered into such an agreement prior to such date. The Company                        did not enter in such agreement by the specified time therefore, the second                        series of warrants were not canceled. The Company received net proceeds of                        approximately $10,384,000 from this private placement. The Company filed a                        registration statement on Form S-3 to register the resale of the shares and                        the shares issuable upon exercise of the warrants, which was declared                        effective in August 2006. If the Company had failed to file the                        registration statement, request effectiveness of the registration                        statement, respond to comments of the Securities and Exchange Commission,                        or cause the registration statement to be declared effective in a timely                        manner in accordance with the provisions of the registration rights                        agreement between the Company and the investors, or if the registration                        statement ceases to remain effective, or the investors are otherwise not                        permitted to utilize the prospectus in the registration statement to resell                        the securities for more than 15 consecutive calendar days or more than an                        aggregate of 25 calendar days during any 12-month period (which need not be                        consecutive calendar days), then the Company must pay to each investor an                        amount, in cash, as partial liquidated damages and not as a penalty, equal                        to 2% of the aggregate purchase price paid by such investor for any                        securities registered on the registration statement that are then held by                        such investor monthly until the failure is cured. However, the Company                        shall not be required to pay partial liquidated damages to the investor in                        excess of 10% of the purchase price such investor paid for the registered                        securities. If the Company fails to pay any partial liquidated damages in                        full within seven days after the date payable, the Company will pay                        interest thereon to the investor at a rate of 18% per annum (or such lesser                        maximum amount that is permitted to be paid by applicable law), accruing                        daily from the date such partial liquidated damages are due until such                        amounts, plus all such interest thereon, are paid in full. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2007, the Company issued an aggregate of 295,800 shares of                        its common stock upon the exercise of stock options by an officer,                        employees and unrelated parties at per share exercise prices ranging from                        $0.23 to $2.16. The Company realized aggregate gross proceeds of $352,256                        from these exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2007, the Company issued an aggregate of 1,142,559 shares of                        its common stock upon the exercise of warrants by related and unrelated                        parties at per share exercise prices ranging from $0.60 to $2.88. The                        Company realized aggregate gross proceeds of $1,153,444 from these                        exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2007, the Company issued an aggregate of 130,000 ten-year                        stock options to various consultants for services rendered. The options                        vested immediately and have an exercise price of $1.71 per share. The                        Company recorded the total fair value of $176,800 of non-cash expense for                        these options upon issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | During the fiscal year                        ended July 31, 2007, the Company issued 10,000 ten-year stock options to a                        consultant for serving in the Scientific Advisory Board. The options vested                        immediately and have an exercise price of $1.49 per share. The Company                        recorded the total fair value of $11,660 of non-cash expense for these                        options upon issuance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | In July 2007, the                        Company and USP Pharma Spolka Z.O.O. (“USP”) entered into a                        Distribution and Marketing Agreement (the “Agreement”). The                        Agreement appoints USP as the Company’s exclusive distributor                        in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

| F-35 |
|------|

|   | Poland, Lithuania,                        Estonia, Latvia, Belarus and the Ukraine in the field of Oncology. Included                        in the Agreement is an up-front fee as consideration for the appointment of                        USP as the Company’s distributor in the defined territory. Based upon                        its review of Staff Accounting Bulletin No. 101, Revenue Recognition in                        Financial Statements, and Staff Accounting Bulletin No. 104, Revenue                        Recognition, the Company has determined that the up-front fee is to be                        recognized on a straight line basis over the term of the Agreement. The                        term of the Agreement is defined as the earlier of ten (10) years after the                        first commercial sale or the expiration of the patents covering the                        Company’s product in the defined territory. The Agreement also                        includes multiple milestone payments and the payment of royalties. The                        milestone payments are to be paid to the Company upon the attainment of                        those milestones as defined in the Agreement. The royalty payments by USP                        to the Company are based on a fixed percentage of net sales. No revenue has                        been recognized for the up-front fee, milestone achievements and royalties                        in the accompanying financial statements. In connection with the                        Distribution Agreement, the Company and Unilab LP, an affiliate of U.S.                        Pharmacia, entered into a Securities Purchase Agreement, (the                        “Purchase Agreement”), pursuant to which the Company issued an                        aggregate of 553,360 shares of its restricted common stock for purchase                        price of $2.53 per share. The Company realized gross proceeds of                        $1,400,000. The securities sold pursuant to the Purchase Agreement have not                        been registered under the Securities Act of 1933, as amended, and may not                        be offered or sold in the United States in the absence of an effective                        registration statement or exemption from registration requirements. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |                                                                                                                                                                                                                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6)    | 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 have since expired. |
|        |                                                                                                                                                                                                                                                                                          |
|   | The following table                        summarizes the activity of common stock warrants issued in connection with                        the private placements and conversion of notes payable completed in fiscal                        years 1994 through 2006:                       |
|        |                                                                                                                                                                                                                                                                                          |

