UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

        April 30, 2004                                            0-11088
For the quarterly period ended                            Commission file number

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

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

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

(Registrant's telephone number, including area code)              (973) 748-8082

                                 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 |_|

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes |_| No |X|

      The number of shares of common stock, $.001 par value, outstanding as of
June 10, 2004 was 32,601,461 shares.

<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                            CONDENSED BALANCE SHEETS
                        April 30, 2004 and July 31, 2003

<TABLE>
<CAPTION>
                                                                                               April 30,
                                                                                                 2004             July 31,
                                        ASSETS                                                (Unaudited)           2003
                                                                                             ------------       ------------
<S>                                                                                          <C>                <C>
Current assets:
    Cash and cash equivalents                                                                $  1,205,073       $    330,137
    Other current assets                                                                          274,270             10,103
                                                                                             ------------       ------------
         Total current assets                                                                   1,479,343            340,240

Property and equipment, net                                                                        14,788             12,795
Loan  receivable, related party                                                                   150,691            142,287
                                                                                             ------------       ------------
         Total assets                                                                        $  1,644,822       $    495,322
                                                                                             ============       ============

                        LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
    Current portion of long-term debt, net of debt discount of $82,219 at April 30,
       2004 and $187,121 at July 31, 2003                                                    $    491,911       $    637,080
    Accounts payable                                                                              867,915            699,429
    Accrued expenses                                                                              672,971          1,407,978
                                                                                             ------------       ------------
         Total current liabilities                                                              2,032,797          2,744,487

Long-term debt, less current portion, net of debt discount of $16,233 at April 30, 2004           183,767            242,516
    and $163,687 at July 31, 2003                                                            ------------       ------------
         Total liabilities                                                                      2,216,564          2,987,003
                                                                                             ------------       ------------

Stockholders' deficiency:
    Preferred stock, $.001 par value
       Authorized and unissued, 1,000,000 shares at April 30, 2004 and July 31, 2003                   --                 --
    Common stock $.001 par value
       Authorized 100,000,000 shares at April 30, 2004 and 40,000,000 shares at July
          31, 2003;
          Issued and outstanding, 30,588,708 shares at April 30, 2004 and 25,026,129
              shares at July 31, 2003                                                              30,589             25,026
    Capital in excess of par value                                                             66,680,225         61,457,502
    Deficit accumulated during the development stage                                          (67,282,556)       (63,974,209)
                                                                                             ------------       ------------
         Total stockholders' deficiency                                                          (571,742)        (2,491,681)
                                                                                             ------------       ------------

         Total liabilities and stockholders' deficiency                                      $  1,644,822       $    495,322
                                                                                             ============       ============
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 2 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF OPERATIONS

           Three months and nine months ended April 30, 2004 and 2003,
                       and the Period from August 24, 1981
                      (Date of Inception) to April 30, 2004

                                   (Unaudited)

<TABLE>
<CAPTION>
                                          Three Months Ended                Nine Months Ended          August 24, 1981
                                               April 30,                         April 30,                 (Date of
                                               ---------                         ---------              Inception) to
                                         2004             2003             2004             2003        April 30, 2004
                                     ------------     ------------     ------------     ------------   ---------------
<S>                                  <C>              <C>              <C>              <C>              <C>
Revenue:
     Sales                           $         --     $         --     $         --     $         --     $    553,489
     Investment income                      3,081               43           11,311              277        1,398,311
     Other income                              --               --               --           30,000           90,103
                                     ------------     ------------     ------------     ------------     ------------
     Total revenue                          3,081               43           11,311           30,277        2,041,903
                                     ------------     ------------     ------------     ------------     ------------

Costs and expenses:
     Cost of sales                             --               --               --               --          336,495
     Research and development             927,151          374,183        2,238,437        1,173,552       43,840,372
     General and administrative           329,388          138,131          977,576          426,206       23,265,428
     Interest:
         Related parties, net                  --              653               --            1,939        1,147,547
         Others                            97,091           54,831          325,492          293,116        2,748,802
                                     ------------     ------------     ------------     ------------     ------------
Total costs and expenses                1,353,630          567,798        3,541,505        1,894,813       71,338,644
                                     ------------     ------------     ------------     ------------     ------------

Loss before state tax benefit          (1,350,549)        (567,755)      (3,530,194)      (1,864,536)     (69,296,741)

State tax benefit                              --               --          221,847          229,459        2,014,185
                                     ------------     ------------     ------------     ------------     ------------

Net loss                             $ (1,350,549)    $   (567,755)    $ (3,308,347)    $ (1,635,077)    $(67,282,556)
                                     ============     ============     ============     ============     ============

Loss per basic common share          $      (0.05)    $       (.02)    $      (0.12)    $       (.07)
                                     ============     ============     ============     ============

Weighted average number of shares
     outstanding - basic               29,548,812       23,079,250       28,290,878       22,911,335
                                     ============     ============     ============     ============
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 3 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF CASH FLOWS

                   Nine months ended April 30, 2004 and 2003,
                       and the Period from August 24, 1981
                      (Date of Inception) to April 30, 2004

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Nine Months Ended           August 24, 1981
                                                               April 30,                   (Date of
                                                               ---------                 Inception) to
                                                        2004              2003          April 30, 2004
                                                     -----------       -----------     ---------------
<S>                                                  <C>               <C>               <C>
Cash flows from operating activities:
  Net loss                                           $(3,308,347)      $(1,635,077)      $(67,282,556)
  Adjustments to reconcile net loss to
      net cash used in operating activities:
    Gain on sale of marketable securities                     --                --            (25,963)
    Depreciation and amortization                          5,440            13,615          1,552,658
    Loss on disposal of property and equipment                --                --             18,926
    Noncash operating expenses                           371,137            20,161          6,488,749
    Amortization of debt discount                        252,356           242,452            495,767
    Amortization of deferred compensation                     --                --         11,442,000
    Amortization of organization costs                        --                --              4,590
  Changes in assets and liabilities:
    (Increase) decrease in other current assets         (264,167)           38,770           (334,137)
    Increase in loan receivable, related party            (8,404)           (4,176)           (54,640)
    Increase in interest payable, related party               --                --            744,539
    Increase (decrease) in accounts payable              211,215          (126,202)         1,365,103
    Increase in accrued payroll and expenses,
        related parties                                       --                --          2,348,145
    (Decrease) increase in accrued expenses             (670,410)          437,133          1,279,081
                                                     -----------       -----------       ------------
Net cash used in operating activities                 (3,411,180)       (1,013,324)       (41,957,738)
                                                     -----------       -----------       ------------

Cash flows from investing activities:
    Purchase of marketable equity securities                  --                --           (290,420)
    Proceeds from sale of marketable equity
       securities                                             --                --            316,383
    Purchase of property and equipment                    (7,432)               --         (1,414,268)
    Patent costs                                              --                --            (97,841)
                                                     -----------       -----------       ------------
Net cash used in investing activities                     (7,432)               --         (1,486,146)
                                                     -----------       -----------       ------------
</TABLE>

                                                                     (continued)

See accompanying notes to condensed financial statements.


