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

                                    FORM 10-Q

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

                For the quarterly period ended: October 31, 2006

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

For the transition period from ______________________  to ______________________

                         Commission File Number: 0-11088

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

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

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

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

                                 NOT APPLICABLE
            (Former name, former address, and former fiscal year, if
                          changed since last report.)

   Indicate  by check mark  whether  the  registrant  has (1) filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|

   Indicate by check mark whether the registrant is a large  accelerated  filer,
an accelerated filer or a non-accelerated filer. See definitions of "accelerated
filer" and "large accelerated filer" in Rule 12b-2 of the Exchange Act.

   Large Accelerated Filer |_|  Accelerated Filer |X|  Non-accelerated Filer |_|

   Indicate by check mark whether the  registrant is a shell company (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
December 7, 2006 was 45,008,401 shares.

<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

                            CONDENSED BALANCE SHEETS
                       October 31, 2006 and July 31, 2006

<TABLE>
<CAPTION>
                                                                                             October 31,         July 31,
                                                                                                2006               2006
                                     ASSETS                                                  (Unaudited)       (See Note 1)
                                                                                            ------------       ------------
<S>                                                                                         <C>                <C>
Current assets:
    Cash and cash equivalents                                                               $  9,041,532       $ 11,518,540
    Other current assets                                                                         346,304             67,090
                                                                                            ------------       ------------

         Total current assets                                                                  9,387,836         11,585,630

Property and equipment, net                                                                       82,729             69,928

Loan receivable, related party                                                                   173,252            170,870
                                                                                            ------------       ------------

         Total assets                                                                       $  9,643,817       $ 11,826,428
                                                                                            ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                                        $  1,215,996       $  1,286,170
    Accrued expenses                                                                             832,388          1,307,255
                                                                                            ------------       ------------

         Total liabilities                                                                     2,048,384          2,593,425
                                                                                            ------------       ------------

Commitments and contingencies

Stockholders' equity:
    Preferred stock, $.001 par value;
       Authorized and unissued, 1,000,000 shares at October 31, 2006 and July 31, 2006                --                 --
    Common Stock, $.001 par value;
       Authorized 100,000,000 shares at October 31, 2006 and July 31, 2006;
       Issued and outstanding, 44,458,401 shares at October 31, 2006 and 44,289,161
         shares at July 31, 2006                                                                  44,458             44,289
    Capital in excess of par value                                                            93,240,522         92,505,325
    Deficit accumulated during development stage                                             (85,689,547)       (83,316,611)
                                                                                            ------------       ------------

         Total stockholders' equity                                                            7,595,433          9,233,003
                                                                                            ------------       ------------

         Total liabilities and stockholders' equity                                         $  9,643,817       $ 11,826,428
                                                                                            ============       ============
</TABLE>

See accompanying notes to condensed financial statements.


                                        2
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF OPERATIONS

                  Three months ended October 31, 2006 and 2005,
                       and the Period from August 24, 1981
                     (Date of Inception) to October 31, 2006

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                            Three Months Ended             August 24, 1981
                                                                October 31,              (Date of Inception)
                                                                -----------                        to
                                                           2006              2005          October 31, 2006
                                                           ----              ----          ----------------
                                                                         (As restated)
                                                                         -------------
<S>                                                    <C>                <C>                <C>
Revenue:
     Sales                                             $         --       $         --       $    553,489
     Investment income                                      123,333             31,995          1,801,540
     Other income                                                --                 --             99,939
                                                       ------------       ------------       ------------
Total revenue                                               123,333             31,995          2,454,968
                                                       ------------       ------------       ------------

Costs and expenses:
     Cost of sales                                               --                 --            336,495
     Research and development                             1,570,185          1,222,012         56,837,432
     General and administrative                             926,038            666,348         29,568,461
     Interest:
         Related parties                                         --                 --          1,147,547
         Others                                                  46                 10          2,874,122
                                                       ------------       ------------       ------------
Total costs and expenses                                  2,496,269          1,888,370         90,764,057
                                                       ------------       ------------       ------------

Loss before state tax benefit                            (2,372,936)        (1,856,375)       (88,309,089)

State tax benefit                                                --            317,382          2,619,542
                                                       ------------       ------------       ------------

Net loss                                               $ (2,372,936)      $ (1,538,993)      $(85,689,547)
                                                       ============       ============       ============

Loss per basic and diluted common share                $      (0.05)      $      (0.04)
                                                       ============       ============

Weighted average common shares outstanding, basic
and diluted                                              44,345,739         36,593,020
                                                       ============       ============
</TABLE>

See accompanying notes to condensed financial statements.