|                                                                                                                                                                           | Warrants |      | Exercise                Price |   | Expiration                       |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|-----------|-------------------------------|--------|----------------------------------|--------|
||
||
|     Sold in                March 1994 Private Placement                                                                                               |     | 800,000   |                          |   | $5.00                            |   |   | 3/21/97 to 6/21/97 |   |
|                                                                                                                                                                      |          |      |                          |   |                             |   |   |   |
| Outstanding at                July 31, 1994                                                                                                                               |     | 800,000   |                          |   | 5.00                             |   |   | 3/21/97 to                6/21/97 |   |
|     Sold in                September 1994 Private Placement                                                                                           |     | 288,506   |                          |   | 5.50                             |   |   | 12/9/97 to                12/14/97 |   |
|     Sold in                October 1994 Private Placement                                                                                             |     | 40,000    |                          |   | 5.50                             |   |   | 1/21/98 |   |
|     Sold in                September 1995 Private Placement                                                                                           |     | 47,405    |                          |   | 4.00                             |   |   | 10/1/98 |   |
|                                                                                                                                                                      |          |      |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 1995                                                                                                               |     | 1,175,911 |                          |   | 4.00 -                5.50       |   |   | 3/21/97 to                10/1/98 |   |
|     Issued                to bank in connection with an amendment                      to the Company’s term loan |     | 10,000    |                          |   | 4.19                             |   |   | 8/31/97 |   |
|     Sold in                September 1995 Private Placement                                                                                           |     | 8,540     |                          |   | 4.00                             |   |   | 10/1/98 |   |
|     Sold in                June 1996 Private Placement                                                                                                |     | 313,800   |                          |   | 7.50                             |   |   | 8/29/99 to                9/10/99 |   |
|                                                                                                                                                                      |          |      |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 1996                                                                                                               |     | 1,508,251 |                          |   | 4.00 –                7.50 |   |   | 3/21/97 to                9/10/99 |   |
|     Exercised                                                                                                                                         |     | (147,450  | )                             |   | 5.00                             |   |   | 3/21/97 to                6/21/97 |   |
|     Expired                                                                                                                                           |     | (652,550  | )                             |   | 5.00                             |   |   | 3/21/97 to                6/21/97 |   |
|                                                                                                                                                                      |          |      |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 1997                                                                                                               |     | 708,251   |                          |   | 4.00 -                7.50       |   |   | 12/9/97 to                9/10/99 |   |
|     Sold in                February 1998 Private Placement                                                                                            |     | 1,168,575 |                          |   | 2.50                             |   |   | 8/17/01 |   |
|     Issued                to the Placement Agent inconnection                      with the February 1998 Private placement  |     | 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 |   |

| F-36 |
|------|

|                                                                                                                                                                                     | Warrants |       | Exercise                Price |   | Expiration                       |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|------------|-------------------------------|--------|----------------------------------|--------|
||
||
|     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                              |     | 300,000    |                          |   | 0.60                             |   |   | 11/13/06 to                7/29/07 |   |
|                                                                                                                                                                                |          |       |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 2002                                                                                                                         |     | 6,316,857  |                          |   | 0.50 -                4.55       |   |   | 5/28/03 to                9/10/07 |   |
|     Expired                                                                                                                                                     |     | (437,500   | )                             |   | 1.03 -                3.25       |   |   | 5/28/03 |   |
|     Sold in                various private placements                                                                                                           |     | 1,315,000  |                          |   | 1.00 -                1.50       |   |   | 1/24/08 to                10/31/08 |   |
|     Exercised                                                                                                                                                   |     | (640,000   | )                             |   | 0.50                             |   |   | 2/6/07 |   |
|     Issued                to unrelated parties in connection                      with notes payable                              |     | 665,000    |                          |   | 0.60                             |   |   | 9/6/07 to                3/14/08 |   |
|                                                                                                                                                                                |          |       |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 2003                                                                                                                         |     | 7,219,357  |                          |   | 0.50 -                4.55       |   |   | 5/28/05 to                10/31/08 |   |
|     Sold in                various private placements                                                                                                           |     | 2,372,512  |                          |   | 1.25 -                12.39      |   |   | 9/3/08 to                5/9/09 |   |
|     Exercised                                                                                                                                                   |     | (2,014,273 | )                             |   | 0.50 –                1.50 |   |   | 2/6/07 to                10/31/08 |   |
|     Issued                to third party as finder’s fee                                                                                                  |     | 60,533     |                          |   | 12.39                            |   |   | 5/9/09 |   |
|     Issued                to unrelated parties in                      connection with conversion of notes                payable |     | 3,733,839  |                          |   | 1.00 -                1.10       |   |   | 12/4/08 to                7/15/09 |   |
|                                                                                                                                                                                |          |       |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 2004                                                                                                                         |     | 11,371,968 |                          |   | 0.60 -                12.39      |   |   | 5/28/05 to                7/15/09 |   |
|     Exercised                                                                                                                                                   |     | (247,272   | )                             |   | 0.75 –                1.25 |   |   | 7/16/07 to                8/5/08 |   |
|     Expired                                                                                                                                                     |     | (437,500   | )                             |   | 2.50 –                4.55 |   |   | 5/28/05 |   |
|     Issued                to unrelated parties in connection with                      conversion of notes payable                |     | 2,044,978  |                          |   | 1.00                             |   |   | 9/14/09 to                5/6/10 |   |
|     Issued                to a vendor in connection with services                      rendered                                   |     | 12,500     |                          |   | 2.50 –                3.50 |   |   | 4/25/08 |   |
|                                                                                                                                                                                |          |       |                          |   |                             |   |   |   |
| Outstanding                and exercisable at July 31, 2005                                                                                                                         |     | 12,744,674 |                          |   | 0.60 -                12.39      |   |   | 11/29/05 to                5/6/10 |   |
|     Exercised                                                                                                                                                   |     | (915,582   | )                             |   | 0.75 –                1.50 |   |   | 7/7/06 to                9/2/08 |   |
|     Expired                                                                                                                                                     |     | (166,666   | )                             |   | 3.00                             |   |   | 11/29/05                – 12/21/05 |   |
|     Sold in                a private placement                                                                                                                  |     | 6,457,172  |                          |   | 2.88                             |   |   | 7/17/11 |   |
|                                                                                                                                                                                |          |       |                          |   |                             |   |   |   |
| Outstanding at                July 31, 2006                                                                                                                                         |     | 18,119,598 |                          |   | $0.60 -                $12.39    |   |   | 10/7/06 to                7/17/11 |   |
|     Exercised                                                                                                                                                   |     | (1,142,559 | )                             |   | 0.60 –                2.88 |   |   | 10/7/06 to                7/17/11 |   |
|     Expired                                                                                                                                                     |     | (906,291   | )                             |   | 1.50                             |   |   | 10/12/06                – 4/9/07 |   |
|                                                                                                                                                                                |          |       |                          |   |                             |   |   |   |
| Outstanding at                July 31, 2007                                                                                                                                         |     | 16,070,748 |                          |   | $0.60 -                $12.39    |   |   | 9/6/07 to                7/17/11 |   |
|                                                                                                                                                                                |          |       |                          |        |                             |   |  |   |
| Exercisable at                July 31, 2007                                                                                                                                         |     | 16,070,748 |                          |   | $0.60 -                $12.39    |   |   | 9/6/07 to                7/17/11 |   |
|                                                                                                                                                                                |          |       |                          |        |                             |   |  |   |