                                     - 4 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                   Nine months ended April 30, 2004 and 2003,
                       and the Period from August 24, 1981
                      (Date of Inception) to April 30, 2004

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Nine Months Ended         August 24, 1981
                                                                                 April 30,                (Date of
                                                                                 ---------              Inception) to
                                                                            2004           2003         April 30, 2004
                                                                         ----------      ---------     --------------
<S>                                                                      <C>             <C>             <C>
Cash flows from financing activities:
  Proceeds from short-term borrowings                                    $       --      $  25,000       $    874,500
  Payment of short-term borrowings                                               --        (25,000)          (653,500)
  (Decrease) increase in loans payable - related party, net                      --        (33,680)         2,628,868
  Proceeds from bank debt and other long-term debt, net of
   deferred issuance costs                                                       --        750,000          3,667,460
  Reduction of bank debt and long-term debt                                  (6,799)        (6,041)        (2,957,963)
  Proceeds from issuance of common stock, net                             1,527,925        241,788         31,542,263
  Proceeds from exercise of stock options and warrants, net               2,772,422         20,000          8,833,336
  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                        4,293,548        972,067         44,648,957
                                                                         ----------      ---------       ------------
Net increase (decrease) in cash and cash equivalents                        874,936        (41,257)         1,205,073
Cash and cash equivalents at beginning of period                            330,137         85,843                 --
                                                                         ----------      ---------       ------------
Cash and cash equivalents at end of period                               $1,205,073      $  44,586       $  1,205,073
                                                                         ==========      =========       ============

Supplemental disclosure of cash flow information - interest paid         $   31,737      $   4,416       $  1,739,075
                                                                         ==========      =========       ============
Noncash financing activities:
   Issuance of convertible subordinated debenture for loan payable
     to officer                                                          $       --      $      --       $  2,725,000
                                                                         ==========      =========       ============
   Issuance of common stock upon the conversion of convertible
     subordinated debentures, related party                              $       --      $      --       $  3,242,000
                                                                         ==========      =========       ============
   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
                                                                         ==========      =========       ============
   Conversion of accounts payable to common stock                        $   42,729      $  10,000       $    497,278
                                                                         ==========      =========       ============
   Conversion of notes payable, bank and accrued interest
     to long-term debt                                                   $       --      $      --       $  1,699,072
                                                                         ==========      =========       ============
   Conversion of loans and interest payable, related party and
      accrued payroll and expenses, related parties to long-term
      accrued payroll and other, related party                           $       --      $      --       $  1,863,514
                                                                         ==========      =========       ============
   Issuance of common stock upon the conversion of convertible
     subordinated debentures and accrued interest, other                 $  514,597      $      --       $    706,590
                                                                         ==========      =========       ============
   Issuance of common stock for services rendered                        $  210,000      $      --       $    212,460
                                                                         ==========      =========       ============
   Issuance of warrants with notes payable                               $       --      $ 196,686       $    594,219
                                                                         ==========      =========       ============
</TABLE>

See accompanying notes to condensed financial statements.


                                     - 5 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

      In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Company's financial position as of
April 30, 2004 and its results of operations and cash flows for the three and/or
nine month periods ended April 30, 2004 and 2003 and the period from August 24,
1981 (date of inception) to April 30, 2004. The results of operations for the
nine months ended April 30, 2004 are not necessarily indicative of the results
to be expected for the full year.

      Certain footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted in accordance with the published 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 year ended July 31, 2003.

      The Company is a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
The Company is devoting substantially all of its present efforts to developing
new drug products. Its planned principal operations have not commenced and,
accordingly, no significant revenue has been derived therefrom.

      The Company has reported net losses since its inception and has limited
liquid resources. The report of the Company's independent registered public
accountants on the Company's July 31, 2003 financial statements included an
explanatory paragraph which states that the Company's recurring losses, working
capital deficit and limited liquid resources raise substantial doubt about the
Company's ability to continue as a going concern. The Company has continued to
incur losses through April 30, 2004 and has a working capital deficiency as of
April 30, 2004. The condensed financial statements at July 31, 2003 and April
30, 2004 and for the periods ended April 30, 2004 and 2003 do not include any
adjustments that might result from the outcome of this uncertainty.

      The Company's continued operations will depend on its ability to raise
additional funds through various potential sources such as equity and debt
financing (see Notes 5 and 7), collaborative agreements, strategic alliances,
sale of tax benefits, revenues from the commercial sale of ONCONASE(R),
licensing of its proprietary RNase technology and its ability to realize the
full potential of its technology and its drug candidates via out-licensing
agreements with other companies. Such additional funds may not become available
as needed or be available on acceptable terms. Through May 31, 2004, a
significant portion of the Company's financing has been through the sale of
equity securities and convertible debentures in registered offerings and private
placements and exercise of stock options and warrants (see Notes 5 and 7).
Additionally, the Company has raised capital through debt financings, sale of
tax benefits and


                                     - 6 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                    Unaudited

research products, interest income and financing received from its Chief
Executive Officer. Until and unless the Company's operations generate
significant revenues, the Company expects to continue to fund its operations
from the sources of capital previously described. There can be no assurance that
the Company will be able to raise the capital needed on terms which are
acceptable, if at all. As of April 30, 2004, the Company's cash balance is
sufficient to fund its expanded operations at least through July 31, 2005 (see
Note 7), based on its expected level of expenditures in relation to activities
in preparing ONCONASE(R) for marketing registrations in the US and Europe and
other ongoing operations of the Company. However, the Company will continue to
seek additional capital financing through the sale of equity in private
placements, sale of tax benefits and exercise of stock options and warrants but
cannot be sure that the Company will be able to raise capital on favorable terms
or at all.

