UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-Q x
QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For
  the quarterly period ended: April 30, 2007o
TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period
from _______________________________ to ____________________________ Commission File Number: 0-11088 ALFACELL CORPORATION(Exact
  name of registrant as specified in its charter)  Delaware

22-2369085(State
  or other jurisdiction of

(I.R.S.
  Employer Identification No.)organization)  225
  Belleville Avenue, Bloomfield, New Jersey  07003(Address
  of principal executive
  offices)        (Zip Code)  (973)
  748-8082(Registrants
  telephone number, including area code)  NOT
  APPLICABLE(Former
  name, former address, and former fiscal year, if changed since last report.) Indicate
by check mark whether the registrant has (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x    No 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.
 Large Accelerated Filer
o
Accelerated Filer
x
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). Yes o    No x The
number of shares of Common Stock, $.001 par value, outstanding as of June 5,
2007 was 45,379,901 shares.    ALFACELL CORPORATION(A Development Stage
Company)

FORM 10-Q

INDEX

Part I. Financial InformationItem 1.
Financial
  Statements

3Condensed
  Balance Sheets

3Condensed
  Statements of Operations

4Condensed
  Statement of Stockholders Equity

5Condensed
  Statement of Cash Flows

6Condensed
  Notes to Financial Statements

9Item 2.
Managements
  Discussion and Analysis of Financial Conditon and Results of Operations

17Item 3.
Quantitative
  and Qualitative Disclosures About Market Risk

23Item 4.
Controls
  and Procedures

24Part II. Other InformationItem 1.
Legal
  Procedings

24Item 1A.
Risk
  Factors

24Item 2.
Unregistered
  Sales of Equity Securities and Use of Proceeds

25Item 3.
Defaults
  Upon Senior Securities

25Item 4.
Submission
  of Matters to a Vote of Security Holders

25Item 5.
Other
  Information

25Item 6.
Exhibits

25Signature Page

26- 2 -
ALFACELL CORPORATION
(A Development Stage Company)

PART I. FINANCIAL INFORMATION

Item
1. Financial Statements

CONDENSED BALANCE SHEETS
April 30, 2007 and July 31, 2006

April 30,2007(Unaudited)

July 31,2006(See Note 1)ASSETSCurrent assets:Cash and cash
equivalents

$
6,543,173

$
11,518,540Other current
assets


158,144


67,090Total current
assets


6,701,317


11,585,630Property and equipment,
  net


73,641


69,928Other assets:Loan
receivable, related party


178,015


170,870Security
deposit


350,000


Total other
assets


528,015


170,870Total
assets

$
7,302,973

$
11,826,428LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts
payable

$
548,947

$
1,286,170Accrued
expenses


1,095,681


1,307,255Total
liabilities


1,644,628


2,593,425Stockholders
equity:Preferred
stock, $.001 par value;Authorized and unissued, 1,000,000
  shares at April 30, 2007 and July 31, 2006





Common Stock,
$.001 par value;Authorized 100,000,000 shares at April
  30, 2007 and July 31, 2006;Issued and outstanding, 45,354,901 shares at
  April 30, 2007 and 44,289,161 shares at July 31, 2006


45,355


44,289Capital in
excess of par value


95,255,413


92,505,325Deficit
accumulated during development stage


(89,642,423
)

(83,316,611
)Total
stockholders equity


5,658,345


9,233,003Total
liabilities and stockholders equity

$
7,302,973

$
11,826,428See
accompanying notes to condensed financial statements.

- 3 -

ALFACELL CORPORATION
(A Development Stage Company)

CONDENSED STATEMENTS OF OPERATIONS

Three and nine months ended April 30, 2007 and 2006,
and the Period from August 24, 1981
(Date of Inception) to April 30, 2007

(Unaudited)

Three Months Ended
  April 30,

Nine Months Ended
  April 30,

August 24, 1981
  (Date of
  Inception) to
  April 30, 20072007

2006

2007

2006(as restated)



(as restated)Sales

$


$


$


$


$
553,489Operating expenses:Cost of
sales














336,495Research and
development


1,252,811


1,142,793


4,295,574


3,865,887


59,562,821General and
administrative


856,892


606,843


2,844,673


2,239,932


31,487,096Total
operating expenses


2,109,703


1,749,636


7,140,247


6,105,819


91,386,412Loss from operations


(2,109,703
)

(1,749,636
)

(7,140,247
)

(6,105,819
)

(90,832,923
)Investment income


82,167


20,128


304,039


76,176


1,982,246Other income














99,939Interest expense:Related
parties, net














(1,147,547
)Others


(25
)

(92
)

(71
)

(112
)

(2,874,147
)Loss before state tax
benefit


(2,027,561
)

(1,729,600
)

(6,836,279
)

(6,029,755
)

(92,772,432
)State tax benefit








510,467


317,382


3,130,009Net loss

$
(2,027,561
)
$
(1,729,600
)
$
(6,325,812
)
$
(5,712,373
)
$
(89,642,423
)Loss per common share - basic
and diluted

$
(0.04
)
$
(0.05
)
$
(0.14
)
$
(0.15
)Weighted average number of
common shares
  outstanding


45,147,204


37,382,365


44,778,890


36,899,644See
accompanying notes to condensed financial statements.