| F-37 |
|------|

| (7)                        Stock Options |
|--------------------------------------------------------------|
|                                                         |

|   | 2004 Stock Incentive                        Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company’s                        stockholders approved the 2004 Stock Incentive Plan (the “2004                        Plan”) for the issuance of up to 8,500,000 shares, which provides                        that common stock and stock options may be granted to employees, directors                        and consultants. The 2004 Plan provides for the granting of stock options,                        stock appreciation rights, restricted shares, or other share based awards                        to eligible employees and directors, as defined in the 2004 Plan. Options                        granted under the 2004 Plan will have an exercise price equal to the market                        value of the Company’s common stock on the date of the grant. The                        term, vesting period and time and method of exercise of options granted                        under the 2004 Plan are fixed by the Board of Directors or a committee                        thereof. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | 1997 Stock Option                        Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | The Company’s                        stockholders approved the 1997 stock option plan for the issuance of                        options for up to 2,000,000 shares, which provides 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. This plan                        expired in May 2007 except to the extent there are outstanding                        options.                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

|   | 1993 Stock                Option Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The Company’s                        stockholders approved the 1993 stock option plan for the issuance of                        options for up to 3,000,000 shares, which provides 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. This plan                        expired in November 2003 except to the extent there are outstanding                        options. As of July 31, 1994, 1,703,159 options were granted and                        outstanding under the 1993 stock option plan. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The Company recorded                        the following stock-based compensation expense for employees under SFAS                        123(R) based on the fair value of stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|   |                                                   | Year Ended July                31, |      |   |
|--------|--------------------------------------------------------|------------------------------------|-----------|--------|
||
||
||
||
|   | Research and                development                | $                                  | 794,262   |   | $ | 444,981 |   |   |
|   | General and                administrative              |                               | 1,427,859 |   |   | 873,230 |   |   |
|   |                                                   |                                    |      |        |   |   |
|   | Total stock-based compensation                expense  | $                                  | 2,222,121 |   | $ | 1,318,211 |   |   |
|   |                                                   |                                    |      |        |   |   |
|   | Basic and                diluted loss per common share | $                                  | 0.05      |   | $ | 0.04 |   |   |
|   |                                                   |                                    |      |        |   |   |

|   |                                                                                                                                                                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Had the Company                        accounted for its stock-based awards under the fair value method for the                        fiscal year ended July 31, 2005 the pro forma impact to its financial                        statements would have been as follows:  |
|        |                                                                                                                                                                                                                                                                             |

|   | Net loss:                                                                                                                                                                                                                                         |   |            |   |   |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|--------|--------|
|   |   As                reported                                                                                                                                                                                                            | $      | (6,461,920 | )      |   |
|   |   Total stock-based                employee compensation                  expense determined under a fair value                  based method for all awards,                  net of related tax effects |   | (3,278,082 | )      |   |
|   |                                                                                                                                                                                                                                              |        |       |   |
|   |   Pro                forma                                                                                                                                                                                                              | $      | (9,740,002 | )      |   |
|   |                                                                                                                                                                                                                                              |        |       |   |
|   | Basic and diluted loss per                common share:                                                                                                                                                                                           |   |       |   |   |
|   |   As                reported                                                                                                                                                                                                            | $      | (0.18      | )      |   |
|   |   Pro                forma                                                                                                                                                                                                              |   | (0.28      | )      |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The fair value of the                        stock options at the grant date was estimated using the Black-Scholes                        option pricing model based on the weighted-average assumptions as noted in                        the following table. The risk-free interest rate for periods approximating                        the expected life of the option is based on the U.S. Treasury yield curve                        in effect at the time of grant. The expected stock price volatility is                        based on historical volatility of the Company’s stock |