2. EARNINGS (LOSS) PER COMMON SHARE

      "Basic" loss per common share equals net loss divided by weighted average
common shares outstanding during the period. "Diluted" loss per common share
equals net income divided by the sum of weighted average common shares
outstanding during the period plus the effect of potentially dilutive
securities. The Company's Basic and Diluted per share amounts are the same since
the effects of the assumed exercise of stock options and warrants and the
conversion of convertible notes are all anti-dilutive. The number of shares
issuable upon the exercise of options and warrants excluded from the calculation
was 11,856,030 and 10,070,773 at April 30, 2004 and 2003, respectively. This
also excludes the potential dilution that could occur upon the conversion of
convertible notes into 3,319,402 shares of common stock and warrants to purchase
3,860,424 shares of common stock.

3. STOCK-BASED COMPENSATION

      During the third fiscal quarter of 2003, Statement of Financial Accounting
Standards No. 148 (SFAS 148), "Accounting for Stock-Based Compensation -
Transition and Disclosure - An Amendment of FASB Statement No. 123" became
effective for the Company.

      The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method. As the exercise price of
all options granted under these plans was equal to the fair market price of the
underlying common stock on the grant date, no stock-based employee compensation
cost is recognized in the condensed statements of operations.

      In accordance with SFAS 148 and Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the
Company's pro forma option expense is computed using the Black-Scholes option
pricing model. To comply with SFAS 148, the Company is presenting the following
table to illustrate the effect on the net loss and loss per share if it had
applied the fair value recognition provisions of SFAS 123, as amended, to
options granted under the stock-based employee compensation plans. For purposes
of this pro forma disclosure, the estimated value of the options is amortized
ratably to expense over the options' vesting periods.


                                     - 7 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                    Unaudited

<TABLE>
<CAPTION>
                                                   Three Months Ended                 Nine Months Ended
                                                        April 30,                         April 30,
                                                        ---------                         ---------
                                                 2004             2003             2004               2003
                                              -----------       ---------       -----------       -----------
<S>                                           <C>               <C>             <C>               <C>
Net loss
       As reported                            $(1,350,549)      $(567,755)      $(3,308,347)      $(1,635,077)
       Stock-based employee
         compensation expense under fair
         value method                            (979,883)        (38,398)       (1,160,246)         (144,760)
                                              -----------       ---------       -----------       -----------
       Pro forma                              $(2,330,432)      $(606,153)      $(4,468,593)      $(1,779,837)
                                              ===========       =========       ===========       ===========
Net loss per common share
       As reported - basic                    $     (0.05)      $   (0.02)      $     (0.12)      $     (0.07)
       Pro forma - basic                            (0.08)          (0.03)            (0.16)            (0.08)
</TABLE>

      The fair value was estimated using the Black-Scholes options pricing model
based on the following assumptions:

<TABLE>
<CAPTION>
                                           Three Months Ended          Nine Months Ended
                                                April 30,                   April 30,
                                                ---------                   ---------
                                           2004          2003          2004          2003
                                           ----          ----          ----          ----
<S>                                      <C>           <C>           <C>           <C>
Expected dividend yield                      0%            0%            0%            0%
Risk-free interest rate                   2% - 6%       2% - 6%       2% - 6%       2% - 6%
                                         40.79% -      40.79% -      40.79% -      40.79% -
Expected stock price volatility           114.54%       114.54%       114.54%       114.54%
Expected term until exercise (years)     5.96 - 10       6 - 7       5.96 - 10       6 - 7
</TABLE>

4. LOAN RECEIVABLE, RELATED PARTY

      Amounts due from the Company's CEO totaling $150,691 as of April 30, 2004
are classified as a long-term asset as the loans have no specified due dates,
and the Company does not expect repayment of these amounts within one year.
These loans were made prior to July 30, 2002 and have not since been materially
modified. The Company earns interest on these loans at a rate of 8% per annum.

5. CAPITAL STOCK

      In August 2003, 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.


                                     - 8 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                    Unaudited

      In August 2003, 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.

      In September 2003, Alfacell entered into a two-part financing agreement
with SF Capital Partners, Ltd. for the initial 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, Alfacell received
$1,500,000. In addition, the Company agreed to grant 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"). The
Company also issued 38,710 shares of restricted common stock to a third party as
finder's fee.

      On January 16, 2004, the Company issued the Additional Warrants to SF
Capital. On January 29, 2004, SF Capital exercised the Additional Warrant and
invested an additional $1,500,000 to purchase the Company's common stock at a
20-day trailing average exercise price of $3.96. In exchange, SF Capital
received 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. Pursuant to the terms of the financing agreement entered into in the
September 2003 private placement, the Company is registering the resale by SF
Capital of 379,170 shares of common stock and 189,585 shares of common stock
underlying warrants. The Company also issued 15,166 shares of restricted common
stock to a third party as finder's fee.

      In November 2003, the Company issued 25,000 five-year stock options to a
board member as payment for non-board related services. The options vested
immediately and have a per share exercise price of $3.46. The Company recorded a
total of $52,658 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.

      In December 2003, the Company issued 12,604 restricted shares of common
stock as payment of accounts payable in the amount of $42,729.

      On January 14, 2004 at the Company's annual stockholders' meeting, 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. 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 was
amended because of insufficient number of authorized shares available for
issuance upon conversion, reverted to their original terms so that they are
again convertible into shares of common stock, rather than shares of Series A
Preferred Stock.


                                     - 9 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                    Unaudited

      In January 2004, the Company issued an aggregate of 50,000 shares of
restricted common stock as payment for services rendered in an aggregate amount
of $90,000.

      In March 2004, the Company recorded an aggregate of $223,244 non-cash
expenses for 110,000 five-year stock options that were issued to various
consultants for services rendered. The options vested immediately and have a per
share exercise price of $3.46. The non-cash expenses were based upon the fair
value of the options on the date of issuance as estimated by the Black-Scholes
options pricing model.

      During the quarter ended April 30, 2004, the Company issued an aggregate
1,468,393 shares of restricted Common Stock and five-year warrants to purchase
1,918,393 shares of common stock with an exercise price of $1.00 per share upon
the conversion of notes payable in the amount of approximately $514,600 by
unrelated parties.

      During the nine months ended April 30, 2004, the Company issued, an
aggregate of 1,773,990 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 $3.12.
The Company realized aggregate gross proceeds of $1,480,017 from these
exercises.

      During the nine months ended April 30, 2004, the Company incurred an
aggregate of $239,673 of costs relating to various private placements.