- 4 -

ALFACELL CORPORATION
(A Development Stage Company)

CONDENSED STATEMENT OF STOCKHOLDERS
EQUITY

Period from July 31, 2006 to April 30, 2007

(Unaudited)

DeficitAccumulatedDuringDevelopmentStageCommon StockCapital In



TotalNumber of



Excess of par



StockholdersShares

Amount

Value



EquityBalance at July 31,
2006


44,289,161

$
44,289

$
92,505,325

$
(83,316,611
)
$
9,233,003Exercise of stock options and
warrants


1,065,740


1,066


1,131,264





1,132,330Private placement
costs








(31,344
)




(31,344
)Stock-based
compensation








1,650,168





1,650,168Net loss











(6,325,812
)

(6,325,812
)Balance at April 30,
2007


45,354,901

$
45,355

$
95,255,413

$
(89,642,423
)
$
5,658,345See accompanying notes to
condensed financial statements.

- 5 -

ALFACELL CORPORATION
(A Development Stage Company)

CONDENSED STATEMENTS OF CASH
FLOWS

Nine months ended April 30, 2007 and 2006,
and the Period from August 24, 1981
(Date of Inception) to April 30, 2007

(Unaudited)

Nine Months Ended
  April 30,

August 24, 1981
  (Date of Inception)
  to
  April 30, 20072007

2006(As restated)Cash flows from operating
  activities:Net loss

$
(6,325,812
)
$
(5,712,373
)

$
(89,642,423
)Adjustments to reconcile net loss to net cash used in operating
  activities:Gain on sale of marketable securities









(25,963
)Depreciation and amortization


28,330


21,586



1,648,307Loss on disposal of property and equipment









18,926Stock-based compensation


1,650,168


1,348,609



9,856,445Amortization of debt discount









594,219Amortization of deferred compensation









11,442,000Changes in assets and liabilities:(Increase) decrease in other current assets


(91,054
)

150,443



(218,011
)Increase in loan receivable-related party


(7,145
)

(7,146
)


(81,964
)Increase in security deposit


(350,000
)





(350,000
)Increase in interest payable-related party









744,539(Decrease) increase in accounts payable


(737,223
)

70,901



1,055,582Increase in accrued payroll and expenses, related parties









2,348,145(Decrease) increase in accrued expenses


(211,574
)

335,871



1,814,565Net cash used in operating activities


(6,044,310
)

(3,792,109
)


(60,795,633
)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









316,383Proceeds from sale of short-term investments









1,993,644Purchase of property and equipment


(32,043
)

(14,931
)


(1,564,181
)Patent costs









(97,841
)Net cash used in investing activities


(32,043
)

(14,931
)


(1,636,059
)(continued)

See accompanying notes to
condensed financial statements.

- 6 -

ALFACELL CORPORATION
(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS, Continued

Nine months ended April 30, 2007 and 2006
and the Period from August 24, 1981
(Date of Inception) to April 30, 2007

(Unaudited)

Nine Months Ended
  April 30,

August 24, 1981
  (Date of
  Inception) to
  April 30, 20072007

2006(As restated)Cash flows from financing
  activities:Proceeds from
short-term borrowings

$


$



$
874,500Payment of
short-term borrowings









(653,500
)Increase in loans
payable - related party, net









2,628,868Proceeds from bank
debt and other long-term debt, net of costs









3,667,460Reduction of bank
debt and long-term debt









(2,966,568
)Proceeds from
issuance of common stock, net


(31,344
)





51,702,892Proceeds from
exercise of stock options and warrants, net


1,132,330


1,067,508



13,007,220Proceeds from
common stock to be issued





600,000



Proceeds from
issuance of convertible debentures, related party









297,000Proceeds from
issuance of convertible debentures, unrelated party









416,993Net cash provided
by financing activities


1,100,986


1,667,508



68,974,865Net increase
(decrease) in cash and cash equivalents


(4,975,367
)

(2,139,532
)


6,543,173Cash and cash
equivalents at beginning of period


11,518,540


4,462,951



Cash and cash
equivalents at end of period

$
6,543,173

$
2,323,419


$
6,543,173Supplemental
disclosure of cash flow information  interest paid

$
71

$
112


$
1,714,201Noncash financing
activities:Issuance of
convertible subordinated debenture for loan payable to
  officer

$


$



$
2,725,000Issuance of common
stock upon the conversion of convertible
  subordinated debentures, related party

$


$



$
3,242,000Conversion of
short-term borrowings to common stock

$


$



$
226,000Conversion of
accrued interest, payroll and expenses by related
  parties to stock options

$


$



$
3,194,969Repurchase of stock
options from related party

$


$



$
(198,417
)Conversion of
accrued interest to stock options

$


$



$
142,441Conversion of
accounts payable to common stock

$


$



$
506,725(continued)

See accompanying notes to
condensed financial statements.

- 7 -

ALFACELL CORPORATION
(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS, Continued

Nine months ended April 30, 2007 and 2006
and the Period from August 24, 1981
(Date of Inception) to April 30, 2007

(Unaudited)

Nine Months Ended
  April 30,

August 24, 1981
  (Date of
  Inception) to
  April 30, 20072007

2006(As restated)Conversion of notes
payable, bank and accrued interest to long-term
  debt


$


$


$
1,699,072Conversion of loans
and interest payable, related party and accrued
  payroll and expenses, related parties to long-term accrued payroll and other,
  related party


$


$


$
1,863,514Issuance of common
stock upon the conversion of convertible
  subordinated debentures, other


$


$


$
1,584,364Issuance of common
stock for services rendered


$


$


$
2,460Issuance of
warrants with notes payable


$


$


$
594,219See accompanying notes to
condensed financial statements.