                                        3
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF CASH FLOWS

                  Three months ended October 31, 2006 and 2005,
                       and the Period from August 24, 1981
                     (Date of Inception) to October 31, 2006

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                    Three Months Ended           August 24, 1981
                                                                        October 31,            (Date of Inception)
                                                                        -----------                     to
                                                                   2006             2005         October 31, 2006
                                                                   ----             ----         ----------------
                                                                                (As restated)
                                                                                -------------
<S>                                                            <C>               <C>               <C>
Cash flows from operating activities:
  Net loss                                                     $(2,372,936)      $(1,538,993)      $(85,689,547)
  Adjustments to reconcile net loss to
        net cash used in operating activities:
       Gain on sale of marketable securities                            --                --            (25,963)
       Depreciation and amortization                                 9,085             6,830          1,629,062
       Loss on disposal of property and equipment                       --                --             18,926
       Issuance of common stock, stock options and
          warrants for services rendered                           584,326           350,756          8,790,603
       Amortization of debt discount                                    --                --            594,219
       Amortization of deferred compensation                            --                --         11,442,000
Changes in assets and liabilities:
       Increase in receivable from the sale of net
          operating loss carryforwards                                  --          (317,382)                --
       (Increase) decrease in other current assets                (279,214)          106,934           (406,171)
       Increase in loan receivable-related party                    (2,382)           (2,382)           (77,201)
       Increase in interest payable-related party                       --                --            744,539
       (Decrease) increase in accounts payable                     (70,174)          178,000          1,722,631
       Increase in accrued payroll and expenses,
          related parties                                               --                --          2,348,145
       (Decrease) increase in accrued expenses                    (474,867)          129,398          1,551,272
                                                               -----------       -----------       ------------
       Net cash used in operating activities                    (2,606,162)       (1,086,839)       (57,357,485)
                                                               -----------       -----------       ------------
Cash flows from investing activities:
       Purchase of marketable equity securities                         --                --           (290,420)
       Purchase of short-term investments                               --                --         (1,993,644)
       Proceeds from sale of marketable equity securities               --                --            316,383
       Proceeds from sale of short-term investments                     --                --          1,993,644

       Purchase of property and equipment                          (21,886)           (2,461)        (1,554,024)
       Patent costs                                                     --                --            (97,841)
                                                               -----------       -----------       ------------
Net cash used in investing activities                              (21,886)           (2,461)        (1,625,902)
                                                               -----------       -----------       ------------
</TABLE>

                                                                     (continued)
See accompanying notes to condensed financial statements.


                                       4
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                  Three months ended October 31, 2006 and 2005
                       and the Period from August 24, 1981
                     (Date of Inception) to October 31, 2006

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months Ended           August 24, 1981
                                                                               October 31,            (Date of Inception)
                                                                               -----------                      to
                                                                           2006             2005        October 31, 2006
                                                                           ----             ----        ----------------
                                                                                        (As restated)
                                                                                        -------------
<S>                                                                   <C>               <C>               <C>
Cash flows from financing activities:
     Proceeds from short-term borrowings                              $         --      $         --      $    874,500
     Payment of short-term borrowings                                           --                --          (653,500)
     Increase in loans payable - related party, net                             --                --         2,628,868
     Proceeds from bank debt and other long-term debt, net of
        costs                                                                   --                --         3,667,460
     Reduction of bank debt and long-term debt                                  --                --        (2,966,568)
     Proceeds from issuance of common stock, net                           (29,210)               --        51,705,026
     Proceeds from exercise of stock options and warrants, net             180,250            53,048        12,055,140
     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                                  151,040            53,048        68,024,919
                                                                      ------------      ------------      ------------
Net increase (decrease) in cash and cash equivalents                    (2,477,008)       (1,036,252)        9,041,532
Cash and cash equivalents at beginning of period                        11,518,540         4,462,951                --
                                                                      ------------      ------------      ------------
Cash and cash equivalents at end of period                            $  9,041,532      $  3,426,699      $  9,041,532
                                                                      ============      ============      ============

Supplemental disclosure of cash flow information - Interest Paid      $         46      $         10      $  1,714,176
                                                                      ============      ============      ============
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                   $         --      $         --      $    506,725
                                                                      ============      ============      ============
</TABLE>

                                                                     (continued)
See accompanying notes to condensed financial statements.


