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


       January 31, 2005                                          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 Exchange Act Rule 12b-2). YES X  NO
                                        ---    ---

         The number of shares of common stock,  $.001 par value,  outstanding as
of March 8, 2005 was 35,245,445 shares.


<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

PART I.  FINANCIAL INFORMATION
Item 1.  FINANCIAL STATEMENTS


                       CONDENSED BALANCE SHEETS
                  January 31, 2005 and July 31, 2004
<TABLE>
<CAPTION>

                                                                                             January 31,         July 31,
                                        ASSETS                                                  2005              2004
                                        ------                                               (UNAUDITED)       (SEE NOTE 1)

<S>                                                                                        <C>                <C>
Current assets:
    Cash and cash equivalents                                                              $  5,630,955       $ 10,147,694
    Short-term investments at market which approximates cost                                  1,978,189                  -
    Other current assets                                                                        228,120             64,771
                                                                                           ------------       ------------
         Total current assets                                                                 7,837,264         10,212,465

Property and equipment, net
                                                                                                 83,715             56,783
Loan receivable, related party                                                                  156,612            151,815
                                                                                           ------------       ------------
         Total assets                                                                      $  8,077,591       $ 10,421,063
                                                                                           ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

Current liabilities:
    Notes payable, net of discount of $4,059 at January 31, 2005 and $34,120 at July
       31, 2004                                                                            $    195,941       $    372,611
    Accounts payable                                                                            659,748            541,600
    Accrued expenses                                                                            894,228            625,205
                                                                                           ------------       ------------

         Total liabilities                                                                    1,749,917          1,539,416
                                                                                           ------------       ------------

Stockholders' equity:
    Preferred stock, $.001 par value;
       Authorized and unissued, 1,000,000 shares at January 31, 2005 and July 31, 2004                -                  -
    Common stock, $.001 par value;
       Authorized 100,000,000 shares at January 31, 2005 and July 31, 2004;
       Issued and  outstanding,  35,245,445  shares at January 31, 2005 and
       34,347,885 shares at July 31, 2004                                                        35,245             34,348
    Capital in excess of par value                                                           78,373,105         77,891,815
    Deficit accumulated during development stage                                            (72,080,676)       (69,044,516)
                                                                                           ------------       ------------

         Total stockholders' equity                                                           6,327,674          8,881,647
                                                                                           ------------       ------------

         Total liabilities and stockholders' equity                                        $  8,077,591       $ 10,421,063
                                                                                           ============       ============
</TABLE>

See accompanying notes to condensed financial statements.



                                      -2-
<PAGE>


                              ALFACELL CORPORATION
                          (A Development Stage Company)

                       CONDENSED STATEMENTS OF OPERATIONS

                  Three months and six months ended January 31,
                       2005 and 2004, and the Period from
                                 August 24, 1981
                     (Date of Inception) to January 31, 2005

                                   (Unaudited)
<TABLE>
<CAPTION>

                                              Three Months Ended                  Six Months Ended              August 24, 1981
                                                 January 31,                         January 31,                   (Date of
                                                 ------------                        -----------                 Inception) to
                                         2005               2004              2005               2004         January 31, 2005
                                         ----               ----              ----               ----         ----------------
<S>                                  <C>                <C>                <C>                <C>                <C>
Revenue:
     Sales                           $          -       $          -       $          -       $          -       $    553,489
     Investment income                     33,704              4,530             62,882              8,230          1,491,995
     Other income                               -                  -                  -                  -             90,103
                                     ------------       ------------       ------------       ------------       ------------
 Total revenue                             33,704              4,530             62,882              8,230          2,135,587
                                     ------------       ------------       ------------       ------------       ------------

Costs and expenses:
     Cost of sales                              -                  -                  -                  -            336,495
     Research and development           1,554,443            674,089          2,475,592          1,311,286         47,430,504
     General and administrative           422,406            420,243            868,003            648,188         24,734,212
     Interest:
         Related parties, net                   -                  -                  -                  -          1,147,547
         Others                            12,165            109,786             43,422            228,401          2,869,665
                                     ------------       ------------       ------------       ------------       ------------
Total costs and expenses                1,989,014          1,204,118          3,387,017          2,187,875         76,518,423
                                     ------------       ------------       ------------       ------------       ------------

Loss before state tax benefit          (1,955,310)        (1,199,588)        (3,324,135)        (2,179,645)       (74,382,836)