- 8 -

ALFACELL CORPORATION(A Development Stage
Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1.
ORGANIZATION AND BASIS OF PRESENTATIONIn
the opinion of management, the accompanying unaudited condensed financial
statements of Alfacell Corporation (Alfacell or the Company) have been
prepared in accordance with U.S. generally accepted accounting principles
(GAAP) for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of
the information and notes required by U.S. GAAP for complete financial
statements. In the opinion of the management, the accompanying unaudited
condensed interim financial statements contain all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the Companys
financial position as of April 30, 2007, the results of its operations for the
three and nine month periods ended April 30, 2007 and 2006, and the period from
August 24, 1981 (date of inception) to April 30, 2007, the changes in
stockholders equity for the nine month period ended April 30, 2007, and its
cash flows for the nine month periods ended April 30, 2007 and 2006, and the
period from August 24, 1981 (date of inception) to April 30, 2007. The results
of operations for the three and nine month periods ended April 30, 2007 are not
necessarily indicative of operating results for fiscal 2007 or future interim
periods. The July 31, 2006 condensed balance sheet presented herein has been derived
from the audited financial statements included in the Companys Form 10-K for
the fiscal year ended July 31, 2006, filed with the Securities and Exchange
Commission.

Certain
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America have been omitted in accordance with the rules and regulations of
the Securities and Exchange Commission. The condensed financial statements in
this report should be read in conjunction with the financial statements and
notes thereto included in the Form 10-K for the fiscal year ended July 31,
2006.

The
Company is a development stage company as defined in Statement of Financial
Accounting Standards No. 7, Accounting and Reporting by Development Stage
Enterprises. The Company is devoting substantially all of its present efforts
to developing new drug products and, accordingly, no significant revenue has
been generated as the planned principal operations have not yet commenced.

The
Company has reported net losses of approximately $2,028,000 and $6,326,000 for
the three and nine month periods ended April 30, 2007, respectively and
$7,810,000, $6,462,000 and $5,070,000 for the fiscal years ended July 31, 2006,
2005 and 2004, respectively. The loss from date of inception, August 24, 1981,
to April 30, 2007 amounts to approximately $89,642,000.

The
Company will continue to incur costs in conjunction with its U.S. and foreign
registrations for marketing approval of ONCONASE®. The Company is
currently in discussions with potential strategic alliance partners to further
the development and marketing of ONCONASE® and other related
products in its pipeline. However, it cannot be sure that any such alliances
will materialize.

- 9 -

ALFACELL CORPORATION(A Development Stage
Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS,
Continued

(Unaudited)

1.
ORGANIZATION AND BASIS OF PRESENTATION, ContinuedThe
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 state tax
benefit, 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. Until and unless the Companys
operations generate significant revenues or licensing fees, the Company expects
to continue to fund operations primarily from equity financing and through the
exercise of outstanding options and warrants and the sale of current and
potential future tax benefits. 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.
As of April 30, 2007, management believes that the Companys cash balance will
be sufficient to fund its operations through its fiscal year ending July 31,
2008 based on its expected level of expenditures.

2.
(LOSS) PER COMMON SHAREThe following table sets
forth the computation of basic and diluted net loss per share:

Three Months Ended
  April 30,

Nine Months Ended
  April 30,2007

2006

2007

2006(As restated)



(As restated)Numerator:Net
loss

$
(2,027,561
)
$
(1,729,600
)
$
(6,325,812
)
$
(5,712,373
)Denominator:Weighted
average number of
  common shares outstanding


45,147,204


37,382,365


44,778,890


36,899,644Loss per common share - basic
and diluted

$
(0.04
)
$
(0.05
)
$
(0.14
)
$
(0.15
)Potentially dilutive
securities:Warrants


16,276,567


11,831,626


16,276,567


11,831,626Stock
options


4,011,350


4,026,400


4,011,350


4,026,400Total potentially dilutive
securities


20,287,917


15,858,026


20,287,917


15,858,026As
the Company has incurred a net loss for all periods presented, basic and
diluted per share amounts are the same, since the inclusion of all potentially
dilutive securities would be anti-dilutive.

- 10 -

ALFACELL CORPORATION(A Development Stage
Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS,
Continued

(Unaudited)

3.
STOCK-BASED
  COMPENSATIONIn
December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R)
(revised 2004), Share-Based Payment (SFAS 123(R)), which amended 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. The Company recorded the following stock-based compensation expense
for employees under SFAS 123(R) based on the fair value of stock options.

Three Months Ended
  April 30,

Nine Months Ended
  April 30,2007

2006

2007

2006(As restated)



(As restated)Research and development

$
117,106

$
152,097

$
466,990

$
546,410General and
  administrative


266,283


216,139


973,292


632,880Total
  stock-based compensation expense

$
383,389

$
368,236

$
1,440,282

$
1,179,290Basic and
  diluted loss per common share

$
0.01

$
0.01

$
0.03

$
0.03The
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 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.