| F-38 |
|------|

|   | price.  For post                        July 31, 2005 grants, the expected term until exercise is derived using the                        “simplified” method as allowed under the provisions of the                        Securities and Exchange Commission’s Staff Accounting Bulletin No.                        107, “Disclosures about Fair Value of Financial Instruments”                        and represents the period of time that options granted are expected to be                        outstanding. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|   |                                                                     |        | 2007   |       | 2006   |        | 2005 |        |
|--------|---------------------------------------------------------------------|--------|--------|-------|--------|--------|------|--------|
||
||
|   | Expected dividend                yield                              |   |   | 0     | %      |   | 0    | %      |   | 0 | % |
|   | Risk-free interest                rate                              |   |   | 4.78  | %      |   | 4.40 | %      |   | 4.25 | % |
|   | Expected stock price                volatility                      |   |   | 107.7 | %      |   | 95.6 | %      |   | 95.2 | % |
|   | Expected term until exercise                (years)                 |   |   | 5.36  |   |   | 5.33 |   |   | 9.56 |   |
|   | Weighted average fair value                of options at grant date |   | $      | 1.46  |   | $      | 1.27 |   | $ | 3.87 |   |
|   | Weighted average fair value                exercise price           |   | $      | 1.80  |   | $      | 1.69 |   | $ | 4.40 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | As of July 31, 2007,                        there was approximately $2,684,000 of total unrecognized compensation                        expense related to unvested options granted to employees that is expected                        to be recognized over a weighted average period of 0.9 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Shares, warrants and                        options issued to non-employees for services are accounted for in                        accordance with SFAS 123(R) and Emerging Issues Task Force Issue No. 96-18                        (“EITF 96-18”), “Accounting for Equity Instruments that                        are Issued to Other Than Employees for Acquiring or In Conjunction with                        Selling Goods or Services.” The fair value of such securities is                        recorded as an expense and additional paid-in capital in                        stockholders’ equity over the applicable service periods using                        variable accounting through the vesting date based on the fair value of the                        securities at the end of each period or the vesting date. During the fiscal                        year ended July 31, 2007, the Company recorded under the variable                        accounting provisions of EITF 96-18, an aggregate total of $15,683 of                        non-cash expense for options issued to non-employees during the fiscal                        years 2006 and 2005. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Option                Activity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | The following table                        summarizes stock option activity for the period August 1, 1994 to July 31,                        2007:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   |                                                                      |        | Shares                Available                for Grant |           | Options                Outstanding |        | Weighted                Average                Exercise                Price                Per Share |        | Weighted                Average                Remaining                Contractual                Term |         | Aggregate                Intrinsic Value |   |
|--------|----------------------------------------------------------------------|--------|----------------------------------------------------------|-----------|------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|---------|------------------------------------------|--------|
||
||
|   | 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/Expired                       |   |                                                     | —   |                               |   | (1,897,500                                                                                            | )      |                                                                                                    | 4.30    |                                     |   |   |   |   |   |   |
||
|   | Balance August 1,                1995                                |   |                                                     | 1,107,991 |                               |   | 4,671,687                                                                                             |   |                                                                                                    | 3.39    |                                     |   |   |   |   |   |   |
|   |      Granted                                |   |                                                     | (296,205  | )                                  |   | 296,205                                                                                               |   |                                                                                                    | 3.99    |                                     |   |   |   |   |   |   |
|   |      Exercised                              |   |                                                     | —   |                               |   | (656,334                                                                                              | )      |                                                                                                    | 2.92    |                                     |   |   |   |   |   |   |
|   |      Canceled/Expired                       |   |                                                     | 6,500     |                               |   | (235,333                                                                                              | )      |                                                                                                    | 4.89    |                                     |   |   |   |   |   |   |
||
|   | Balance July 31,                1996                                 |   |                                                     | 818,286   |                               |   | 4,076,225                                                                                             |   |                                                                                                    | 3.43    |                                     |   |   |   |   |   |   |
|   |      Authorized by                1997 Plan |   |                                                     | 2,000,000 |                               |   | —                                                                                               |   |                                                                                                    | — |                                     |   |   |   |   |   |   |
|   |      Granted                                |   |                                                     | (932,500  | )                                  |   | 932,500                                                                                               |   |                                                                                                    | 4.90    |                                     |   |   |   |   |   |   |
|   |      Exercised                              |   |                                                     | —   |                               |   | (639,500                                                                                              | )      |                                                                                                    | 3.82    |                                     |   |   |   |   |   |   |
|   |      Canceled/Expired                       |   |                                                     | 484,845   |                               |   | (484,845                                                                                              | )      |                                                                                                    | 4.70    |                                     |   |   |   |   |   |   |
||
|   | Balance July 31,                1997                                 |   |                                                     | 2,370,631 |                               |   | 3,884,380                                                                                             |   |                                                                                                    | 3.56    |                                     |   |   |   |   |   |   |
|   |      Granted                                |   |                                                     | (234,333  | )                                  |   | 234,333                                                                                               |   |                                                                                                    | 3.31    |                                     |   |   |   |   |   |   |
|   |      Canceled/Expired                       |   |                                                     | 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/Expired                       |   |                                                     | 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    |                                     |   |   |   |   |   |   |