6. SALE OF NET OPERATING LOSSES

      New Jersey has enacted legislation permitting certain corporations located
in New Jersey to sell state tax loss carryforwards and state research and
development credits or tax benefits. For the state fiscal year 2004 (July 1,
2003 to June 30, 2004), the Company had approximately $1,378,000 total available
tax benefits that were saleable; of which New Jersey permitted the Company to
only sell approximately $261,000. The Company received approximately $222,000
from the sale of the $261,000 of tax benefits, which was recognized as tax
benefits for the nine months ended April 30, 2004. For the state fiscal year
2003 (July 1, 2002 to June 30, 2003), the Company had approximately $1,373,000
in total available tax benefits that were saleable; of which New Jersey
permitted the Company to only sell approximately $273,000. The Company received
approximately $229,000 from the sale of the $273,000 of tax benefits, which was
recognized as tax benefits for the nine months ended April 30, 2003.

      If still available under New Jersey law, the Company will attempt to sell
the remaining $1,117,000 of its tax benefits, between July 1, 2004 and June 30,
2005. This amount, which is a carryover of the Company's remaining tax benefits
from state fiscal year 2004, may increase if the Company incurs additional tax
benefits during state fiscal year 2005. The Company can not estimate, however,
what percentage of its saleable tax benefits New Jersey will permit to sell, how
much money will be received in connection with the sale, if the Company will be
able to find a buyer for its tax benefits or if such funds will be available in
a timely manner.


                                     - 10 -
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                    Unaudited

7. SUBSEQUENT EVENTS

      In May 2004, the Company issued, an aggregate of 675,000 shares of common
stock upon the exercise of warrants and stock options by unrelated parties, at
per share exercise prices ranging from $0.75 to $1.50. The Company realized
aggregate gross proceeds of $888,750 from these exercises.

      In May 2004, the Company issued 1,210,654 shares of common stock to an
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.


                                     - 11 -
<PAGE>

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

      Information contained herein contains, in addition to historical
information, forward-looking statements that involve risks and uncertainties.
All statements, other than statements of historical fact, regarding our
financial position, potential, business strategy, plans and objectives for
future operations are "forward-looking statements." These statements are
commonly identified by the use of forward-looking terms and phrases as
"anticipates," "believes," "estimates," "expects," "intends," "may," "seeks,"
"should," or "will' or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy. We cannot be sure that
the future results covered by these forward-looking statements will be achieved.
The matters set forth herein under the caption "Risk Factors" 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.

Overview

      Since our inception, we have devoted the vast majority of our resources to
the research and development of ONCONASE(R) and related drug candidates. We have
focused our resources towards the completion of the clinical program for
unresectable, or inoperable, malignant mesothelioma.

      Since ONCONASE(R) has Fast Track Designation for the treatment of
malignant mesothelioma patients, we continue to have meetings and discussions
with the FDA to establish mutually agreed upon parameters for the New Drug
Application, or NDA to obtain marketing approval for ONCONASE(R), assuming the
Phase III clinical trial for the treatment of malignant mesothelioma yields
favorable results.

      We received an Orphan Medicinal Product Designation for ONCONASE(R) from
the European Agency for the Evaluation of Medicinal Products, or the EMEA. We
continue to fulfill the EMEA requirements regarding the Marketing Authorization
Application, or MAA registration requirements for ONCONASE(R) for the treatment
of malignant mesothelioma.

      Almost all of our research and development expenses since our inception of
$43,840,372 has gone toward the development of ONCONASE(R) and related drug
candidates. For the fiscal years 2003, 2002 and 2001 our research and
development expenses were $1,699,962, $2,032,938 and $1,900,678, respectively,
almost all of which was used for the development of ONCONASE(R) and related drug
candidates. ONCONASE(R) is currently in an international, centrally randomized
Phase III trial. The first part of the trial has been completed and the second
confirmatory part of the trial is ongoing for which patient enrollment is
expected to be completed by the end of this year. The primary endpoint of the
trial is survival, and as such, a sufficient number of deaths must occur in
order to perform the required statistical analyses to determine the efficacy of
ONCONASE(R) in patients with unresectable (inoperable) malignant mesothelioma.
If the results of the clinical trials are positive, we expect to file for
marketing registrations (NDA and MAA) for ONCONASE(R) within six months of
completion of the statistical analyses. However, at this time, we cannot predict
with certainty when a sufficient number of deaths will occur to achieve
statistical significance. Hence, the timing of the filing is data driven as to
when we will be able to file for marketing registrations in the US and EU.
Therefore, we cannot predict with certainty what our total cost will be
associated with obtaining marketing approvals, or when and if such approvals
will be granted, and when actual sales will occur.


                                     - 12 -
<PAGE>

      We fund the research and development of our products from cash receipts
resulting from the sale of our equity securities and convertible debentures in
registered offerings and private placements. Additionally, we have raised
capital through debt financings, the sale of our tax benefits and research
products, interest income and financing received from our Chief Executive
Officer. Presently, our cash balance is sufficient to fund our expanded
operations through July 31, 2005 based on our expected level of expenditures in
relation to activities in preparing ONCONASE(R) for marketing registrations and
other ongoing operations of the Company. However, we continue to seek additional
capital financing through the sale of equity in private placements, sale of our
tax benefits and exercise of stock options and warrants but cannot be sure that
we will be able to raise capital on favorable terms or at all.

Results of Operations

Three and nine month periods ended April 30, 2004 and 2003

      Revenues. We are a development stage company as defined in the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 7.
We are devoting substantially all of our present efforts to developing new drug
products. Our planned principal operations of marketing and/or licensing of new
drugs have not commenced and, accordingly, we have not derived any significant
revenue from these operations. We focus most of our productive and financial
resources on the development of ONCONASE(R) and as such we have not had any
sales in the three and nine month periods ended April 30, 2004 and 2003. For the
nine months ended April 30, 2004, our other income was $11,300.

      Research and Development. Research and development expense for the three
months ended April 30, 2004 was $927,000 compared to $374,000 for the same
period last year, an increase of $553,000. Research and development expense for
the nine months ended April 30, 2004 was $2,238,000 compared to $1,174,000 for
the same period last year, an increase of $1,064,000. The increase in the
current nine month period was due primarily to increases in data management and
consulting fees related to our pivotal Phase III clinical trial for malignant
mesothelioma of approximately $819,000, non-cash expense related to stock
options issued for consulting services of approximately $146,000, regulatory
consulting costs of approximately $111,000, costs associated with sponsored
research studies of approximately $68,000 and costs associated with patent and
trademark applications for ONCONASE(R) of approximately $10,000, offset by a
decreases in personnel costs and insurance expenses of approximately $69,000 and
$21,000, respectively.