Three
  Months Ended
  April 30,

Nine
  Months Ended
  April 30,2007

2006

2007

2006Expected
  dividend yield


0
%

0
%

0
%

0
%Risk-free
  interest rate


4.74
%

4.74
%

4.70
%

4.47
%Expected
  stock price volatility


99.00
%

84.09
%

108.98
%

84.79
%Expected
  term (years)


3.60


5.00


5.30


5.86Weighted
  average fair value of options issued

$
1.01

$
2.34

$
1.21

$
1.27- 11 -

ALFACELL CORPORATION(A Development Stage
Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS,
Continued

(Unaudited)

3.
STOCK-BASED COMPENSATION, ContinuedThe
following table summarizes the stock option activity for the period August 1,
2006 to April 30, 2007:

Stock Options
  Outstanding

Weighted
  Average
  Exercise
  Price Per
  Share

Weighted
  Average
  Remaining
  Contractual
  Term

Aggregate
  Intrinsic
  ValueBalance
  August 1, 2006


3,830,350

$
3.10Granted


1,115,000


1.49Exercised


(129,000
)

0.80




$
149,282Expired


(75,000
)

1.65Forfeited


(730,000
)

1.69Balance
  April 30, 2007


4,011,350


3.01


5.25

$
4,417,143Exercisable
  as of April 30, 2007


2,736,383


3.03


4.03

$
3,045,596As
of April 30, 2007, there was approximately $2,303,000 of total unrecognized
compensation expense related to unvested options granted that is expected to be
recognized over a weighted average period of 1.3 years. The total intrinsic
value of options exercised by employees during the nine months ended April 30,
2006 was approximately $121,000.

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 nine months ended April 30, 2007,
the Company recorded under EITF 96-18, an aggregate total of $21,426 of
non-cash expense for options issued to consultants during the fiscal years 2006
and 2005.

4.
LOAN
  RECEIVABLE, RELATED PARTYAmounts
due from the Companys Chief Executive Officer totaling $178,015 at April 30,
2007 and $170,870 at July 31, 2006, 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 nine months ended April 30, 2007 and
2006, the Company accrued 8% interest in the amount of approximately $7,100 on
the unpaid principal balance.

- 12 -

ALFACELL CORPORATION
(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

(Unaudited)

5.
SECURITY DEPOSITOn
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 to a
new location in Somerset, New Jersey. As part of the operating lease agreement
the company agreed to enter into an irrevocable letter of credit in the amount
of $350,000 as security for an operating lease for the Companys premises. This
irrevocable letter of credit is secured by $350,000 in cash which is recorded
in Other Assets Security Deposit as of April 30, 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 the fourth anniversary of the lease
commencement date of July 1, 2011. In the event of no default on the fifth
anniversary of the lease commencement on July 1, 2012 the irrevocable letter of
credit may be reduced to $150,000 until the initial term of the lease expires
in 2017.

6.
CAPITAL STOCKDuring
the quarter ended October 31, 2006, the Company issued an aggregate of 169,240
shares of its common stock upon the exercise of warrants and stock options by
unrelated parties and employees at per share exercise prices ranging from $0.49
to $1.50. The Company realized aggregate gross proceeds of $180,250 from these
exercises.

During
the quarter ended January 31, 2007, the Company issued an aggregate of 645,000
shares of its common stock upon the exercise of warrants by unrelated parties
at per share exercise prices ranging from $0.60 to $1.50. The Company realized
aggregate gross proceeds of $672,500 from these exercises.

During
the quarter ended January 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 quarter ended April 30, 2007, the Company issued an aggregate of 251,500
shares of its common stock upon the exercise of warrants and stock options by
unrelated parties and employees at per share exercise prices ranging from $0.26
to $2.88. The Company realized aggregate gross proceeds of $279,580 from these
exercises.

During
the quarter ended April 30, 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.

- 13 -

ALFACELL CORPORATION
(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

(Unaudited)

7.
SALE OF NET OPERATING LOSS CARRYFORWARDSNew
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of their state tax loss carryforwards and state
research and development credits, or state net operating loss carryforwards,
in order to obtain state tax benefit. For the state fiscal year 2007 (July 1,
2006 to June 30, 2007), the Company had approximately $2,338,000 of total
available state net operating loss carryforwards 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 net operating loss carryforwards, which was recognized as state tax
benefit for the nine months ended April 30, 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 net operating loss
carryforwards 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 net operating
loss carryforwards, which was recognized as state tax benefit for the nine
months ended April 30, 2006.

If
still available under New Jersey law, the Company will attempt to sell the
remaining $1,764,000 of its state net operating loss carryforwards between July
1, 2007 and June 30, 2008 (state fiscal year 2008). This amount, which is a
carryover of the Companys remaining state net operating loss carryforwards
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 net
operating loss carryforwards 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 net operating loss carryforwards or if such
funds will be available in a timely manner.

8.
COMMITMENTS AND CONTINGENCIESOn 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 due under the lease is expected to occur on July
1, 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 April
30, 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.

- 14 -

ALFACELL CORPORATION
(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

(Unaudited)

8.
COMMITMENTS AND CONTINGENCIES, ContinuedAs
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
secured by $350,000 in cash which is recorded in Other Assets Security
Deposit as of April 30, 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.