State tax benefit                               -                  -            287,975            221,847          2,302,160
                                     ------------       ------------       ------------       ------------       ------------

Net loss                             $ (1,955,310)      $ (1,199,588)      $ (3,036,160)      $ (1,957,798)      $(72,080,676)
                                     ============       ============       ============       ============       ============

Loss per basic and diluted common
     share                                $ (0.06)           $ (0.04)           $ (0.09)           $ (0.07)
                                     ============       ============       ============       ============

Weighted average number of shares
     outstanding                       35,211,954         28,439,372         34,936,198         27,675,584
                                     ============       ============       ============       ============
</TABLE>

See accompanying notes to condensed financial statements.


                                      -3-
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

                      CONDENSED STATEMENTS OF CASH FLOWS

                   Six months ended January 31, 2005 and 2004,
                       and the Period from August 24, 1981
                     (Date of Inception) to January 31, 2005

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                      Six Months Ended             August 24, 1981
                                                                        January 31,              (Date of Inception)
                                                                       ------------                      to
                                                                   2005             2004          January 31, 2005
                                                                   ----             ----          ----------------
<S>                                                            <C>               <C>               <C>
Cash flows from operating activities:
  Net loss                                                     $(3,036,160)      $(1,957,798)      $(72,080,676)
  Adjustments to reconcile net loss to
    net cash used in operating activities:
       Gain on sale of marketable securities                             -                 -            (25,963)
       Depreciation and amortization                                14,220             3,414          1,570,987
       Loss on disposal of property and equipment                        -                 -             18,926
       Noncash operating expenses                                   13,500           147,893          6,700,224
       Amortization of debt discount                                30,061           174,039            590,160
       Amortization of deferred compensation                             -                 -         11,442,000
       Amortization of organization costs                                -                 -              4,590
Changes in operating assets and liabilities:
       Increase in other current assets                           (163,349)         (238,950)          (287,987)
       Increase in loan receivable-related party                    (4,797)           (6,055)           (60,561)
       Increase in interest payable-related party                        -                 -            744,539
       Increase (decrease) in accounts payable                     118,148           (92,846)         1,166,383
       Increase in accrued payroll and
          expenses, related parties                                      -                 -          2,348,145
       Increase (decrease) in accrued expenses                     293,544          (658,520)         1,573,134
                                                               -----------       -----------       ------------
       Net cash used in operating activities                    (2,734,833)       (2,628,823)       (46,296,099)
                                                               -----------       -----------       ------------
Cash flows from investing activities:
       Purchase of marketable equity securities                          -                 -           (290,420)
       Purchase of short-term investments                       (1,978,189)                -         (1,978,189)
       Proceeds from sale of marketable equity securities                -                 -            316,383
       Purchase of property and equipment                          (41,153)           (2,251)        (1,501,526)

       Patent costs                                                      -                 -            (97,841)
                                                               -----------       -----------       ------------

Net cash used in investing activities                           (2,019,342)           (2,251)        (3,551,593)
                                                               -----------       -----------       ------------

                                                                                                    (continued)
</TABLE>


                                      -4-
<PAGE>



                              ALFACELL CORPORATION
                          (A Development Stage Company)

                  CONDENSED STATEMENTS OF CASH FLOWS, Continued

                   Six months ended January 31, 2005 and 2004
                       and the Period from August 24, 1981
                     (Date of Inception) to January 31, 2005

                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                                                     August 24, 1981
                                                                                 Six Months Ended                      (Date of
                                                                                   January 31,                        Inception) to
                                                                                      2005              2004        January 31, 2005
                                                                                      ----              ----        ---------------
<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                                            (6,730)           (3,943)       (2,966,567)
  Proceeds from issuance of common stock, net                                               -         1,527,925        40,750,316
  Proceeds from exercise of stock options and warrants, net                           244,166         2,626,452        10,463,577
  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                                   237,436         4,150,434        55,478,647
                                                                                 ------------      ------------      ------------
Net increase (decrease) in cash and cash equivalents                               (4,516,739)        1,519,360         5,630,955
Cash and cash equivalents at beginning of period                                   10,147,694           330,137
                                                                                 ------------      ------------
Cash and cash equivalents at end of period                                       $  5,630,955      $  1,849,497      $  5,630,955
                                                                                 ============      ============      ============
Supplemental disclosure of cash flow information - interest
     paid                                                                        $        305      $          -      $  1,714,018
                                                                                 ============      ============      ============
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
                                                                                 ============      ============      ============
   Accounts payable settled in common stock                                      $          -      $     42,729      $    506,725
                                                                                 ============      ============      ============
   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                                                 $    224,520      $          -      $  1,344,385
                                                                                 ============      ============      ============
                                                                                                                     ------------
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.