      General and Administrative. General and administrative expense for the
three months ended April 30, 2004 was $329,000 compared to $138,000 for the same
period last year, an increase of $191,000. General and administrative expense
for the nine months ended April 30, 2004 was $978,000 compared to $426,000 for
the same period last year, an increase of $552,000. The increase in the current
nine month period was due primarily to increases in non-cash expense related to
stock and stock options issued for consulting services associated with business
development activities of approximately $196,000, increases in legal, public
relations, insurance, personnel and accounting expenses of approximately
$161,000, $71,000, $45,000, $44,000 and $35,000, respectively.

      Interest. Interest expense for the three months ended April 30, 2004 was
$97,000 compared to $55,000 for the same period last year, an increase of
$42,000. Interest expense for the nine months ended April 30, 2004 was $325,000
compared to $295,000 for the same period last year, an increase of $30,000.


                                     - 13 -
<PAGE>

The increase in the current nine month period was due primarily to the interest
expense on the beneficial conversion feature of the notes payable issued to
unrelated parties and its related warrants. The interest expense was based on
the fair value of the warrants using the Black-Scholes method, amortized over
the life of the notes payable.

      Income Taxes. New Jersey has enacted legislation permitting certain
corporations located in New Jersey to sell state tax loss carryforwards and
state research and development credits or tax benefits. For the state fiscal
year 2004 (July 1, 2003 to June 30, 2004), we had approximately $1,378,000 total
available tax benefits that were saleable; of which New Jersey permitted us to
only sell approximately $261,000. We received approximately $222,000 from the
sale of the $261,000 of tax benefits, which we recognized as tax benefits for
the nine months ended April 30, 2004. For the state fiscal year 2003 (July 1,
2002 to June 30, 2003), we had approximately $1,373,000 in total available tax
benefits that were saleable; of which New Jersey permitted us to only sell
approximately $273,000. We received approximately $229,000 from the sale of the
$273,000 of tax benefits, which we recognized as tax benefits for the nine
months ended April 30, 2003.

      If still available under New Jersey law, we will attempt to sell the
remaining $1,117,000 of our tax benefits, between July 1, 2004 and June 30,
2005. This amount, which is a carryover of our remaining tax benefits from state
fiscal year 2004, may increase if we incur additional tax benefits during state
fiscal year 2005. We can not estimate, however, what percentage of our sellable
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 tax
benefits or if such funds will be available in a timely manner.

      Net Loss. We have incurred net losses during each year since our
inception. The net loss for the three months ended April 30, 2004 was $1,351,000
as compared to $568,000 for the same period last year, an increase of $783,000.
The net loss for the nine months ended April 30, 2004 was $3,308,000 as compared
to $1,635,000 for the same period last year, an increase of $1,673,000. The
cumulative loss from the date of inception, August 24, 1981 to April 30, 2004,
amounted to $67,283,000. We are a development stage company and accordingly, we
have not derived sufficient revenues from operations to offset the development
stage expenses.

Liquidity and Capital Resources

      We have financed our operations since inception through the sale of our
equity securities and convertible debentures in registered offerings and private
placements. Additionally, we have raised capital through debt financings, the
sale of our tax benefits and research products, interest income and financing
received from our Chief Executive Officer. During the nine months ended April
30, 2004, we had a net increase in cash and cash equivalents of $875,000, which
resulted primarily from net cash provided by financing activities of $4,293,000,
which resulted from $1,500,000 in gross proceeds from a private placement of
common stock and warrants with an institutional investor in September 2003,
$1,293,000 in net proceeds from warrants and stock options exercises and
$1,500,000 in gross proceeds from a private placement of common stock and
warrants in January 2004, offset by net cash used in operating activities of
$3,411,000 and net cash used in investing activities of $7,000. Total cash
resources as of April 30, 2004 were $1,205,000 compared to $330,000 at July 31,
2003.

      Our current liabilities as of April 30, 2004 were $2,033,000 compared to
$2,744,000 at July 31, 2003, a decrease of $711,000. The decrease was primarily
due to decreased accrued expenses. As of


                                     - 14 -
<PAGE>

April 30, 2004, our current liabilities exceeded our current assets and we had a
working capital deficit of $553,000.

      Our continued operations will depend on our ability to raise additional
funds through various potential sources such as equity and debt financing,
collaborative agreements, strategic alliances, sale of tax benefits, revenues
from the commercial sale of ONCONASE(R), licensing of our proprietary RNase
technology and our ability to realize revenues from our technology and our drug
candidates via out-licensing agreements with other companies. Such additional
funds may not become available as we need them or be available on acceptable
terms. Through May 31, 2004, a significant portion of our financing has been
through the sale of our equity securities and convertible debentures in
registered offerings and private placements and exercise of stock options and
warrants. Additionally, we have raised capital through debt financings, the sale
of our tax benefits and research products, interest income and financing
received from our Chief Executive Officer. Until and unless our operations
generate significant revenues, we expect to continue to fund operations from the
sources of capital previously described. There can be no assurance that we will
be able to raise the capital we need on terms which are acceptable, if at all.
Presently, our cash balance is sufficient to fund our expanded operations at
least through July 31, 2005, based on our expected level of expenditures in
relation to activities in preparing ONCONASE(R) for marketing registrations and
other ongoing operations of the Company. However, we continue to seek additional
capital financing through the sale of equity in private placements, sale of our
tax benefits and exercise of stock options and warrants but cannot be sure that
we will be able to raise capital on favorable terms or at all. The report of our
independent registered public accountants on our July 31, 2003 financial
statements included an explanatory paragraph which states, and we also believe,
that our recurring losses, working capital deficit and limited liquid resources
raise substantial doubt about our ability to continue as a going concern. As of
April 30, 2004, we continued to incur losses, had a working capital deficiency
and limited liquid resources which raise substantial doubt about our ability to
continue as a going concern. Our condensed financial statements at April 30,
2004 and July 31, 2003 and for the periods ended April 30, 2004 and 2003 do not
include any adjustments that might result from the outcome of this uncertainty.

      In May 2004, we issued, an aggregate of 675,000 shares of common stock
upon the exercise of warrants and stock options by unrelated parties, at per
share exercise prices ranging from $0.75 to $1.50. We realized aggregate gross
proceeds of $888,750 from these exercises.

      In May 2004, we issued 1,210,654 shares of common stock to an
institutional investor, resulting in gross proceeds of $10,000,000 to us. 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. We
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.

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

      Our Common Stock was delisted from The Nasdaq SmallCap Market effective at
the close of business April 27, 1999 for failing to meet the minimum bid price
requirements set forth in the NASD Marketplace Rules. Since April 28, 1999, our
Common Stock has traded on the OTC Bulletin Board under the symbol "ACEL.OB".
Delisting of our Common Stock from Nasdaq could have a material


                                     - 15 -
<PAGE>

adverse effect on our ability to raise additional capital, our stockholders'
liquidity and the price of our common stock. We intend to reapply for Nasdaq
SmallCap Market listing as soon as all listing criteria are met.