                                       5
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                  Three months ended October 31, 2006 and 2005
                       and the Period from August 24, 1981
                     (Date of Inception) to October 31, 2006

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended       August 24, 1981
                                                                          October 31,              (Date of
                                                                          -----------            Inception) to
                                                                      2006           2005      October 31, 2006
                                                                      ----           ----      ----------------
                                                                                (As restated)
                                                                                -------------
<S>                                                                <C>            <C>              <C>
Conversion of notes payable, bank and accrued interest to
   long-term debt                                                  $      --      $      --        $1,699,072
                                                                   =========      =========        ==========
Conversion of loans and interest payable, related party and
   accrued payroll and expenses, related parties to long-term
   accrued payroll and other, related party                        $      --      $      --        $1,863,514
                                                                   =========      =========        ==========
Issuance of Common Stock upon the conversion of
   convertible subordinated debentures, other                      $      --      $      --        $1,584,364
                                                                   =========      =========        ==========
Issuance of Common Stock for services rendered                     $      --      $      --        $    2,460
                                                                   =========      =========        ==========
Issuance of warrants with notes payable                            $      --      $      --        $  594,219
                                                                   =========      =========        ==========
</TABLE>

See accompanying notes to condensed financial statements.


                                       6
<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 of Alfacell Corporation  ("Alfacell" or the "Company") have
been prepared in accordance with accounting principles generally accepted in the
United  States of America  and  contain all  adjustments  (consisting  of normal
recurring  adjustments)  necessary  to present  fairly the  Company's  financial
position as of October 31, 2006 and its results of operations and cash flows for
the three  month  periods  ended  October  31, 2006 and 2005 and the period from
August 24,  1981  (date of  inception)  to  October  31,  2006.  The  results of
operations  for the three  months  ended  October 31,  2006 are not  necessarily
indicative  of the results to be expected  for the full year.  The July 31, 2006
condensed  balance  sheet  presented  herein has been  derived  from the audited
financial  statements  included in the  Company's  Form 10-K for the fiscal year
ended July 31, 2006, filed with the Securities and Exchange Commission.

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

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

      The  Company  has  reported  net  losses  of   approximately   $2,373,000,
$7,810,000,  $6,462,000  and  $5,070,000  for the three months ended October 31,
2006 and the fiscal years ended July 31, 2006, 2005 and 2004, respectively.  The
loss from date of  inception,  August 24,  1981,  to October 31, 2006 amounts to
approximately $85,690,000.

      The Company's long-term continued operations will depend on its ability to
raise additional funds through various potential sources such as equity and debt
financing,  collaborative agreements, strategic alliances, sale of tax benefits,
revenues from the commercial sale of  ONCONASE(R),  licensing of its proprietary
RNase technology and its ability to realize revenues from its technology and its
drug  candidates  via  out-licensing  agreements  with  other  companies.   Such
additional  funds may not become  available  as the  Company may need them or be
available  on  acceptable  terms.  Until and  unless  the  Company's  operations
generate  significant  revenues,   the  Company  expects  to  continue  to  fund
operations   primarily  from  equity  financing  and  through  the  exercise  of
outstanding options and warrants and the sale of its tax benefits.  There can be
no  assurance  that the  Company  will be able to raise the  capital it needs on
terms  which are  acceptable,  if at all.  As of October  31,  2006,  management
believes  that  the  Company's  cash  balance  will be  sufficient  to fund  its
operations  through its fiscal  year ending July 31, 2008 based on its  expected
level of expenditures.

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


                                       7
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

2.    EARNINGS (LOSS) PER COMMON SHARE

      Basic earnings (loss) per common share equals net income (loss) divided by
weighted average common shares outstanding  during the period.  Diluted earnings
per common share equals net income divided by the sum of weighted average common
shares  outstanding  during the period,  adjusted for the effects of potentially
dilutive  securities.  The Company's basic and diluted per share amounts are the
same since the Company  had losses in all  periods  and the assumed  exercise of
stock options and warrants prior to October 31, 2006 would be anti-dilutive. The
number of outstanding  options and warrants that could dilute earnings per share
in future  periods was  21,853,487  and 16,093,437 at October 31, 2006 and 2005,
respectively.

3.    STOCK-BASED COMPENSATION

      In December 2004, the Financial Accounting Standards Board issued SFAS No.
123(R) (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which amended SFAS
123. The new standard requires all share-based payments,  including stock option
grants to employees,  to be recognized as an operating  expense in the statement
of operations. The cost is recognized over the requisite service period based on
fair values  measured  on the date of grant.  The  Company  adopted  SFAS 123(R)
effective August 1, 2005 using the modified prospective method and, accordingly,
prior period  amounts  have not been  restated.  Under the modified  prospective
method,  the fair value of all new stock options  issued after July 31, 2005 and
the unamortized  fair value of unvested  outstanding  stock options at August 1,
2005 are  recognized as expense as services are rendered.  The Company  recorded
approximately  $581,000  or  $0.01  per  basic  and  diluted  common  share  and
approximately $348,000 (as restated) or $0.01 per basic and diluted common share
of  stock-based  compensation  expense for  employees  under SFAS 123(R) for the
three months ended  October 31, 2006 and 2005,  respectively,  based on the fair
value of stock options.