                                      -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
adjustments)  necessary to present fairly the Company's financial position as of
January 31, 2005 and its results of operations  and cash flows for the three and
six month periods ended January 31, 2005 and 2004 and the period from August 24,
1981 (date of inception) to January 31, 2005.  The results of operations for the
three and six months ended  January 31, 2005 are not  necessarily  indicative of
the  results to be  expected  for the full year.  The  condensed  balance  sheet
presented herein has been derived from the audited financial statements included
in the Form  10-K for the  fiscal  year  ended  July 31,  2004,  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  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, 2004.

         The Company is a  development  stage company as defined in Statement of
Financial Accounting Standards No. 7. The Company is devoting  substantially all
of its present  efforts to 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  $5,070,000,
$2,411,000,  and $2,591,000  for the fiscal years ended July 31, 2004,  2003 and
2002, respectively.  The loss from date of inception, August 24, 1981 to January
31, 2005 amounts to $72,081,000.

         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 net
operating loss carryforwards,  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  February 28, 2005, 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. Additionally, the Company
has  raised  capital  through  debt  financings,  sale  of  net  operating  loss
carryforwards,  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 acceptable  terms, if at
all. As of January 31, 2005, management believes that the Company's cash balance
is sufficient to fund its expanded operations at least through February 28, 2006
based on our  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  financing  through  equity  or debt  financings  and the sale of net
operating loss carryforwards but


                                       6
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)

               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

1.       ORGANIZATION AND BASIS OF PRESENTATION, CONTINUED

cannot be sure that it will be able to raise  capital on  favorable  terms or at
all.  The Company may also obtain  additional  capital  through the  exercise of
outstanding  options and warrants,  although it cannot  provide any assurance of
such exercises or the amount of capital it will receive, if any.

         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.

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 is in a loss  position  and the
assumed  exercise of stock options and warrants and  conversion  of  convertible
notes  would be  anti-dilutive.  The  number of shares  subject  to  outstanding
options and warrants that could dilute  earnings per share in future periods was
15,208,029 and 9,543,637 at January 31, 2005 and 2004, respectively.  These also
exclude  the  potential  dilution  that  could  occur  upon  the  conversion  of
convertible  notes  into  1,199,890  and  4,787,795  shares of common  stock and
additional  warrants to purchase  1,399,890 and 5,778,817 shares of common stock
at January 31, 2005 and 2004, respectively.

3.       STOCK-BASED COMPENSATION

         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 Statement of Financial Accounting Standards No. 148,
"Accounting  for  Stock-Based  Compensation  -  Transition  and  Disclosure - An
Amendment  of FASB  Statement  No. 123" (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)

  3.     STOCK-BASED COMPENSATION, CONTINUED
<TABLE>
<CAPTION>

                                                      Three Months Ended                   Six Months Ended
                                                         January 31,                         January 31,
                                                         -----------                         -----------
                                                     2005              2004             2005                2004
                                                     ----              ----             ----                ----
<S>                                              <C>               <C>              <C>                 <C>
Net loss applicable to common shares
       As reported                               $ (1,955,310)     $ (1,199,588)    $ (3,036,160)       $ (1,957,798)
       Less total stock-based employee
        compensation expense determined
        under fair value method for all
        awards, net of related tax effects
                                                     (604,671)         (109,184)      (1,223,942)           (180,363)
                                                 -------------     -------------    --------------      -------------
       Pro forma                                 $ (2,559,981)     $ (1,308,772)    $ (4,260,102)       $ (2,138,161)
                                                 =============     =============    =============       =============

Basic and diluted loss per common
    share
       As reported                                    $ (0.06)          $ (0.04)          $ (0.09)          $ (0.07)
       Pro forma                                        (0.07)            (0.05)            (0.12)            (0.08)
</TABLE>

         The fair value was estimated  using the  Black-Scholes  options pricing
  model based on the following assumptions:
                                                       Six Months Ended
                                                         January 31,
                                                   2005              2004
                                                   ----              ----

         Expected dividend yield                    0%                0%
         Risk-free interest rate                   4.25%           2% - 6%
         Expected stock price volatility           100%        40.79% - 114.54%
         Expected term until exercise (years)      8.67              5.82

         As a result of  amendments to SFAS 123, the Company will be required to
expense  the fair value of  employee  stock  options  beginning  with its fiscal
quarter ending September 30, 2005.