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.

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.

9.
RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL DATAAs previously
reported in the Form 10-K for
the fiscal year ended July 31, 2006, in connection with its audit of the
Companys financial statements for the fiscal year ended July 31, 2006, the
Companys independent registered public accounting firm brought to the
attention of the Companys management that the Companys estimate of the impact
of the forfeiture of stock options on non-cash compensation cost was, as a
percentage, significantly higher than the historical rate of such pre-vesting
forfeitures and that the true-up of the value of options vesting during the
reporting period was not recorded. After reviewing the matter, the Companys
management agreed to calculate the forfeiture rate using primarily historical
experience and record the value of the options that vested during the reporting
period. The original computation had understated non-cash compensation costs
and net losses for the three and nine month periods in the Companys unaudited
Condensed Financial Statements included in the Form 10-Q for the quarterly
period ended April 30, 2006. The Companys management believes that

- 15 -

ALFACELL CORPORATION
(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

(Unaudited)

9.
RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL DATA,
Continuedthe adjustments to the
amounts of non-cash compensation expense in the affected three and nine month
periods are not material and that the Form 10-Q for the quarterly period ended
April 30, 2006 does not require refiling.

Although
management believes that the changes in the affected three and nine month
periods were not material, the Company is presenting certain restated unaudited
statement of operations information. Presented in the following table are the
affected expenses, the total costs and expenses, the net loss and the loss per
basic and diluted common share as originally reported and the restated amounts
for the affected periods.

Three Months Ended
  April 30, 2006

Nine Months Ended
  April 30, 2006As Originally




As OriginallyReported

As Restated

Reported

As RestatedStatement of
  Operations:Research and
  development


$
1,102,000



$
1,143,000



$
3,691,000



$
3,866,000General and
  administrative



556,000




607,000




2,026,000




2,240,000Total
  operating expenses


$
1,658,000



$
1,750,000



$
5,717,000



$
6,106,000Net loss


$
(1,638,000
)


$
(1,730,000
)


$
(5,323,000
)


$
(5,712,000
)Loss per
  basic and diluted common share


$
(0.04
)


$
(0.05
)


$
(0.14
)


$
(0.15
)- 16 -

Item 2. Managements
  Discussion and Analysis of Financial Condition and Results of Operations

Information
herein contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. All statements, other than
statements of historical fact, regarding our financial position, potential,
business strategy, plans and objectives for future operations are
forward-looking statements. These statements are commonly identified by the
use of forward-looking terms and phrases as anticipates, believes,
estimates, expects, intends, may, seeks, should, or
will or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. We cannot assure you that the future results covered
by these forward-looking statements will be achieved. The matters set forth in
Part I, Item 1A. Risk Factors in our annual report on Form 10-K, filed on
October 16, 2006, constitute cautionary statements identifying important
factors with respect to these forward-looking statements, including certain
risks and uncertainties, that could cause actual results to vary significantly
from the future results indicated in these forward-looking statements. Other
factors could also cause actual results to differ significantly from the future
results indicated in these forward-looking statements. There have been no material changes to the
discussion of risk factors included in our most recent annual report on 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. As of April 30,
2007, we had 16 full time employees who conducted all administrative and
research and development operations at our facility in Bloomfield, NJ.

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 quarter ended April 30, 2007, managements efforts were primarily
focused on our continued preparations for a potential ONCONASE® New
Drug Application (NDA) to be submitted to the FDA upon completion of our Phase
IIIb clinical trial which is expected to occur later in 2007, and

- 17 -

our submission of various
components of the NDA to the FDA as they are completed, which began in February
2007. Additionally, 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.

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 III 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 approximately $59,563,000 of research and development expenses we
have incurred since our inception has gone toward the development of ONCONASE®and related drug candidates. For the nine months ended April 30, 2007 and
the fiscal years 2006, 2005 and 2004 our research and development expenses were
approximately $4,296,000, $5,230,000, $5,082,000 and $3,353,000, 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 in patients
suffering from UMM. The primary endpoint of the trial is 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 overall 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 (TTG) (n=104) analysis from the 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 MST
between the ONCONASE® + doxorubicin treatment group and the
doxorubicin treatment group at 316 events. The interim data which represented
only one third of the planned number of events was sufficient for us to
continue the trial as planned. At this time, we cannot predict with certainty
the timing of the occurrence of the required number of deaths, but currently
estimate that this will occur in the third calendar quarter of 2007. The timing
of when we will be able to file for marketing registrations in the US, and
other countries is contingent on achieving the required number of deaths in the
Phase IIIb clinical trial and achieving statistically significant results
favoring treatment with the combination of ONCONASE® + doxorubicin
over treatment with doxorubicin alone. We are currently submitting the various
components of the NDA for ONCONASE® as they are completed, which
began in February 2007 with our submission

- 18 -

of the Chemistry,
Manufacturing and Controls (CMC) section, in anticipation of potentially
achieving favorable results from the Phase IIIb trial.