      The fair value of the stock options at the grant date was estimated  using
the Black-Scholes option pricing model based on the weighted-average assumptions
as noted  in the  following  table.  The  risk-free  interest  rate for  periods
approximating  the  expected  life of the  option is based on the U.S.  Treasury
yield curve in effect at the time of grant.  The expected stock price volatility
is based on historical  volatility of the Company's  stock price.  For post July
31,  2005  grants,  the  expected  term  until  exercise  is  derived  using the
"simplified"  method as  allowed  under the  provisions  of the  Securities  and
Exchange Commission's Staff Accounting Bulletin No. 107, "Disclosures about Fair
Value of Financial  Instruments"  and represents the period of time that options
granted  are  expected to be  outstanding.  As of October  31,  2006,  there was
approximately  $2,363,000  of total  unrecognized  compensation  cost related to
unvested  options  granted  that is  expected to be  recognized  over a weighted
average period of 1.77 years. The total intrinsic value of options  exercised by
employees  during  the  three  months  ended  October  31,  2006  and  2005  was
approximately $68,000 and $21,000, respectively.


                                       8
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

3.    STOCK-BASED COMPENSATION, (continued)

                                                      Three Months Ended
                                                         October 31,
                                                         -----------
                                                    2006             2005
                                                    ----             ----

      Expected dividend yield                           0%               0%
      Risk-free interest rate                        4.61%            4.49%
      Expected stock price volatility              113.60%           82.01%
      Expected term (years)                          6.06             7.02

      The following  table  summarizes the stock option  activity for the period
August 1, 2006 to October 31, 2006:

                                                              Weighted Average
                                             Stock Options        Exercise
                                              Outstanding      Price Per Share
                                              -----------      ---------------

      Balance August 1, 2006                   3,830,350            $3.10
           Granted                               335,000             1.29
           Exercised                             (84,000)            0.62
           Expired/Cancelled                     (10,000)            3.66
                                              ----------
      Balance October 31, 2006                 4,071,350             3.00
                                              ==========
      Exercisable as of October 31, 2006       2,334,800             3.23
                                              ==========

      The remaining weighted average contractual term for options granted during
the three months ended October 31, 2006 is 10 years.

      Shares,  warrants  and options  issued to  non-employees  for services are
accounted  for in  accordance  with SFAS 123(R) and  Emerging  Issues Task Force
Issue No. 96-18 ("EITF  96-18"),  "Accounting  for Equity  Instruments  that are
Issued to Other Than  Employees  for  Acquiring or In  Conjunction  with Selling
Goods or Services". The fair value of such securities is recorded in expense and
additional  paid-in capital in stockholders'  equity over the applicable service
periods  using  variable  accounting  through the vesting date based on the fair
value of the securities at the end of each period or the vesting date.

4.    LOAN RECEIVABLE, RELATED PARTY

      Amounts due from the Company's Chief Executive  Officer totaling  $173,252
at October 31, 2006 and $170,870 at July 31, 2006, are classified as a long-term
asset in loan receivable, related party as the Company does not expect repayment
of these amounts  within one year. In each of the three months ended October 31,
2006 and 2005,  the Company  accrued 8% interest in the amount of  approximately
$2,400 on the unpaid principal balance.


                                       9
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

5.    CAPITAL STOCK

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

      During the quarter ended October 31, 2006, the Company recorded under EITF
96-18,  an aggregate  total of $3,645 of non-cash  expense for options issued to
consultants during the fiscal years 2006 and 2005.

6.    SALE OF NET OPERATING LOSS CARRYFORWARDS

      New Jersey has enacted legislation permitting certain corporations located
in New Jersey to sell a portion of their state tax loss  carryforwards and state
research and development credits, or net operating loss carryforwards,  in order
to obtain tax benefits. For the state fiscal year 2007 (July 1, 2006 to June 30,
2007), the Company had approximately $2,338,000 of total available net operating
loss carryforwards that were saleable, of which New Jersey permitted the Company
to sell approximately $574,000.  Based on an agreement the Company entered into,
the Company will receive approximately $510,000 from the sale of the $574,000 of
net operating loss carryforwards, which will be recognized as a tax benefit when
the funds are received.