4.       LOAN RECEIVABLE, RELATED PARTY

         Amounts due from the  Company's  CEO totaling  $156,612 and $151,815 at
January 31, 2005 and July 31, 2004, respectively,  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. As of January 31, 2005, the Company
earned  interest at 8% per annum  (approximately  $4,800 for the six months then
ended) on the unpaid principal balance.


                                       8
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)


               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

5.       CAPITAL STOCK

         During the quarter ended October 31, 2004,  the Company  issued 320,157
shares of  restricted  common stock and five-year  warrants to purchase  420,157
shares of  common  stock  with an  exercise  price of $1.00  per share  upon the
conversion of notes payable and accrued interest in the amount of $112,055 by an
unrelated party.

         During the quarter ended  October 31, 2004,  the Company also issued an
aggregate  of 326,472  shares of common  stock upon the exercise of warrants and
stock  options by  unrelated  parties,  employees  and a  director  at per share
exercise prices ranging from $0.29 to $1.50. The Company realized  aggregate net
proceeds of $209,545 from these exercises.

         During the quarter ended January 31, 2005,  the Company  issued 224,931
shares of  restricted  common stock and five-year  warrants to purchase  224,931
shares of  common  stock  with an  exercise  price of $1.00  per share  upon the
conversion of notes payable and accrued interest in the amount of $112,465 by an
unrelated party.

         During the quarter ended  January 31, 2005,  the Company also issued an
aggregate  of 23,000  shares of common  stock upon the  exercise of warrants and
stock options by an unrelated party and an employee at per share exercise prices
ranging  from $0.26 to $1.25.  The Company  realized  aggregate  net proceeds of
$34,621 from these exercises.

         During the quarter  ended  January 31,  2005,  the Company  also issued
3,000 shares of  restricted  common stock as payment for  services  rendered.  A
non-cash expense of $13,500 was recorded by the Company for these shares,  based
upon the fair value of the common stock at the date of issuance.

6.       SALE OF NET OPERATING LOSS CARRYFORWARDS

         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 net operating loss carryforwards, in order to obtain
tax  benefits.  For the state fiscal year 2005 (July 1, 2004 to June 30,  2005),
the Company had  approximately  $1,335,000 of total available net operating loss
carryforwards  that were saleable;  of which New Jersey permitted the Company to
sell   approximately   $339,000.   In  December  2004,   the  Company   received
approximately  $288,000  from the sale of the  $339,000  of net  operating  loss
carryforwards,  which was  recognized  as a tax benefit for the six months ended
January 31, 2005.

         For the state  fiscal  year 2004 (July 1, 2003 to June 30,  2004),  the
Company had  approximately  $1,378,000 of total  available  net  operating  loss
carryforwards  that were saleable;  of which New Jersey permitted the Company to
sell   approximately   $261,000.   In  December  2003,   the  Company   received
approximately  $222,000  from the sale of the  $261,000  of net  operating  loss
carryforwards,  which was  recognized  as a tax benefit for the six months ended
January 31, 2004.


                                       9
<PAGE>

                              ALFACELL CORPORATION
                          (A Development Stage Company)


               NOTES TO CONDENSED FINANCIAL STATEMENTS, Continued

                                   (Unaudited)

6.       SALE OF NET OPERATING LOSS CARRYFORWARDS, CONTINUED

         If still  available  under New Jersey law,  the Company will attempt to
sell the remaining $996,000 of its net operating loss carryforwards between July
1, 2005 and June 30, 2006.  This amount,  which is a carryover of the  Company's
remaining  net operating  loss  carryforwards  from state fiscal year 2005,  may
increase  if  the  Company  incurs   additional  net  losses  and  research  and
development  credits during state fiscal year 2006. The Company cannot 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 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.