      The market price of our Common Stock is volatile, and the price of the
stock could be dramatically affected one way or another depending on numerous
factors. The market price of our Common Stock could also be materially affected
by the marketing approval or lack of approval of ONCONASE(R).

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
special purpose entities or SPE, 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, 2004, we are not involved in any
material unconsolidated SPE transactions.

Contractual Obligations and Commercial Commitments

      Our major outstanding contractual obligations relate to our equipment
operating lease. Below is a table that presents our contractual obligations and
commercial commitments as of April 30, 2004:

                                               Payments Due by Fiscal Year
                                             -------------------------------
                                                                   2006 and
                                  Total       2004       2005     Thereafter
                                 -------     ------     -------   ----------
      Operating lease            $17,480     $4,380     $13,100     $ - 0 -
                                 -------     ------     -------     -------
      Total contractual cash
          obligations            $17,480     $4,380     $13,100     $ - 0 -
                                 =======     ======     =======     =======

                                  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 quarterly report and our other
SEC filings before deciding whether to purchase shares of our Common Stock. The
risks described below are not the only ones facing our company. Additional risks
not presently known to us or that we currently believe to be immaterial may also
adversely affect our business. 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 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 our source of
working capital has been public and private sales of our stock. We incurred a
net loss of approximately $3,308,000 for the nine months ended April 30, 2004.
We have continued to incur losses since April 2004. In addition, we


                                     - 16 -
<PAGE>

had a working capital deficit of approximately $553,000 and an accumulated
deficit of approximately $67,283,000 as of April 30, 2004. We may never achieve
revenue sufficient for us to attain profitability.

      We incurred net losses of approximately $2,412,000, $2,591,000 and
$2,295,000 for the fiscal years ended July 31, 2003, 2002 and 2001,
respectively.

      Our profitability will depend on our ability to develop, obtain regulatory
approvals for, and effectively market ONCONASE(R) 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(R) 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:

      o     Our ability to demonstrate clinically that our products have utility
            and are safe;

      o     Delays or refusals by regulatory authorities in granting marketing
            approvals;

      o     Our limited financial resources relative to our competitors;

      o     Our ability to obtain an appropriate marketing partner;

      o     The availability and level of reimbursement for our products by
            third party payors;

      o     Incidents of adverse reactions to our products;

      o     Side effects or misuse of our products and unfavorable publicity
            that could result; and

      o     The occurrence of manufacturing or distribution disruptions.

      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 not consummated any licensing or marketing
arrangements and we may not be able to successfully consummate any such
arrangements. 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. We, therefore, are unable to predict the extent of any future
losses or the time required to achieve profitability, if at all.

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

      We need additional financing in order to continue operations, including
completion of our current clinical trials and filing marketing registrations for
ONCONASE(R) in the United States with the FDA and in Europe with the EMEA. As a
result of our continuing losses and lack of capital, the report of our
independent registered public accounting firm on our July 31, 2003 financial
statements included an explanatory paragraph which states that our recurring
losses, working capital deficit and limited liquid resources raise substantial
doubt about our ability to continue as a going concern. Our financial statements
at July 31, 2003 do not include any adjustments that might result from the
outcome of this uncertainty. If the results from our current clinical trial do
not demonstrate the efficacy and safety of ONCONASE(R) for malignant
mesothelioma, our ability to raise additional capital will be adversely
affected. Even if regulatory applications for marketing approvals are filed, we
will need additional financing to continue operations. In connection with the
recent private placement from which we realized $10.0 million in gross proceeds
from an institutional investor, we plan to expand our operations in preparing
ONCONASE(R) for marketing registrations in the US and outside the US as well as
fund our


                                     - 17 -
<PAGE>

ongoing operations. Presently, our cash balance is sufficient to fund our
expanded operations through July 31, 2005, based on our expected level of
expenditures. However, taking into consideration all of the uncertainties
related to drug development and our industry, we continue to seek additional
capital financing through the sale of equity in private placements, sale of our
tax benefits and exercise of stock options and warrants but cannot be sure that
we will be able to raise capital on favorable terms or at all.

We may be unable to sell certain state tax benefits in the future and if we are
unable to do so, it would eliminate a source of financing that we have relied on
in the past.

      At July 31, 2003, we had federal net operating loss carryforwards of
approximately $39,600,000 that expire from 2004 to 2023. We also had research
and experimentation tax credit carryforwards of approximately $1,186,000 that
expire from 2004 to 2023. New Jersey has enacted legislation permitting certain
corporations located in New Jersey to sell state tax loss carryforwards and
state research and development credits or tax benefits. The aggregate amount of
tax benefits that New Jersey allows corporations to sell each state fiscal year
(July 1st through June 30th) is determined annually and if New Jersey reduces
such aggregate amount in any fiscal year we may be unable to sell some or all of
our available tax benefits as we have in the past. In addition, there is a
limited market for these types of sales and we may not be able to find someone
to purchase our tax benefits for a reasonable price. Our historical results of
operations have been improved by our sale of tax benefits and if we continue to
generate a limited amount of revenue and are unable in the future to sell our
tax benefits, our results of operations will be negatively impacted.

      For the state fiscal year 2004 (July 1, 2003 to June 30, 2004), we had
approximately $1,378,000 total available tax benefits that were saleable; of
which New Jersey permitted us to only sell approximately $261,000. We received
approximately $222,000 from the sale of the $261,000 of tax benefits, which we
recognized as tax benefits for the nine months ended April 30, 2004. For the
state fiscal year 2003 (July 1, 2002 to June 30, 2003), we had approximately
$1,373,000 in total available tax benefits that were saleable; of which New
Jersey permitted us to only sell approximately $273,000. We received
approximately $229,000 from the sale of the $273,000 of tax benefits, which we
recognized as tax benefits for the nine months ended April 30, 2003.

      If still available under New Jersey law, we will attempt to sell the
remaining $1,117,000 of our tax benefits, between July 1, 2004 and June 30,
2005. This amount, which is a carryover of our remaining tax benefits from state
fiscal year 2004, may increase if we incur additional tax benefits during state
fiscal year 2005. We can not estimate, however, what percentage of our sellable
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 tax
benefits or if such funds will be available in a timely manner.

We cannot predict how long it will take us nor how much it will cost us to
complete our Phase III trial because it is a survival study and we are still in
patient enrollment in part two of this Phase III trial.