      For the state  fiscal  year  2006  (July 1,  2005 to June 30,  2006),  the
Company had  approximately  $1,903,000 of total  available  net  operating  loss
carryforwards  that were saleable;  of which New Jersey permitted the Company to
sell   approximately   $356,000.   In  December  2005,   the  Company   received
approximately  $317,000  from the sale of the  $356,000  of net  operating  loss
carryforwards,  which was  recognized  as a tax benefit  for the  quarter  ended
October 31, 2005.

      If still  available under New Jersey law, the Company will attempt to sell
the remaining $1,764,000 of its net operating loss carryforwards between July 1,
2007 and June 30,  2008  (state  fiscal  year  2008).  This  amount,  which is a
carryover of the Company's remaining net operating loss carryforwards from state
fiscal year 2007, may increase if the Company  incurs  additional net losses and
research and development  credits during state fiscal year 2008. The Company can
not  estimate,  however,  what  percentage  of its saleable net  operating  loss
carryforwards New Jersey will permit it to sell, how much money will be received
in connection with the sale, if any, if the Company will be able to find a buyer
for its net operating loss carryforwards or if such funds will be available in a
timely manner.

7.    RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL DATA

      As previously reported in the Form 10-K for the fiscal year ended July 31,
2006, in connection with its audit of the Company's financial statements for the
fiscal year ended July 31, 2006,  the Company's  independent  registered  public
accounting  firm brought to the attention of the Company's  management  that the
Company's  estimate of the impact of forfeitures on non-cash  compensation  cost
was, as a  percentage,  significantly  higher than the  historical  rate of such
pre-vesting  forfeitures  and that the  true-up of the value of options  vesting
during the reporting period was not recorded. After reviewing


                                       10
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

7.    RESTATEMENT OF UNAUDITED QUARTERLY FINANCIAL DATA, (continued)

the matter,  the Company's  management  agreed to calculate the forfeiture  rate
using primarily  historical  experience and record the value of the options that
vested during the reporting  period.  The original  computation  had understated
non-cash  compensation costs and net losses in the Company's unaudited Condensed
Financial  Statements  included in Form 10-Q for the quarter  ended  October 31,
2005.  The Company's  management  believes that the  adjustment to the amount of
non-cash  compensation  expense in the affected quarterly period is not material
and that the  quarterly  report for the period  ended  October 31, 2005 does not
require refiling.

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

<TABLE>
<CAPTION>
                                                       As Originally       As Restated for the
                                                      Reported for the        Three Months
                                                    Three Months Ended           Ended
      Quarter Ended October 31, 2005                 October 31, 2005      October 31, 2005
                                                     ----------------      ----------------
<S>                                                     <C>                    <C>
      Statement of Operations:
      Research and development                          $ 1,159,000            $ 1,222,000
      General and administrative                            590,000                666,000
                                                        -----------            -----------
      Total costs and expenses                          $ 1,749,000            $ 1,888,000
                                                        ===========            ===========
      Net loss                                          $(1,400,000)           $(1,539,000)
                                                        ===========            ===========
      Loss per basic and diluted common share           $     (0.04)           $     (0.04)
                                                        ===========            ===========
</TABLE>

8.    SUBSEQUENT EVENTS

      In November and December 2006,  the Company  issued an aggregate  total of
50,000 and  500,000  shares of  restricted  common  stock upon the  exercise  of
warrants by unrelated  parties at per share exercise  prices of $0.60 and $1.00,
respectively.  The Company  realized  aggregate  gross proceeds of $530,000 from
these exercises.


                                       11
<PAGE>

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

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

Overview

      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  from  the Food and Drug
Administration, or FDA, for the treatment of malignant mesothelioma patients, we
continue to have  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 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. This designation in the European Union entitles us to
several financial  incentives such as registration fee reductions and a ten-year
marketing exclusivity for the therapeutic indication for which it was granted.

      We received an Orphan  Drug  Designation  for  ONCONASE(R)  for  malignant
mesothelioma in Australia from the Therapeutics  Goods  Administration,  or TGA.
This   designation  in  Australia   entitles  us  to  five  years  of  marketing
exclusivity, a 100% waiver of filing fees and regulatory guidance from the TGA.