                                       10
<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  such 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 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,  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 $47,431,000  have gone toward the development of ONCONASE(R) and related drug
candidates.  For the six months  ended  January 31, 2005 and fiscal  years 2004,
2003  and  2002,  our  research  and  development   expenses  were   $2,476,000,
$3,353,000, $1,700,000 and $2,033,000, respectively. 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.  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 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.

         We fund the research and development of our products from cash receipts
resulting  primarily  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 net  operating


                                       11
<PAGE>

loss  carryforwards,  research products,  interest income and financing received
from our Chief Executive Officer. Presently, we believe that our cash balance is
sufficient to fund our expanded  operations  at least through  February 28, 2006
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 will continue to seek additional  financing through
equity or debt  financings and the sale of our net operating loss  carryforwards
but cannot be sure that we will be able to raise  capital on favorable  terms or
at  all.  We  may  also  obtain  additional  capital  through  the  exercise  of
outstanding  options and warrants,  although we cannot  provide any assurance of
such exercises or the amount of capital we will receive, if any.

RESULTS OF OPERATIONS

THREE AND SIX MONTH PERIODS ENDED JANUARY 31, 2005 AND 2004

         REVENUES.  We  are a  development  stage  company  as  defined  in  the
Statement of Financial Accounting Standards No. 7. We are devoting substantially
all of our present efforts to establishing and 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 six month periods ended January 31, 2005 and 2004. Our investment income for
the three months ended  January 31, 2005 was $34,000  compared to $5,000 for the
same period last year,  an  increase of $29,000.  Investment  income for the six
months ended January 31, 2005 was $63,000 compared to $8,000 for the same period
last year, an increase of $55,000.  These  increases were due to higher balances
of cash and cash equivalents and higher interest rates.

         RESEARCH  AND  DEVELOPMENT.  Research and  development  expense for the
three months ended January 31, 2005 was $1,554,000  compared to $674,000 for the
same  period  last  year,  an  increase  of  $880,000,  or  131%.  Research  and
development  expense for the six months  ended  January 31, 2005 was  $2,476,000
compared to $1,311,000 for the same period last year, an increase of $1,165,000,
or 89%. These  increases were primarily due to increases in data  management and
clinical trial  consulting  fees related to our pivotal Phase III clinical trial
for malignant  mesothelioma of approximately  $544,000,  sponsored  research and
development expenses of $240,000,  expansion of our Phase III clinical trial for
malignant  mesothelioma  primarily in Europe of approximately  $199,000,  patent
expenses  of  approximately  $146,000,  and  sponsored  conferences  related  to
mesothelioma of approximately $36,000.

         GENERAL AND ADMINISTRATIVE.  General and administrative expense for the
three  months ended  January 31, 2005 was $422,000  compared to $420,000 for the
same period last year, an increase of $2,000. General and administrative expense
for the six months ended January 31, 2005 was $868,000  compared to $648,000 for
the same period last year, an increase of $220,000, or 34%. These increases were
primarily  due to  increases in personnel  expenses of  approximately  $247,000,
Nasdaq  re-listing and membership fees of  approximately  $72,000,  professional
fees related to board of directors  fees and Sarbanes Oxley  compliance  fees of
approximately $46,000,  public relations and insurance expenses of approximately
$10,000 and  $9,000,  respectively,  offset by a decrease  in  non-cash  expense
related  to  stock  and  stock  options  issued  for   consulting   services  of
approximately $143,000 and decreases in legal expenses of approximately $21,000.


                                       12
<PAGE>


         INTEREST.  Interest expense for the three months ended January 31, 2005
was $12,000  compared to $110,000  for the same period last year,  a decrease of
$98,000,  or 89%. Interest expense for the six months ended January 31, 2005 was
$43,000  compared  to  $228,000  for the same  period  last year,  a decrease of
$185,000,  or 81%.  These  decreases  were  primarily  due to the  maturity  and
conversion of convertible 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 net operating loss carryforwards,  in
order to obtain tax  benefits.  For the state  fiscal year 2005 (July 1, 2004 to
June 30, 2005), we had approximately $1,335,000 of total available net operating
loss carryforwards that were saleable;  of which New Jersey permitted us to sell
approximately  $339,000.  In December 2004, we received  approximately  $288,000
from the sale of the $339,000 of net  operating  loss  carryforwards,  which was
recognized as a tax benefit for the six months ended January 31, 2005.