| F-39 |
|------|

|   |                                                                                                                                               |        | Shares                Available                for Grant |            | Options                Outstanding |        | Weighted                Average                Exercise                Price                Per Share |        | Weighted                Average                Remaining                Contractual                Term |         | Aggregate                Intrinsic                Value |   |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------|------------|------------------------------------|--------|-------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------|---------|---------------------------------------------------------|--------|
||
||
|   |      Exercised                                                                                                       |   |                                                     | —    |                               |   | (95,000                                                                                               | )      |                                                                                                    | 0.48    |                                                    |   |   |   |   |   |   |
|   |      Canceled/Expired                                                                                                |   |                                                     | 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/Expired                                                                                                |   |                                                     | 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    |                                                    |   |   |   |   |   |   |
|   |      Canceled/Expired                                                                                                |   |                                                     | 655,840    |                               |   | (900,081                                                                                              | )      |                                                                                                    | 2.31    |                                                    |   |   |   |   |   |   |
||
|   | Balance July 31,                2002                                                                                                          |   |                                                     | 2,326,661  |                               |   | 2,674,024                                                                                             |   |                                                                                                    | 1.90    |                                                    |   |   |   |   |   |   |
|   |      Granted                                                                                                         |   |                                                     | (630,000   | )                                  |   | 630,000                                                                                               |   |                                                                                                    | 0.50    |                                                    |   |   |   |   |   |   |
|   |      Exercised                                                                                                       |   |                                                     | —    |                               |   | (124,000                                                                                              | )      |                                                                                                    | 0.47    |                                                    |   |   |   |   |   |   |
|   |      Canceled/Expired                                                                                                |   |                                                     | 485,118    |                               |   | (736,358                                                                                              | )      |                                                                                                    | 3.09    |                                                    |   |   |   |   |   |   |
||
|   | Balance July 31,                2003                                                                                                          |   |                                                     | 2,181,779  |                               |   | 2,443,666                                                                                             |   |                                                                                                    | 1.26    |                                                    |   |   |   |   |   |   |
|   |      Authorized by                2004                       Stock Incentive Plan |   |                                                     | 8,500,000  |                               |   | —                                                                                               |   |                                                                                                    | — |                                                    |   |   |   |   |   |   |
|   |      Granted                                                                                                         |   |                                                     | (1,388,996 | )                                  |   | 1,388,996                                                                                             |   |                                                                                                    | 5.03    |                                                    |   |   |   |   |   |   |
|   |      Exercised                                                                                                       |   |                                                     | —    |                               |   | (666,717                                                                                              | )      |                                                                                                    | 0.98    |                                                    |   |   |   |   |   |   |
|   |      Canceled/Expired                                                                                                |   |                                                     | (262,783   | )                                  |   | (208,500                                                                                              | )      |                                                                                                    | 3.20    |                                                    |   |   |   |   |   |   |
||
|   | Balance July 31,                2004                                                                                                          |   |                                                     | 9,030,000  |                               |   | 2,957,445                                                                                             |   |                                                                                                    | 2.95    |                                                    |   |   |   |   |   |   |
|   |      Granted                                                                                                         |   |                                                     | (1,073,000 | )                                  |   | 1,073,000                                                                                             |   |                                                                                                    | 4.36    |                                                    |   |   |   |   |   |   |
|   |      Exercised                                                                                                       |   |                                                     | —    |                               |   | (191,100                                                                                              | )      |                                                                                                    | 0.75    |                                                    |   |   |   |   |   |   |
|   |      Canceled/Expired                                                                                                |   |                                                     | 290,500    |                               |   | (341,500                                                                                              | )      |                                                                                                    | 4.57    |                                                    |   |   |   |   |   |   |
||
|   | Balance July 31,                2005                                                                                                          |   |                                                     | 8,247,500  |                               |   | 3,497,845                                                                                             |   |                                                                                                    | 3.35    |                                                    |   |   |   |   |   |   |
|   |      Granted                                                                                                         |   |                                                     | (745,000   | )                                  |   | 745,000                                                                                               |   |                                                                                                    | 1.76    |                                                    |   |   |   |   |   |   |
|   |      Exercised                                                                                                       |   |                                                     | —    |                               |   | (207,245                                                                                              | )      |                                                                                                    | 0.90    |                                                    |   |   |   |   |   |   |
|   |      Canceled/Expired                                                                                                |   |                                                     | 171,250    |                               |   | (205,250                                                                                              | )      |                                                                                                    | 4.67    |                                                    |   |   |   |   |   |   |
||
|   | Balance July 31,                2006                                                                                                          |   |                                                     | 7,673,750  |                               |   | 3,830,350                                                                                             |   |                                                                                                    | 3.10    |                                                    |   |   |   |   |   |   |
|   |      Granted                                                                                                         |   |                                                     | (2,187,489 | )                                  |   | 2,187,489                                                                                             |   |                                                                                                    | 1.80    |                                                    |   |   |   |   |   |   |
|   |      Exercised                                                                                                       |   |                                                     | —    |                               |   | (295,800                                                                                              | )      |                                                                                                    | 1.19    |                                                    |   |   |   |   | 332,936 |   |
|   |      Cancelled/Expired                                                                                               |   |                                                     | (26,250    | )                                  |   | (125,000                                                                                              | )      |                                                                                                    | 3.07    |                                                    |   |   |   |   |   |   |
|   |      Forfeited                                                                                                       |   |                                                     | 325,000    |                               |   | (730,000                                                                                              | )      |                                                                                                    | 1.69    |                                                    |   |   |   |   |   |   |
||
|   | Balance July 31,                2007                                                                                                          |   |                                                     | 5,785,011  |                               |   | 4,867,039                                                                                             |   | $                                                                                                       | 2.85    |                                                    |   | 6.28 |   | $ | 2,277,048 |   |
||
||
|   | Exercisable at July 31,                2006                                                                                                   |   |                                                     |            |                               |   | 2,212,150                                                                                             |   | $                                                                                                       | 3.11    |                                                    |   | 3.84 |   | $ | 1,395,629 |   |
||
|   |                                                                                                                                          |   |                                                     |       |                               |   |                                                                                                  |   |                                                                                                    |    |                                                    |   |   |   |   |   |   |
|   | Exercisable at July 31,                2007                                                                                                   |   |                                                     |            |                               |   | 2,616,333                                                                                             |   | $                                                                                                       | 3.25    |                                                    |   | 4.22 |   | $ | 1,627,756 |   |
||