      Almost all of the  approximately  $56,837,000 of research and  development
expenses we have incurred since our inception has gone toward the development of
ONCONASE(R) and related drug candidates.  For the three months ended October 31,
2006 and the fiscal  years  2006,  2005 and 2004 our  research  and  development
expenses were approximately $1,570,000,  $5,230,000,  $5,082,000 and $3,353,000,
respectively,  almost all of which were used for the  development of ONCONASE(R)
and related drug  candidates.  ONCONASE(R)  is  currently  in an  international,
centrally randomized, confirmatory Phase IIIb registration trial. The first part
of the trial has been completed.  The second  confirmatory  part of the trial is
ongoing.  The  primary  endpoint  of the trial is  overall  survival.  The first
interim  analysis  results based on one third of the required events (deaths) of
the  study,  which  evaluates  the  efficacy,  safety  and  tolerability  of the
combination of


                                       12
<PAGE>

ONCONASE(R) + doxorubicin as compared to  doxorubicin  alone have been reported.
The  overall  median  survival  time (MST)  demonstrated  a trend  favoring  the
ONCONASE(R) + doxorubicin treatment group (12 months) over the doxorubicin group
(10 months).  A two month  improvement in median  survival had  previously  been
observed in the Treatment Target Group (n=104) analysis from the completed Phase
III single agent study that favored the ONCONASE(R) over doxorubicin  treatments
(11.6 months vs. 9.6 months). The Company's Phase IIIb confirmatory registration
trial was  designed  based on the  conclusions  drawn from the TTG  analysis but
powered to reach a  statistically  significant  difference  in MST  between  the
ONCONASE(R) + doxorubicin treatment group and the doxorubicin treatment group at
316 events.  The interim  data which  represented  only one third of the planned
number of events was sufficient for us to continue the trial as planned, but was
not sufficient  for supporting the filing for marketing  approvals at that time.
At this time,  we cannot  predict with  certainty  when a  sufficient  number of
deaths  will occur to achieve  statistical  significance.  The timing of when we
will be able to file for marketing  registrations in the US, EU and Australia is
data driven.  Therefore,  we cannot  predict with  certainty what our total cost
associated  with  obtaining  marketing  approvals  will be,  or when and if such
approvals  will be granted,  or when actual sales will occur.  We have completed
the  chemistry,  manufacturing  and controls  (CMC)  section of the NDA and will
submit it after receipt of the Pharmaceutical  Drug User Fee Application (PDUFA)
waiver for small business exemption.

      We fund the research and  development of our products  primarily from cash
receipts  resulting  from  the sale of our  equity  securities  and  convertible
debentures in registered offerings and private placements. Additionally, we have
raised capital through other debt  financings,  the sale of our tax benefits and
research  products,  interest  income  and  financing  received  from our  Chief
Executive  Officer.  During the fiscal year ended July 31, 2006, we received net
proceeds of  approximately  $12.3  million as a result of private  placements of
Common  Stock and warrants and from  exercises  of stock  options and  warrants.
These  proceeds  will be used to  support  our  strategic  plan,  including  the
anticipated filing of an NDA of ONCONASE(R) for malignant mesothelioma, assuming
satisfactory  results  from the ongoing  clinical  trial,  the  expansion of the
ONCONASE(R) oncology franchise,  and the development of other pipeline products.
We have incurred  losses since inception and to date we have not consummated any
licensing,  or marketing  agreements  for  ONCONASE(R)  or any of our early drug
candidates.

Critical Accounting Policies and Estimates

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

Recently Issued Accounting Standards

      In  June  2006,   the   Financial   Accounting   Standards   Board  issued
Interpretation No. 48 ("FIN 48"),  "Accounting for Uncertainty in Income Taxes -
an  Interpretation  of FASB  Statement No. 109." FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in a company's  financial  statements
in accordance  with  Statement No. 109,  "Accounting  for Income  Taxes." FIN 48
prescribes a recognition  threshold and  measurement  of a tax position taken or
expected to be taken in a company's tax return. The provisions of FIN 48 will be
effective for our fiscal year ended July 31, 2008.  We are currently  evaluating
the  impact  of the  adoption  of FIN 48 will  have,  if any,  on our  financial
statements.


                                       13
<PAGE>

Results of Operations

Three month periods ended October 31, 2006 and 2005

      Revenues.  We are a development  stage company as defined in the Financial
Accounting  Standards Board's Statement of Financial Accounting Standards No. 7,
"Accounting  and Reporting by Development  Stage  Enterprises."  We are devoting
substantially  all of our present  efforts to  establishing  a new  business and
developing  new drug  products.  Our planned  principal  operations of marketing
and/or  licensing new drugs have not  commenced  and,  accordingly,  we have not
derived any  significant  revenue  from these  operations.  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 months  ended  October 31, 2006 and 2005.
For the  three  months  ended  October  31,  2006,  our  investment  income  was
approximately  $123,000  compared to $32,000  for the same period last year,  an
increase of $91,000 due to higher balances of cash and cash equivalents.