         For the state fiscal year 2004 (July 1, 2003 to June 30, 2004),  we had
approximately  $1,378,000 of total  available net operating  loss  carryforwards
that were  saleable;  of which New  Jersey  permitted  us to sell  approximately
$261,000. In December 2003, we received  approximately $222,000 from the sale of
the $261,000 of net operating loss  carryforwards,  which we recognized as a tax
benefit for the six months ended January 31, 2004.

         If still  available  under New Jersey law, we will  attempt to sell the
remaining $996,000 of our net operating loss carryforwards  between July 1, 2005
and June 30,  2006.  This  amount,  which is a carryover  of our  remaining  net
operating  loss  carryforwards  from state fiscal year 2005,  may increase if we
incur  additional net losses and research and  development  credits during state
fiscal year 2006. We cannot 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 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  January  31,  2005 was
$1,955,000 as compared to $1,200,000  for the same period last year, an increase
of  $755,000.  The net  loss  for the six  months  ended  January  31,  2005 was
$3,036,000 as compared to $1,958,000  for the same period last year, an increase
of $1,078,000.  The cumulative loss from the date of inception,  August 24, 1981
to January 31, 2005,  amounted to $72,081,000.  Such losses are  attributable to
the fact that we are still in the development  stage 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 net operating loss carryforwards, research products, interest income
and financing received from our Chief Executive  Officer.  During the six months
ended  January 31, 2005, we had a net decrease in cash and cash  equivalents  of
$4,517,000,  which resulted primarily from net cash used in operating activities
of $2,735,000  and net cash used in investing  activities due to the purchase of
short-term  investments  of $1,978,000 and purchase of property and equipment of
$41,000,  offset by net cash  provided by financing  activities of $237,000 from
warrant and stock option  exercises  for  $244,000 net of a $7,000  reduction of
debt.  Total cash resources as of January 31, 2005 were  $5,631,000  compared to
$10,148,000 at July 31, 2004.


                                       13
<PAGE>

         Our current liabilities as of January 31, 2005 were $1,750,000 compared
to  $1,539,000  at July 31,  2004,  an increase of  $211,000.  The  increase was
primarily  due to increases in accrued  expenses of  approximately  $269,000 and
accounts payable of approximately $118,000, offset by maturity and conversion of
convertible notes payable of approximately $176,000.

         Our long-term 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 net operating
loss carryforwards,  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. To date, 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 net operating loss carryforwards,  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 acceptable terms,
if at all. Presently, we believe that our cash balance is sufficient to fund our
expanded  operations  at least  through  February 28, 2006 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
will continue to seek additional financing through equity or debt financings and
the sale of our net operating loss carryforwards but cannot be sure that we will
be able to  raise  capital  on  favorable  terms or at all.  We may also  obtain
additional  capital  through the exercise of  outstanding  options and warrants,
although we cannot  provide any  assurance  of such  exercises  or the amount of
capital we will receive, if any.

         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.

         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 January 31, 2005, we are not involved in any
material unconsolidated VIE transactions.

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


                                       14
<PAGE>

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, 2004.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

         Our  outstanding   contractual  obligations  relate  to  our  equipment
operating  lease.  The following table presents our contractual  obligations and
commercial commitments as of January 31, 2005:

                                                          PAYMENTS DUE BY
                                                               FISCAL
                                                                YEAR
                                                          -------------------
                                                                      2006 AND
                                              TOTAL         2005     THEREAFTER
                                             -------      -------    --------
      Operating lease                        $ 8,760      $ 8,760    $  - 0 -
                                             -------      -------    --------
      Total contractual cash obligations     $ 8,760      $ 8,760    $  - 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 FORM 10-Q AND OUR OTHER SEC
FILINGS BEFORE  DECIDING  WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK. IF ANY
OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS AND OPERATING  RESULTS COULD
BE HARMED.  THIS COULD CAUSE THE TRADING  PRICE OF OUR COMMON  STOCK TO DECLINE,
AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.

WE 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  inception our source of
working  capital has been public and private  sales of our stock.  We incurred a
net loss of  approximately  $3,036,000 for the six months ended January 31, 2005
and our  cumulative  loss from the date of inception  amounted to  approximately
$72,081,000.  We have  continued to incur  losses since July 2004.  We may never
achieve revenue sufficient for us to attain profitability.