Since
the inception of the Company, we have funded 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 have also raised capital through other debt
financings, the sale of our state tax benefit and research products, interest
income and financing received from our Chief Executive Officer. During the nine
months ended April 30, 2007, we received net proceeds of approximately
$1,642,000 from warrant and stock option exercises and the sale of a portion of
our State of New Jersey net operating loss carryforwards. These proceeds,
together with our cash reserves, will be used to support the completion of our
Phase IIIb trial for ONCONASE®, the anticipated filing of an NDA of
ONCONASE® for malignant mesothelioma, assuming satisfactory results
from the ongoing clinical trial, clinical trials for ONCONASE® in
other cancer indications, and the development of other pipeline products.

Results of Operations

Three month periods ended April 30, 2007 and
2006

We
focus most of our productive and financial resources on the development of
ONCONASE® and as such we did not have any sales in the three month
periods ended April 30, 2007 and 2006.

Research
and development expense for the three month period ended April 30, 2007 was
approximately $1,253,000 compared to $1,143,000 (as restated) for the same
period in 2006, an increase of approximately $110,000, or 10%. The increase was
primarily related to increased expenses of approximately $97,000 related to our
Phase IIIb ONCONASE® clinical trial and preparing for a potential
NDA submission, and an increase of approximately $91,000 in expenses incurred
from our ongoing Phase I/II ONCONASE® clinical trials that initiated in June
2005 and November 2006. These increases were offset by decreased expenses of
approximately $84,000 for pre-clinical research for various potential drug
candidates we are investigating.

General
and administrative expense for the three month period ended April 30, 2007 was
approximately $857,000 compared to $607,000 (as restated) for the same period
in 2006, an increase of approximately $250,000, or 41%. This increase was due to numerous factors,
including increased compensation expense related to employee salaries and board
member compensation of approximately $87,000 due primarily to increased
stock-based compensation expenses, increased investor relations expenses of
approximately $71,000 resulting from our use of an investor relations firm
beginning in fiscal year 2007, increased accounting related fees and expenses of
approximately $33,000 incurred as part of our ongoing effort to remediate a
material weakness in internal controls first identified at July 31, 2006,
increased travel related expenses of approximately $30,000 of which
approximately 50% is related to terms agreed to with our CFO to reimburse
travel costs until relocation of his home to New Jersey is completed, and
increased consulting expenses of approximately $28,000 for general business
consulting services, almost all of which was due to stock based compensation
for services rendered.

For
the three month period ended April 30, 2007, our investment income was
approximately $82,000 compared to $20,000 for the same period last year, an
increase of $62,000. The increase was due to higher balances of cash and cash
equivalents on hand for the three month period ended April 30, 2007 as compared
to the same period in 2006.

- 19 -

The
net loss for the three month period ended April 30, 2007 was approximately
$2,028,000 as compared to $1,730,000 (as restated) for the same period last
year, an increase of $298,000.

Nine month periods ended April 30, 2007 and
2006

We
focus most of our productive and financial resources on the development of
ONCONASE® and as such we did not have any sales in the nine month
periods ended April 30, 2007 and 2006.

Research
and development expense for the nine month period ended April 30, 2007 was
approximately $4,296,000 compared to $3,866,000 (as restated) for the same
period in 2006, an increase of approximately $430,000, or 11%. The increase was
primarily related to increased expenses of approximately $321,000 related to
our Phase IIIb ONCONASE® clinical trial and preparing for a
potential NDA submission, and an increase of approximately $207,000 in expenses
incurred from our ongoing Phase I/II ONCONASE® clinical trials that initiated
in June 2005 and November 2006. These increases were offset by decreased
expenses of approximately $70,000 for pre-clinical research for various
potential drug candidates we are investigating and a decrease of approximately
$40,000 in patent and trademark legal and filing expenses.

General
and administrative expense for the nine month period ended April 30, 2007 was
approximately $2,845,000 compared to $2,240,000 (as restated) for the same
period in 2006, an increase of $605,000, or 27%. This increase resulted from increased
compensation expense related to employee salaries and board member compensation
of approximately $454,000 due primarily to increased stock-based compensation
expenses, and increased investor relations expenses of approximately $142,000
resulting from our use of an investor relations firm beginning in fiscal year
2007.

For
the nine month period ended April 30, 2007, our investment income was
approximately $304,000 compared to $76,000 for the same period last year, an
increase of $228,000. This increase was due to higher balances of cash and cash
equivalents on hand for the nine month period ended April 30, 2007 as compared
to the same period in 2006.

The State
of New Jersey has
enacted legislation permitting certain corporations located in New Jersey to
sell a portion of their state tax loss carryforwards and state research and
development credits, or state net operating loss carryforwards, in order to
obtain state tax benefit. For
the state fiscal year 2007 (July 1, 2006 to June 30, 2007), we had
approximately $2,338,000 of total available state net operating loss
carryforwards that qualified for sale, of which New Jersey permitted us to sell
approximately $574,000. In December 2006, we received approximately $510,000
from the sale of the $574,000 of state net operating loss carryforwards, which
was recognized as state tax benefit in the nine month period ended April 30, 2007.

For
the state fiscal year 2006 (July 1, 2005 to June 30, 2006), we had
approximately $1,903,000 of total available state net operating loss
carryforwards that qualified for sale; of which New Jersey permitted us to sell
approximately $356,000. In December 2005, we received approximately $317,000
from the sale of the $356,000 of state net operating loss carryforwards, which
we recognized as state tax benefit in the nine month period ended April 30,
2007.