      Research and Development.  Research and development  expense for the three
months  ended  October  31,  2006 was  $1,570,000  compared  to  $1,222,000  (as
restated)  for the same period last year,  an increase of $348,000,  or 28%. The
increase  was  primarily  due to an  increase in  expenses  in  connection  with
preparing our NDA for ONCONASE(R) of  approximately  $336,000.  The research and
development  increase  also resulted  from an increase in  compensation  expense
related  to  share-based  compensation  of  approximately  $54,000;  offset by a
decreases in patent expenses of approximately $21,000 and pre-clinical sponsored
research and development expenses of approximately $21,000.

      General and  Administrative.  General and  administrative  expense for the
three  months  ended  October 31,  2006 was  $926,000  compared to $666,000  (as
restated)  for the same period last year,  an increase of $260,000,  or 39%. The
increase  was  due  primarily  to  an  increase  in   compensation   expense  of
approximately $170,000 of which approximately $144,000 is related to share-based
compensation.  General and  administrative  increase also resulted from board of
directors fees and consulting fees of  approximately  $48,000;  non-cash expense
related to stock options issued to board members and consultant of approximately
$35,000;  accounting  and auditing  fees of $33,000;  public  relations  related
expenses of approximately  $16,000;  and Sarbanes-Oxley  compliance and auditing
fees  of  approximately   $8,000;  offset  by  a  reduction  in  legal  fees  of
approximately $39,000; and a decrease in NASDAQ membership fees of approximately
$11,000.

      Income  Taxes.  New  Jersey has  enacted  legislation  permitting  certain
corporations  located  in New  Jersey  to sell a  portion  of our state tax loss
carryforwards and state research and development  credits, or net operating loss
carryforwards,  in order to obtain tax benefits.  For the state fiscal year 2007
(July 1,  2006 to June  30,  2007),  we had  approximately  $2,338,000  of total
available net operating  loss  carryforwards  that were  saleable,  of which New
Jersey  permitted us to sell  approximately  $574,000.  Based on an agreement we
entered  into,  we will  receive  approximately  $510,000  from  the sale of the
$574,000 of net operating loss carryforwards,  which will be recognized as a tax
benefit when the funds are received.

      For the state  fiscal  year 2006 (July 1, 2005 to June 30,  2006),  we had
approximately  $1,903,000 of total  available net operating  loss  carryforwards
that were  saleable;  of which New  Jersey  permitted  us to sell  approximately
$356,000. In December 2005, we received  approximately $317,000 from the sale of
the $356,000 of net operating loss  carryforwards,  which we recognized as a tax
benefit for the quarter ended October 31, 2005.


                                       14
<PAGE>

      If still  available  under New  Jersey  law,  we will  attempt to sell the
remaining  $1,764,000 of our net operating  loss  carryforwards  between July 1,
2007 and June 30,  2008  (state  fiscal  year  2008).  This  amount,  which is a
carryover of our remaining net operating  loss  carryforwards  from state fiscal
year 2007,  may  increase if we incur  additional  net losses and  research  and
development credits during state fiscal year 2008. We can not estimate, however,
what percentage of our saleable net operating loss carryforwards New Jersey will
permit us to sell,  how much money we will receive in connection  with the sale,
if  any,  if we will be  able  to  find a  buyer  for  our  net  operating  loss
carryforwards 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  October  31,  2006 was
$2,373,000  as compared to  $1,539,000  (as  restated)  for the same period last
year, an increase of $834,000.  The cumulative  loss from the date of inception,
August 24, 1981 to October 31, 2006,  amounted to  $85,690,000.  Such losses are
attributable  to the  fact  that we are  still  in the  development  stage  and,
accordingly,  have not derived sufficient revenues from operations to offset the
development stage expenses.

Liquidity and Capital Resources

      We have financed our operations  since  inception  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 net operating loss  carryforwards  and research  products,  interest
income and financing received from our Chief Executive Officer. During the three
months  ended  October  31,  2006,  we  had a net  decrease  in  cash  and  cash
equivalents  of  $2,477,000,  which  resulted  primarily  from net cash  used in
operating  activities of $2,606,000 and net cash used in investing activities of
$22,000,  offset  by net cash  provided  by  financing  activities  of  $151,000
primarily  from warrant and stock option  exercises.  Total cash resources as of
October 31, 2006 were $9,042,000 compared to $11,519,000 at July 31, 2006.

      Our current liabilities as of October 31, 2006 were $2,048,000 compared to
$2,593,000 at July 31, 2006, a decrease of $545,000.  The decrease was primarily
due to the payment of accrued expenses related to pre-clinical studies.