|        |
|--------|
|   |

|   | Stock option                activity prior to adoption of SFAS 123 (see Note 1) 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. |

| F-40 |
|------|

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

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

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

|   |                                                                    |        | Shares |          | Price                Range |        |
|--------|--------------------------------------------------------------------|--------|--------|----------|----------------------------|--------|
||
||
|   | Granted (42,167 options were                repriced and extended) |   |   | 894,887  |                       | $      | 2.50-7.00 |   |
|   | 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 |   |
||

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

|   |
|--------|

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

|   |                                                                 |        | Shares |            | Price                Range |        |
|--------|-----------------------------------------------------------------|--------|--------|------------|----------------------------|--------|
||
||
|   | Granted, February 14,                1989                       |   |   | 3,460,000  |                       | $      | 3.50-5.00 |   |
|   | Options issued in connection                with share purchase |   |   | 36,365     |                       |   | 2.75 |   |
|   | 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 |   |
||

|                                                                              |
|-----------------------------------------------------------------------------------|
| (8)                        Stock Grant and Compensation Plans |
|                                                                              |

|   | The Company had adopted                        a stock grant program effective September 1, 1981, and pursuant to said                        program, 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: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| F-41 |
|------|

|        | Year                ended                July 31, |        |        | Shares |        | Fair                Value |        | Amount of                Compensation |   |        |
|--------|---------------------------------------------------|--------|--------|--------|--------|---------------------------|--------|---------------------------------------|--------|--------|
||
||
|   | 1983                                              |   |   |   | 20,000 |                      | $      | 5.50                                  |   | $      | 110,000 |   |   |
|   | 1984                                              |   |   |   | 19,750 |                      |   | 5.125                                 |   |   | 101,219 |   |   |
|   | 1985                                              |   |   |   | 48,332 |                      |   | 5.125-15.00                           |   |   | 478,105 |   |   |
|   | 1986                                              |   |   |   | 11,250 |                      |   | 5.125-15.00                           |   |   | 107,032 |   |   |
|   | 1988                                              |   |   |   | 19,000 |                      |   | 3.50                                  |   |   | 6,500 |   |   |

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

|        | Year                ended                July 31, |        |        | Shares |         | Fair                Value |        | Amount of                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 provided for                        the granting of options to purchase common stock of the Company. 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                July 31, |        |        | Shares |         | Fair                Value |        | Amount of                Compensation |   |        |
|--------|---------------------------------------------------|--------|--------|--------|---------|---------------------------|--------|---------------------------------------|--------|--------|
||
|   | 1989                                              |   |   |   | 30,000  |                      | $      | 5.00                                  |   | $      | 150,000 |   |   |
|   | 1990                                              |   |   |   | 56,000  |                      |   | 6.00                                  |   |   | 336,000 |   |   |
|   | 1991                                              |   |   |   | 119,000 |                      |   | 4.00                                  |   |   | 476,000 |   |   |
|   | 1992                                              |   |   |   | 104,000 |                      |   | 2.75                                  |   |   | 286,000 |   |   |
|   | 1993                                              |   |   |   | 117,000 |                      |   | 2.00                                  |   |   | 234,000 |   |   |
|   | 1994                                              |   |   |   | 5,000   |                      |   | 3.00                                  |   |   | 15,000 |   |   |

|   |                                                                                                                                                                                                                                                                                                              |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | Compensation expense                        was 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 year ended 1999 and the plan expired in 1999. |

|                                                        |
|-------------------------------------------------------------|
| (9)                        Income Taxes |
|                                                        |

|   | The Company accounts                        for income taxes under the provisions of SFAS 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 a                        portion of its state tax loss carryforwards and state research and                        development credits in order to obtain state tax benefits. For                                                                                                                                                                                     |

| F-42 |
|------|

|   | the state fiscal year                        2007 (July 1, 2006 to June 30, 2007), the Company had approximately                        $2,338,000 of total available state tax benefits that were saleable, of                        which New Jersey permitted the Company to sell approximately $574,000. In                        December 2006, the Company received approximately $510,000 from the sale of                        the $574,000 of state tax benefits, which was recognized as state tax                        benefit for the fiscal year ended July 31, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | For the state fiscal                        year 2006 (July 1, 2005 to June 30, 2006), the Company had approximately                        $1,903,000 of total available state tax benefits that were saleable; of                        which New Jersey permitted the Company to sell approximately $356,000. In                        December 2005, the Company received approximately $317,000 from the sale of                        the $356,000 of state tax benefits, which was recognized as state tax                        benefit for the fiscal year ended July 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | For the state fiscal                        year 2005 (July 1, 2004 to June 30, 2005), the Company had approximately                        $1,335,000 total available state tax benefits that were saleable; of which                        New Jersey permitted the Company to sell approximately $339,000. In                        December 2004, the Company received approximately $288,000 from the sale of                        the $339,000 of state tax benefits, which the Company recognized as tax                        benefits for the fiscal year ended July 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | If still available                        under New Jersey law, the Company will attempt to sell the remaining                        $1,764,000 of its state tax benefits between July 1, 2007 and June 30, 2008                        (state fiscal year 2008). This amount, which is a carryover of the                        Company’s remaining state tax benefits from state fiscal year 2007,                        may increase if the Company incurs additional net losses and research and                        development credits during state fiscal year 2008. The Company cannot                        estimate, however, what percentage of its saleable state tax benefits New                        Jersey will permit it to sell, how much money will be received in                        connection with the sale, if any, if the Company will be able to find a                        buyer for its state tax benefits or if such funds will be available in a                        timely manner. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | At July 31, 2007 and                        2006, the tax effects of temporary differences that give rise to the                        deferred tax assets are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