If
still available under New Jersey law, we will attempt to sell the remaining
$1,764,000 of our state net operating loss carryforwards between July 1, 2007
and June 30, 2008 (state fiscal year 2008). This amount, which is a carryover
of our remaining state net operating loss carryforwards from state fiscal year
2007, may increase if we incur additional net losses and research and
development credits during state fiscal year 2008. We cannot estimate, however,
what percentage of our state net operating

- 20 -

loss carryforwards that qualify
for sale New Jersey will permit us to sell, how much money we will receive in
connection with the sale, if any, if we will be able to find a buyer for our
state net operating loss carryforwards or if such funds will be available in a
timely manner.

The
net loss for the nine month period ended April 30, 2007 was approximately
$6,326,000 as compared to $5,712,000 (as restated) for the same period last
year, an increase of $614,000. The cumulative loss from the date of inception,
August 24, 1981 to April 30, 2007, amounted to $89,642,000. We have incurred
net losses during each year since our inception. 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 our development stage
expenses.

Liquidity and Capital Resources

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 also raised capital through debt financings,
the sale of our state net operating loss carryforwards and research products,
interest income and financing received from our Chief Executive Officer. Until
and unless our operations generate significant revenues or we are able to
receive payments for the development or marketing rights to one or more of our
product candidates, we expect to continue to fund operations primarily from
equity financing and through the exercise of outstanding options and warrants
and the sale of our tax benefits. There can be no assurance that we will be
able to raise the capital we need on terms which are acceptable, if at all.

As
of April 30, 2007, we had approximately $6,543,000 in cash and cash
equivalents, and we believe this level of cash and cash equivalents is
sufficient to fund our operations through our fiscal year ending July 31, 2008
based on our expected level of expenditures. Our cash and cash equivalents will
be used for the completion of our Phase IIIb trial for ONCONASE®,
the anticipated filing of an NDA for ONCONASE® for malignant
mesothelioma, assuming satisfactory results from the ongoing clinical trial,
funding of ongoing and additional clinical trials for ONCONASE® in
cancer indications, and the development of other pipeline products.

We
will continue to incur costs in conjunction with our U.S. and foreign
registrations for marketing approval of ONCONASE®. We are currently
in discussions with potential strategic alliance partners to further the
development and marketing of ONCONASE® and other related products in
our pipeline. However, we cannot be sure that any such alliances will
materialize.

The
market price of our Common Stock is volatile, and the price of the stock could
be materially affected due to numerous factors, including the marketing
approval, or lack of approval, of ONCONASE® by the FDA.

Off-balance Sheet Arrangements

As
part of our ongoing business, we do not participate in transactions that
generate relationships with unconsolidated entities, or financial partnerships,
such as entities often referred to as structured finance or variable interest
entities or VIE, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other contractually narrow or limited
purposes. As of April 30, 2007, we are not involved in any unconsolidated VIE
transactions.

- 21 -

Contractual Obligations and Commercial Commitments

Except
as described below with respect to our new lease for office and laboratory
space, since July 31, 2006, there has been no material change with respect to
our contractual obligations as disclosed in Managements Discussion and
Analysis of Financial Condition and Results of Operations - Contractual
Obligations and Commercial Commitments in our annual report on Form 10-K for
the fiscal year ended July 31, 2006.

In March 2007, we
entered into a lease for
15,410 square feet of office and laboratory space in Somerset, New Jersey to
replace our offices in Bloomfield, New Jersey as our principal executive
offices. The lease term is targeted to begin on approximately July 1, 2007, and
the termination date is set for the 150th day after the tenth anniversary of
the commencement date. We will be required to pay base rent during the lease
term in accordance with the following schedule:

Period

Annual Base
  Rent

Monthly Installments of Base RentFirst day of first lease
  year through last day of the first lease year

$137,280.00

$11,440.00
  ($11.44 x 12,000 square feet / 12)First day of second lease
  year through 540 days from commencement date or the day before first day of
  the 19th month of the lease

$235,200.00

$19,600.00
  ($19.60 x 12,000 square feet / 12)540 days from commencement
  date or day before first day of 19th month of lease through last
  day of the third lease year

$302,036.04

$25,169.67
  ($19.60 x 15,410 square feet / 12)First day of fourth lease
  year though last day of the sixth lease year

$317,445.96

$26,453.83 ($20.60 x 15,410 square feet / 12)First day of the seventh
  lease year though the last day of the eighth lease year

$332,856.00

$27,738.00
  ($21.60 x 15,410 square feet / 12)First day of ninth lease
  year through the last day of the lease term

$355,971.00

$29,664.25
  ($23.10 x 15,410 square feet / 12)Critical Accounting Policies and Estimates

Critical
accounting policies are those that involve subjective or complex judgments,
often as a result of the need to make estimates. The following areas all
require the use of judgments and estimates: research and development expenses,
accounting for stock-based compensation, accounting for warrants issued with
convertible debt and deferred income taxes. Estimates in each of these areas
are based on historical experience and various assumptions that we believe are
appropriate. Actual results may differ from these estimates. Our accounting
practices are discussed in more detail in Managements Discussion and Analysis
of Financial Condition and Results of Operations and Note 1 of Notes to
Consolidated Financial Statements in our Annual Report on Form 10-K for the
year ended July 31, 2006.