      Until and unless our operations generate significant  revenues,  we expect
to continue to fund operations  primarily from equity  financing and through the
exercise of  outstanding  options and warrants and the sale of our tax benefits.
There can be no  assurance  that we will be able to raise the capital we need on
terms which are  acceptable,  if at all. As of October 31, 2006,  we believe our
cash balance is sufficient to fund our operations through our fiscal year ending
July 31, 2008 based on our expected level of  expenditures.  These proceeds will
be used to support our strategic plan,  including the  anticipated  filing of an
NDA of ONCONASE(R) for malignant  mesothelioma,  assuming  satisfactory  results
from  the  ongoing  clinical  trial,  the  expansion  of the  ONCONASE  oncology
franchise, and the development of other pipeline products.

      We will continue to incur costs in  conjunction  with our U.S. and foreign
registrations  for  marketing  approval  of  ONCONASE(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.


                                       15
<PAGE>

      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
variable  interest  entities or VIE, which would have been  established  for the
purpose of facilitating  off-balance sheet  arrangements or other  contractually
narrow or limited  purposes.  As of October 31, 2006, we are not involved in any
unconsolidated VIE transactions.

Contractual Obligations and Commercial Commitments

      Our outstanding  contractual obligations relate to our equipment operating
lease.  Since July 31, 2006,  there has been no material  change with respect to
our  contractual  obligations  as  disclosed  in  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations  -  Contractual
Obligations  and Commercial  Commitments"  in our annual report on Form 10-K for
the fiscal year ended July 31, 2006.

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 Securities  Exchange Act of
1934 ("The  Exchange Act") as of October 31, 2006, the end of the period covered
by this report.  Based on this evaluation,  the Chief Executive  Officer and the
Chief Financial  Officer  concluded that the Company's  disclosure  controls and
procedures  were not  effective  as of  October  31,  2006 since we have not yet
completed  the  remediation  of the  material  weakness  discussed  in Item  9A,
"Controls and Procedures",  of our Annual Report on Form 10-K ("2006 Form 10-K")
for the year ended July 31, 2006 filed with the SEC on October 16, 2006.

      Management's  internal control assessment as of July 31, 2006, as detailed
in our 2006 Form 10-K,  identified a material  weakness due to lack of personnel
with  financial  reporting  expertise  sufficient to properly  record and report
non-routine  and  complex  transactions  and  accounting   pronouncements.   Our
management is treating the material weakness identified above very seriously and
in  response,  plans to  continue  to review and make  necessary  changes to the
overall  design of our  control  environment.  We have  begun to  remediate  the
material weakness  described above and as a result management has undertaken and
plans to undertake the following steps to remediate this weakness:

      (i)  We  plan  to  form  an  accounting  oversight  committee  ("Oversight
Committee"),  comprised  of members of our senior  management  and a third party
GAAP advisor,  charged with the task of discussing


                                       16
<PAGE>

and reviewing all  significant  transactions  that have  financial  recognition,
either to be recorded or disclosed.  Additionally,  the Oversight Committee will
consult with our outside corporate counsel;

      (ii) We have  retained a third party GAAP advisor to assist and advise the
CFO and Audit  Committee  on a timely basis on tasks  including  quarter end and
year end  review  of  proposed  accounting  for and  disclosure  of  significant
financial  transactions and changes in GAAP.  Members of the accounting staff of
the third party advisory firm will work under the supervision of the CFO and the
firm,  and we can retain the third  party  advisory  firm to provide  additional
resources,  for example,  to provide a technical  accounting expert to assist us
with current and future GAAP analysis, on an as needed basis; and

      (iii) We plan to enhance staff  training,  including  relevant  continuing
education  seminars for  financial  staff on newly issued  technical  accounting
pronouncements.

      Management is committed to the execution of this remediation plan. We will
continue to monitor the  improvements  in the internal  control  over  financial
reporting to ensure the remediation of this material weakness.

      (b) Changes in internal controls.

      There were no changes in our internal  controls over  financial  reporting
during the three months ended  October 31, 2006 or, to our  knowledge,  in other
factors that have materially  affected,  or are reasonably  likely to materially
affect, these controls.

PART II. OTHER INFORMATION

Item 6. Exhibits

      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>
31.1        Certification of Principal Executive Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002                                                    +

31.2        Certification of Principal Financial Officer pursuant to Section 302
            of the Sarbanes-Oxley Act of 2002                                                    +

32.1        Certification Principal Executive Officer pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002                                                       +

32.2        Certification Principal Financial Officer pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002                                                       +
</TABLE>

+     Filed herewith.


                                       17
<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)


December 11, 2006                         /s/ Robert D. Love
                                          ------------------
                                          Chief Financial Officer (Principal
                                          Financial Officer and Chief Accounting
                                          Officer)


                                       18