      We currently have ongoing a two-part Phase III trial of ONCONASE(R) as a
treatment for malignant mesothelioma. The first part of the clinical trial has
been completed and the second, confirmatory part is still ongoing for which
patient enrollment is expected to be completed by the end of this year. The
primary endpoint of the Phase III clinical trial is survival, which tracks the
length of time patients enrolled in the study live. According to the protocol, a
sufficient number of patient deaths must occur in order to perform the required
statistical analyses to determine the efficacy of ONCONASE(R) in patients with
unresectable (inoperable) malignant mesothelioma. Since it is impossible to
predict with certainty when these terminal events in the Phase III trial will
occur, we do not have the capability of


                                     - 18 -
<PAGE>

reasonably determining when a sufficient number of deaths will occur, nor when
we will be able to file for marketing registrations with the FDA and EMEA.

      In addition, clinical trials are very costly and time consuming. 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. Delays in patient enrollment, could delay
achieving a sufficient number of deaths required for statistical analyses and
increase its costs which could delay the commercial sale of ONCONASE(R).

      The FDA and comparable regulatory agencies in foreign countries impose
substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve 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 type, complexity and novelty of the product. We cannot apply
for FDA or EMEA approval to market ONCONASE(R) until the clinical trials and all
other registration requirements have been completed.

If we fail to obtain the necessary regulatory approvals, we will not be allowed
to commercialize our drugs and will not generate product revenue.

      The FDA and comparable regulatory agencies in foreign countries impose
substantial pre-market approval requirements on the introduction of
pharmaceutical products. These requirements involve 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. 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
limited trials with our product have produced certain favorable results, 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, the FDA or the company 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. In addition, we cannot apply for FDA or
EMEA approval to market ONCONASE(R) until pre-clinical and clinical trials have
been completed. Several factors could prevent the successful completion or cause
significant delays of these trials including an inability to enroll the required
number of patients or failure to demonstrate the product is safe and effective
in humans. Also if safety concerns develop, the FDA and EMEA could stop our
trials before completion.

      In December 2002, we received Fast Track Designation from the Food and
Drug Administration, or the FDA for ONCONASE(R) for the treatment of malignant
mesothelioma. In February 2001, we received an Orphan Medicinal Product
Designation for ONCONASE(R) from the European Agency for the Evaluation of
Medicinal Products, or the EMEA.

      All statutes and regulations governing the conduct of clinical trials are
subject to change by various regulatory agencies, including the FDA, in the
future 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.


                                     - 19 -
<PAGE>

      We may not market or sell any product for which we have not obtained
regulatory approval. We cannot assure 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(R) 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.

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
products. We presently rely on third parties to perform certain of the
manufacturing processes for the production of ONCONASE(R) for use in clinical
trials. Currently, we contract with Scientific Protein Labs 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(R) and with Cardinal Health
for the labeling, storage and shipping of ONCONASE(R) 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.

      Our use of manufacturers for ranpirnase and ONCONASE(R)have been approved
by the FDA. We have identified substantial alternative service providers for the
manufacturing services for which we 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.

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 approval,
we expect to rely on established third party strategic partners to perform these
functions. For example, if we are successful in our Phase III clinical trials
with ONCONASE(R), and are granted marketing approval for the commercialization
of


                                     - 20 -
<PAGE>

ONCONASE(R), we will be unable to introduce the product to market without
establishing a marketing collaboration with a pharmaceutical company with those
resources. If we establish relationships with one or more biopharmaceutical or
other marketing companies with existing distribution systems and direct sales
forces to market any or all of our product candidates, we cannot assure you that
we will be able to enter into or maintain agreements with these companies on
acceptable terms, if at all. Further, it is likely that we will have limited or
no control over the manner in which product candidates are marketed or the
resources devoted to such markets.

      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:

      o     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;

      o     the extent to which our agreement with our collaborators permits us
            to exercise marketing or promotion rights with respect to the
            product candidate;

      o     how our product candidates compare to competitive products with
            respect to labeling, pricing, therapeutic effect, and method of
            delivery; and

      o     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 to us.

      A number of these factors are outside of our control and will be difficult
to determine.

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.

We depend upon Kuslima Shogen and our other key personnel and may not be able to
retain these employees or recruit qualified replacement or additional personnel,
which would have a material adverse affect on our business.

      We are highly dependent upon our founder, Chairman and Chief Executive
Officer, Kuslima Shogen. Kuslima Shogen's talents, efforts, personality, vision
and leadership have been, and continue to be, critical to our success. The
diminution or loss of the services of Kuslima Shogen, and any negative market or
industry perception arising from that diminution or loss, would have a material
adverse effect on our business. While our other employees have substantial
experience and have made significant contributions to our business, Kuslima
Shogen is our senior executive and also our primary supporter because she
represents the Company's primary means of accessing the capital markets.

      Because of the specialized scientific nature of our business, our
continued success also is dependent upon our ability to attract and retain
qualified management and scientific personnel. There is intense competition for
qualified personnel in the pharmaceutical field. As our company grows our


                                     - 21 -
<PAGE>

inability to attract qualified management and scientific personnel could
materially adversely affect our research and development programs, the
commercialization of our products and the potential revenue from product sales.

      We do not have employment contracts with Kuslima Shogen or any of our
other management and scientific personnel.

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

      We currently co-own two patents with the United States government that
expire in 2016. We also own ten United States patents outright with expiration
dates ranging from 2006 to 2019, four European patents with expiration dates
ranging from 2009 to 2016 and one Japanese patent that expires in 2010. In
addition, we have patent applications that are pending in the United States,
Europe and Japan. We do not license patent rights from any domestic or
international companies or institutions. 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, legal actions or
negotiations regarding patent issues.

Developments by competitors may render our products obsolete or non-competitive.

      In February 2004, the Food and Drug Administration granted Eli Lilly &
Company approval to sell its Alimta(R) 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(R). To our
knowledge, no other company is developing a product with the same mechanism of
action as ONCONASE(R). 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. Eli Lilly is, and some of
these other companies, universities, research teams or scientists may be more
experienced and have greater clinical, marketing and regulatory capabilities and
managerial and financial resources than we do. This may enable them to develop
products to treat the same medical conditions our products are intended to treat
before we are able to complete the development of our competing product.

      Our business is very competitive and involves rapid changes in the
technologies involved in developing new drugs. If others experience rapid
technological development, our products may become obsolete before we are able
to recover expenses incurred in developing our products. We will probably face
new competitors as new technologies develop. Our success depends on our ability
to remain competitive in the development of new drugs or we may not be able to
compete successfully.