On
March 14, 2007 we entered into an operating lease agreement for a period of ten
years to lease space to relocate our corporate headquarters to a new location
in Somerset, New Jersey. We expect to record our facilities lease
agreement on the lease commencement date of July 1, 2007 in accordance with
SFAS 13 Accounting for Leases and will treat the lease as an operating lease
for accounting purposes.

- 22 -

Recently Issued Accounting Standards

In
February 2007, the Financial Accounting Standards Board (FASB) issued FASB
159 The Fair Value Option for Financial Assets and Financial Liabilities
(FASB 159). FASB 159 permits entities to measure financial instruments and
certain other items at fair value that are not currently measured at fair
value. 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) Emerging Issues
Task Force (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.

In
September 2006, the FASB issued SFAS 157 Fair Value Measurements (FASB 157)
which emphasizes that fair value is a market based measurement and not an
entity specific measurement. We are currently evaluating the impact of the
adoption of SFAS 157 will have, if any, on our financial statements.

In
June 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109. 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 of a tax position taken or expected to be taken in a companys tax
return. The provisions of FIN 48 will be effective for our fiscal year ended
July 31, 2008. We are currently evaluating the impact of the adoption of FIN 48
will have, if any, on our financial statements.

Item 3. Quantitative
  and Qualitative Disclosures About Market Risk

As
of April 30, 2007, we were exposed to market risks, primarily changes in U.S.
interest rates. As of April 30, 2007, we held total cash and cash equivalents
of approximately $6,543,000. 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 April 30, 2007, a decrease in interest rates of 1.0% would
cause a corresponding decrease in our annual interest income of approximately
$65,000.

- 23 -

Item 4. Controls And Procedures


(a)
Evaluation
  of disclosure controls and procedures.Under the
supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) as of
April 30, 2007, the end of the period covered by this report. Based on this
evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded, as a result of the material weakness in internal control over
financial reporting discussed below, our disclosure controls and procedures
were not effective to ensure that information required to be disclosed by us in
the reports we file or submit under the Exchange Act is recorded, processed,
summarized, accumulated, communicated and reported, within the time periods
specified in the SECs rules and forms.

Managements
internal control assessment as of July 31, 2006, as discussed in Item 9A,
Controls and Procedures, of our Annual Report on Form 10-K for the year ended
July 31, 2006 filed with the SEC on October 16, 2006, identified a material
weakness due to lack of personnel with financial reporting expertise sufficient
to properly record and report non-routine and complex transactions and accounting
pronouncements. During the quarter ended April 30, 2007, our management
continued to treat the material weakness identified above very seriously and in
response, continues to review and make necessary changes to the overall
design of our control environment. Management has revised its policies and
procedures for properly recording and reporting non-routine and complex
transactions and accounting pronouncements and believes that all reasonable
steps have been taken to correct this material weakness. As part of the
remediation process, we have retained third party advisors to assist us in
recording and reporting non-routine and complex transactions and interpreting
accounting pronouncements. The deficiency will not be considered fully
remediated until the new internal controls are tested over a sufficient period
of time to allow management to conclude that the controls are operating
effectively.

(b)
Changes in
  internal controls.There
have been no changes in our internal controls over financial reporting during
the quarter ended April 30, 2007, other than controls established to remediate
the material weakness described above, that have materially affected, or are
reasonably likely to materially affect, our internal controls over financial
reporting.

PART II. OTHER INFORMATION


Item 1. Legal Proceedings

None

Item 1A. Risk Factors

There
have been no material changes to the discussion of risk factors included in our
most recent annual report on Form 10-K.

- 24 -

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds

(a)
Recent Sales
  of Unregistered SecuritiesThe
following transactions were exempt from registrations under Section 4(2) of the
Securities Act of 1933, as amended. The net proceeds from these transactions
will be used for general corporate purposes.

During
the quarter ended April 30, 2007, we issued an aggregate total of 206,500
shares of common stock upon the exercise of warrants at exercise prices ranging
from $0.60 to $2.88 per share by unrelated parties, which resulted in gross
proceeds of $228,720. We have previously registered the resale of these shares
by the stockholders on a Form S-3 registration statement.


Item 3. Defaults Upon Senior Securities

None


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

None

Item 5. Other Information

None


Item 6. Exhibits

Exhibits
  (numbered in accordance with Item 601 of Regulation S-K).


Exhibit
No.
Item Title10.38
Office
  Lease Agreement, dated March 14, 2007, between I&G Garden State, LLC and
  Alfacell Corporation31.1
Certification of Principal Executive Officer
pursuant to Section 302
  of the Sarbanes-Oxley Act of 200231.2
Certification of Principal Financial Officer
pursuant to Section 302
  of the Sarbanes-Oxley Act of 200232.1
Certification Principal Executive Officer pursuant
to Section 906 of
  the Sarbanes-Oxley Act of 200232.2
Certification Principal Financial Officer pursuant
to Section 906 of
  the Sarbanes-Oxley Act of 2002- 25 -

SIGNATURE PAGE

Pursuant
to the requirements 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(Registrant)June 8, 2007
/s/ Lawrence
  A. KenyonChief Financial Officer
  (Principal Accounting Officer and
  Principal Financial Officer)- 26 -