         We incurred  net losses of  approximately  $5,070,000,  $2,411,000  and
$2,591,000   for  the  fiscal  years  ended  July  31,  2004,   2003  and  2002,
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;

                                       15
<PAGE>

     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.  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.  Presently,  we believe that our cash balance is  sufficient to fund
our  expanded  operations  at least  through  February  28,  2006,  based on our
expected level of expenditures.  However,  taking into  consideration all of the
uncertainties  related to drug development and our industry, we will continue to
seek additional  financing through equity or debt financings and the sale of our
net  operating  loss  carryforwards  but  cannot be sure that we will be able to
raise  capital  on  favorable  terms or at all.  We may also  obtain  additional
capital  through the exercise of outstanding  options and warrants,  although we
cannot  provide  assurance  of such  exercises  or the amount of capital we will
receive, if any.

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.

         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 net operating loss carryforwards, in order to obtain
tax benefits.  The aggregate amount of net operating loss carryforwards 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  net
operating  loss  carryforwards  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 net operating loss  carryforwards  for a reasonable  price.  Our
historical results of operations have been improved by our sale of net operating
loss  carryforwards  and if we continue to generate a limited  amount of revenue
and are unable in the future to sell our net operating loss  carryforwards,  our
results of operations will be negatively impacted.


                                       16
<PAGE>


         For the state fiscal year 2005 (July 1, 2004 to June 30, 2005),  we had
approximately  $1,335,000 total available net operating loss  carryforwards that
were saleable, of which New Jersey permitted us to sell approximately  $339,000.
In  December  2004,  we  received  approximately  $288,000  from the sale of the
$339,000 of net  operating  loss  carryforwards,  which we  recognized  as a tax
benefit for the six months  ended  January 31,  2005.  For the state fiscal year
2004 (July 1, 2003 to June 30, 2004), we had  approximately  $1,378,000 of total
available net operating  loss  carryforwards  that were  saleable,  of which New
Jersey  permitted  us to sell  approximately  $261,000.  In  December  2003,  we
received  approximately  $222,000 from the sale of the $261,000 of net operating
loss  carryforwards,  which we  recognized  as a tax  benefit for the six months
ended January 31, 2004.

         If still  available  under New Jersey law, we will  attempt to sell the
remaining $996,000 of our net operating loss carryforwards, between July 1, 2005
and June 30,  2006.  This  amount,  which is a carryover  of our  remaining  net
operating  loss  carryforwards  from state fiscal year 2005,  may increase if we
incur  additional net losses and research and  development  credits during state
fiscal year 2006. We cannot 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 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.

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.  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 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, which
therefore  may delay the marketing  registrations.  Although we believe we could
modify some of our  expenditures  to reduce our cash  outlays in relation to our
clinical trials and other NDA related expenditures,  we cannot quantify which or
the amount such expenditures might be modified. Hence, a delay in the commercial
sale of  ONCONASE(R)  would  increase  the time  frame  of our cash  expenditure
outflows and may require us to seek additional financing. Such capital financing
may not be available on favorable terms or at all.

         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 met.


                                       17
<PAGE>


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.

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

         If we fail to obtain  the  necessary  regulatory  approvals,  we cannot
market or sell our products in the United States,  or in other countries and our
long-term  viability  would  be  threatened.  If we fail to  achieve  regulatory
approval or foreign marketing  authorizations for ONCONASE(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


                                       18
<PAGE>


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  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

                                       19
<PAGE>

         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
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 own two patents  jointly with the United  States  government.  These
patents  expire in 2016. We also own ten United States  patents with  expiration
dates ranging from 2006 to 2019,  four European  patents with  expiration  dates
ranging from 2009 to 2016 and one Japanese  patent that expires in 2010. We also
own patent applications that are pending in the United States, Europe and Japan.
The scope of protection afforded by patents for  biotechnological  inventions is
uncertain,  and such uncertainty applies to our patents as well. Therefore,  our
patents may not give us competitive  advantages or afford us adequate protection
from competing products.  Furthermore, others may independently develop products
that are  similar  to our  products,  and may  design  around  the claims of our
patents.  Patent litigation and intellectual  property  litigation are expensive
and our resources are limited.  If we were to become involved in litigation,  we
might not have the funds or other resources  necessary to conduct the litigation
effectively.  This might prevent us from protecting our patents,  from defending
against  claims of  infringement,  or both.  To date,  we have not  received any
threats of litigation regarding patent issues.


                                       20
<PAGE>


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 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.