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


                                     - 22 -
<PAGE>

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.

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 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
compete on price.

      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.


                                     - 23 -
<PAGE>

      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 was recently enacted. This legislation provides a new
Medicare prescription drug benefit beginning 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 stock is thinly traded and you may not be able to sell our stock when you
want to do so.

      There has been no established trading market for our common stock since
the stock was delisted from Nasdaq in April 1999. Since then our common stock
has been quoted on the OTC Bulletin Board, and is currently thinly traded. Over
the past three years, the weekly trading volume was as low as 4,160 shares per
week and as high as 706,280 shares for any week in such period. You may be
unable to sell our common stock when you want to do so if the trading market
continues to be limited. We intend to reapply for Nasdaq SmallCap Market listing
as soon as all listing criteria are met.

The price of our common stock has been, and may continue to be, volatile.

      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 years, the sale price for our common stock, as
reported by Nasdaq and the OTC Bulletin Board has fluctuated from a low of $0.18
to a high of $10.07. The market price of our common stock could be impacted by a
variety of factors, including:

      o     announcements of technological innovations or new commercial
            products by us or our competitors,

      o     disclosure of the results of pre-clinical testing and clinical
            trials by us or our competitors,

      o     disclosure of the results of regulatory proceedings,

      o     changes in government regulation,

      o     developments in the patents or other proprietary rights owned or
            licensed by us or our competitors,


                                     - 24 -
<PAGE>

      o     public concern as to the safety and efficacy of products developed
            by us or others,

      o     litigation, and

      o     general market conditions in our industry.

      In addition, the stock market continues to experience extreme price and
volume fluctuations. 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. Nonetheless, these
broad market fluctuations may negatively affect the market price of our Common
Stock.

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 or sale, could adversely affect the price of our
common stock. We had 32,499,362 shares of common stock outstanding as of May 31,
2004. The following securities that may be exercised for, or are convertible
into, shares of our common stock were issued and outstanding as of May 31, 2004:

o     Options. Stock options to purchase 2,765,695 shares of our common stock at
      a weighted average exercise price of approximately $2.27 per share.

o     Warrants. Warrants to purchase 9,676,522 million shares of our common
      stock at a weighted average exercise price of approximately $2.82 per
      share.

o     Convertible Notes. Notes which will convert into 3,319,402 shares of our
      common stock at an average conversion price of $0.26 per share and
      warrants which are convertible into 3,860,424 shares of our common stock
      at an exercise price of $1.00 per share.

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

Our incorporation documents may delay or prevent (i) the removal of our current
management or (ii) 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.

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


                                     - 25 -
<PAGE>

statements included in this prospectus, nor have we been able to obtain AHC's
consent to the use of such report herein.

      Section 11 of the Securities Act of 1933 (the "Securities Act") provides
that any person acquiring a security pursuant to a registration statement may
assert a claim against every accountant who has with its consent been named as
having prepared or certified any part of the registration statement, or as
having prepared or certified any report or valuation that is used in connection
with the registration statement, if that part of the registration statement at
the time it becomes effective contains an untrue 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 this registration statement of which this
prospectus is a part 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 11 of the Securities 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 11 of
the Securities Act for any purchases of the Company's Common Stock pursuant to
this registration statement. 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 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

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 Exchange Act) as of April 30,
2004, the end of the period covered by this report (the evaluation date). Based
upon the evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that, as of the evaluation date, our disclosure controls and
procedures are effective in timely alerting them to the material information
relating to us required to be included in our periodic SEC filings.

      (b) Changes in internal controls.

      There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the date of their evaluation.


                                     - 26 -
<PAGE>

PART II. OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds

      (c) Recent Sales of Unregistered Securities

      The 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.

      From February 2004 through April 7, 2004, we issued an aggregate 1,468,393
shares of restricted common stock and five-year warrants to purchase 1,918,393
shares of common stock with an exercise price of $1.00 per share upon the
conversion of notes payable in the amount of $514,597 by unrelated parties.

Item 6. Exhibits and Reports on Form 8-K

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

<TABLE>
<CAPTION>
                                                                                       Exhibit No. or
Exhibit                                                                               Incorporation by
  No.                                  Item Title                                         Reference
  ---                                  ----------                                         ---------
<S>         <C>                                                                               <C>
3.1         Certificate of Incorporation, dated June 12, 1981 (incorporated by
            reference to 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 Registration Statement on Form S-1,
            File No. 333-112865, filed on February 17, 2004)                                  *

3.3         Amendment to Certificate of Incorporation, dated December 26, 1997
            (incorporated by reference to 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 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 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 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)                                                                             *

10.18       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)                                                *
</TABLE>


                                     - 27 -
<PAGE>

<TABLE>
<CAPTION>
                                                                                       Exhibit No. or
Exhibit                                                                               Incorporation by
  No.                                  Item Title                                         Reference
  ---                                  ----------                                         ---------
<S>         <C>                                                                               <C>
10.19       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)

10.20       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)                *

31.1        Certification of Chief Executive pursuant to Rule 13a-14(a), as
            adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
            (Section 302 Certification)                                                       +

31.2        Certification of Chief Financial Officer pursuant to Rule 13a-14(a),
            as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002
            (Section 302 Certification)                                                       +

32.1        Certification Chief Executive Officer pursuant to 18 U.S.C. Section
            1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002 (Section 906 Certification)                                               +

32.2        Certification Chief Financial Officer pursuant to 18 U.S.C. Section
            1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
            of 2002 (Section 906 Certification)                                               +
</TABLE>

*     Previously filed; incorporated herein by reference.

+     Filed herewith.

      (b) Reports on Form 8-K.

      On February 2, 2004, we filed a report on Form 8-K which reported under
Item 5 thereof that we completed a private placement to an institutional
investor resulting in the issuance of 379,170 shares of common stock at a price
of $3.96 per share and warrants to purchase an additional 189,585 shares of
common stock at an exercise price of $4.75 per share. We received gross proceeds
of $1,500,000 from such private placement.

      On March 8, 2004, we filed a report on Form 8-K which reported under Item
5 thereof the appointment of Andrew P. Savadelis as our Chief Financial Officer
and Senior Vice President of Finance.


                                     - 28 -
<PAGE>

                                   SIGNATURES

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 14, 2004                           /s/ Andrew P. Savadelis
                                        -----------------------------------
                                        Chief Financial Officer (Principal
                                        Financial Officer and Chief Accounting
                                        Officer)


                                     - 29 -