|   |                                                                                                    |        | 2007   |             | 2006   |        |
|--------|----------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|
||
|   | Deferred tax                assets:                                                                |   |   |             |   |   |  |   |
|   |      Excess of book                over tax depreciation and amortization |   | $      | 392         |   | $      | 20,141 |   |
|   |      Stock                options                                         |   |   | 1,487,565   |   |   | 598,872 |   |
|   |      Temporary                differences                                 |   |   | 393,414     |   |   | 282,712 |   |
|   |      Federal and                state net operating loss carryforwards    |   |   | 22,697,884  | *      |   | 21,015,985 | * |
|   |      Research and                experimentation credit carryforwards     |   |   | 2,600,529   | *      |   | 2,187,683 | * |
||
|   |      Total gross                deferred tax assets                       |   |   | 27,179,784  |   |   | 24,105,393 |   |
|   |      Valuation                allowance                                   |   |   | (27,179,784 | )      |   | (24,105,393 | ) |
||
|   |      Net deferred                tax assets                               |   | $      | —     |   | $      | — |   |
||

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | *  Net of amount sold                pursuant to New Jersey state tax legislation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | 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 the actual benefits                        reflected on the statements of operations due principally to the                        aforementioned valuation allowance. In 2007, 2006 and 2005 the valuation                        allowance increased by $3,074,000, $2,542,000, and $2,668,000,                        respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   | At July 31, 2007, the                        Company has federal net operating loss carryforwards of approximately                        $61,911,000 that expire in the years 2008 to 2027 (approximately                        $10,882,000 expires in the years 2008 to 2012) and state net operating loss                        carryforwards of approximately $27,472,000 that expire in years 2011 to                        2016. The Company also has federal research and experimentation tax credit                        carryforwards of approximately $1,830,000 that expire in the years 2008 to                        2027 (approximately $139,000 expires in the years 2008 to 2012) and state                        research and experimentation tax credits of approximately $771,000 that                        expire in the years 2015 to 2022. Ultimate utilization/availability of such                        net operating losses and credits is dependent upon the Company’s                        ability to generate taxable income in future periods and may be                        significantly curtailed if a significant change in ownership occurs in                        accordance with the provisions of the Tax Reform Act of 1986. |

| F-43 |
|------|

| (10)                      Commitments |
|-------------------------------------------------|
|                                            |

|   | *License                Agreements*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On July 23, 1991, the                        Board of Directors authorized the Company to pay Kuslima Shogen, the                        Company’s founder and CEO, an amount equal to 15% of any gross                        royalties which may be paid to the Company from any license(s) with respect                        to the Company’s principal product, ONCONASE®, or any                        other products derived from amphibian source extract, produced either as a                        natural, synthesized, and/or genetically engineered drug for which the                        Company is the owner or co-owner of the patents, or acquires such rights in                        the future, for a period not to exceed the life of the patents. If the                        Company manufactures and markets its own drugs, then the Company will pay                        Ms. Shogen an amount equal to 5% of gross sales from any products sold                        during the term 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 licenses or 5% of net sales relating to sales                        but not both, unless the Company and the licensee both market the licensed                        product.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | *Lease                Commitments*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On March 14, 2007 the                        Company entered into an operating lease agreement for a period of ten years                        to lease space to relocate its corporate headquarters and laboratories to a                        new location in Somerset, New Jersey. This lease expires on the tenth                        anniversary plus 150 days after the commencement date of the lease which                        expiration date is expected to be November 2017. The first rental payment                        occurred on July 3, 2007 which is the lease commencement date. The lease                        may be renewed at the option of the Company for a period of two additional                        terms of 60 months each. In addition, the Company has received an incentive                        allowance of $205,000 with an option to receive an additional incentive                        allowance of $105,000. As of July 31, 2007 the Company has not exercised                        the additional incentive allowance of $105,000. Both allowances must be                        used for the cost of leasehold improvements made to the premises. If all or                        any portion of the remaining allowance is not used by the end of the                        original lease term of ten years any remaining balance may not be                        applied to the balance of any rent due at the conclusion of the initial                        lease term. As part of the operating lease agreement signed on March 14,                        2007 the Company agreed to enter into an irrevocable letter of credit in                        the amount of $350,000 as security for such operating lease. This                        irrevocable letter of credit is collaterized by $350,000 in cash which is                        recorded in “Other Assets” as of July 31, 2007. If no event of                        default occurs under the operating lease the Company may reduce its                        security deposit under the operating lease to $250,000 on July 1, 2011, the                        fourth anniversary of the lease commencement date. In the event of no                        default as of July 1, 2012, the fifth anniversary of the lease commencement                        date, the irrevocable letter of credit may be reduced to $150,000 until the                        initial term of the lease expires in 2017. |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Prior to July 2007, the                        Company leased its facility on a month-to-month basis. Rent expense charged                        to operations was approximately $160,000, $136,000 and $136,000 in each of                        fiscal years ended July 31, 2007, 2006 and 2005, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | In June 2007, the                        Company entered into an operating lease agreement for its office equipment                        for the term of five years with a payment of approximately $1,600 per                        month. As part of the lease agreement, the Company agreed to terminate its                        existing office equipment lease. As a result of the early termination of                        the existing lease, the Company recognized an expense of approximately                        $31,000 which will be amortized using straight-line method over the term of                        the lease and will be charged as a reduction from the equipment rental                        expense. The new lease did not commence until August 2007. Under the                        previous lease agreement, equipment rental expense charged to operations                        was $16,000, $12,000 and $3,000 in each of fiscal years ended July 31,                        2007, 2006 and 2005, respectively                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | Future minimum lease                        payments under noncancelable operating leases (with initial or remaining                        terms in excess of one year) as of July 31, 2007:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

| F-44 |
|------|

|                                                                     | Payments Due                in Fiscal Year |      |
|--------------------------------------------------------------------------|--------------------------------------------|-----------|
||
||
||
||
| Building                lease                                            | $                                          | 3,163,410 |   | $ | 137,280 |   | $ | 275,445 |   | $ | 302,036 |   | $ | 317,446 |   | $ | 317,446 |   | $ | 1,813,757 |   |
|                                                                     |                                       |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equipment                lease                                           |                                       | 111,937   |   |   | 25,921 |   |   | 25,921 |   |   | 23,397 |   |   | 18,349 |   |   | 18,349 |   |   | — |   |
|                                                                     |                                            |      |  |   |  |   |  |   |  |   |  |   |  |   |
| Total                contractual cash    obligations | $                                          | 3,275,347 |   | $ | 163,201 |   | $ | 301,366 |   | $ | 325,433 |   | $ | 335,795 |   | $ | 335,795 |   | $ | 1,813,757 |   |
||

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | *Defined                Contribution Retirement Plan (401(k) Plan)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   | Effective October 1,                        1998, the Company adopted a 401(k) Savings Plan (the “Plan”).                        Qualified employees may participate by contributing to the Plan subject to                        certain Internal Revenue Service restrictions. The Company will match an                        amount equal to 50% of the first 6% of each participant’s                        contribution. The Company’s contribution is subject to a vesting                        schedule of 0%, 25%, 50%, 75% and 100% for employment of less than one                        year, one year, two years, three years and four years, respectively, except                        for existing employees which vesting schedule was based from the date the                        Plan was adopted. For the fiscal years ended July 31, 2007, 2006 and 2005,                        the Company’s contributions to the Plan amounted to $34,080, $27,810                        and $29,231, respectively. |

|                                              |
|---------------------------------------------------|
| (11)                      Contingencies |
|                                              |

|   | The Company has product                        liability insurance coverage for clinical trials in the U.S. and in other                        countries where it conducts its clinical trials. No product liability                        claims have been filed against the Company. If a claim arises and the                        Company is found liable in an amount that significantly exceeds the policy                        limits, it may have a material adverse effect upon the financial condition                        and results of operations of the Company. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                               |
|--------------------------------------------------------------------|
| (12)                  Unaudited Quarterly Financial Data |
|                                                               |

|   | The following                table is the quarterly data for the two year period ended July 31, 2007. |
|--------|-------------------------------------------------------------------------------------------------------|

|                                                        |
|-------------------------------------------------------------|
| (In                    thousands, except per share amounts) |
|                                                        |

|                                               | 2007  |   | 2006   |   |
|----------------------------------------------------|------------|--------|--------|--------|
||
||
||
| Investment                   income | $          | 123    |   | $      | 99 |   | $ | 82 |   |   | 67 |   | $ | 371 |   | $ | 32 |   | $ | 24 |   | $ | 20 |   | $ | 31 |   | $ | 107 |   |

| Operating                loss                                                                                       |   | (2,496 | ) |   | (2,534 | ) |   | (2,110 | ) |   | (2,496 | ) |   | (9,636 | ) |   | (1,888 | ) |   | (2,468 | ) |   | (1,750 | ) |   | (2,129 | ) |   | (8,235 | ) |
|---------------------------------------------------------------------------------------------------------------------|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|--------|--------|---|
|                                                                                                           |
| Net loss(a)                                                                                                         |   | (2,373 | ) |   | (1,925 | ) |   | (2,028 | ) |   | (2,429 | ) |   | (8,755 | ) |   | (1,539 | ) |   | (2,444 | ) |   | (1,730 | ) |   | (2,098 | ) |   | (7,810 | ) |
|                                                                                                           |
| Loss per                share                   - basic and                   diluted | $      | (0.05  | ) | $      | (0.04  | ) | $      | (0.04  | ) | $      | (0.05  | ) | $      | (0.19  | ) | $      | (0.04  | ) | $      | (0.07  | ) | $      | (0.05  | ) | $      | (0.05  | ) | $      | (0.21  | ) |

|   |                                                                                                                                                                                                                                                                                                        |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a)    | Included in the net                        loss of $1,925 for second quarter of 2007 and $1,539 for first quarter of                        2006 is net of state tax benefits of $510 and $317, respectively, related                        to the sale of certain state tax operating loss carryforwards. |

| F-45 |
|------|