                                       21
<PAGE>


In some  cases,  insurers  and other  healthcare  payment  organizations  try to
encourage the use of less expensive generic brands and over-the-counter, or OTC,
products  through  their   prescription   benefits  coverage  and  reimbursement
policies.  These  organizations may make the generic alternative more attractive
to the patient by providing  different  amounts of reimbursement so that the net
cost of the  generic  product  to the  patient  is less  than  the net cost of a
prescription  brand product.  Aggressive pricing policies by our generic product
competitors  and the  prescription  benefits  policies of insurers  could have a
negative effect on our product revenues and profitability.

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

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

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

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

         There have been a number of legislative and regulatory  proposals aimed
at  changing  the  healthcare  system  and  pharmaceutical  industry,  including
reductions  in the cost of  prescription  products  and changes in the levels at
which  consumers  and  healthcare  providers  are  reimbursed  for  purchases of
pharmaceutical  products.  For  example,  the  Prescription  Drug  and  Medicare
Improvement  Act of 2003 which was  recently  enacted,  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.

WE HAVE ONLY RECENTLY BEEN RELISTED ON THE NASDAQ  SMALLCAP MARKET AND OUR STOCK
IS THINLY  TRADED  AND YOU MAY NOT BE ABLE TO SELL OUR STOCK WHEN YOU WANT TO DO
SO.

         From April 1999, when we were delisted from Nasdaq,  until September 9,
2004,  when we  were  relisted  on the  Nasdaq  SmallCap  Market,  there  was no
established  trading  market for our common stock.


                                       22
<PAGE>

During that time,  our common stock was quoted on the OTC Bulletin Board and was
thinly traded.  There is no assurance that we will be able to comply with all of
the listing  requirements  necessary to remain  relisted on the Nasdaq  SmallCap
Market.  In addition,  our stock remains  thinly traded and you may be unable to
sell our common stock during times when the trading market is limited.

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,

     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 for sale,  could adversely  affect the price of
our common stock.  We had  35,245,445  shares of common stock  outstanding as of
January 31, 2005.  The following  securities  that may be exercised  for, or are
convertible  into,  shares of our common stock were issued and outstanding as of
January 31, 2005:

     o    Stock  options to purchase  3,438,245  shares of our common stock at a
          weighted average exercise price of approximately $3.59 per share.

     o    Warrants  to  purchase  11,769,784  shares  of our  common  stock at a
          weighted average exercise price of approximately $2.50 per share.

     o    Convertible  Notes which will  convert  into  1,199,890  shares of our
          common  stock at an  average  conversion  price of $0.20 per share and
          warrants  which are  exercisable  for  1,399,890  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.


                                       23
<PAGE>


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  STATEMENTS  INCLUDED IN OUR FORM 10-K FOR THE
FISCAL YEAR ENDED JULY 31, 2004,  NOR HAVE WE BEEN ABLE TO OBTAIN AHC'S  CONSENT
TO THE USE OF SUCH REPORT THEREIN.

         Section 18 of the Securities  Exchange Act of 1934 (the "Exchange Act")
provides  that any  person  acquiring  or selling a security  in  reliance  upon
statements set forth in a Form 10-K may assert a claim against every  accountant
who has with its consent been named as having  prepared or certified any part of
the Form 10-K, or as having  prepared or certified any report or valuation  that
is used in  connection  with the Form 10-K, if that part of the Form 10-K at the
time it is filed contains a false or misleading statement of a material fact, or
omits a material  fact  required to be stated  therein or  necessary to make the
statements  therein not misleading (unless it is proved that at the time of such
acquisition such acquiring person knew of such untruth or omission).

         In June 1996, AHC dissolved and ceased all  operations.  Therefore,  we
have not been able to obtain the  reissued  reports  of AHC with  respect to the
financial  statements  included  in the Form 10-K for the fiscal year ended July
31, 2004 nor have we been able to obtain AHC's consent to the use of such report
herein. As a result, in the event any persons seek to assert a claim against AHC
under Section 18 of the Exchange Act for any untrue statement of a material fact
contained in these  financial  statements  or any  omissions to state a material
fact required to be stated  therein,  such persons will be barred.  Accordingly,
you may be unable to assert a claim against AHC under Section 18 of the Exchange
Act for any  purchases  of the  Company's  Common  Stock made in  reliance  upon
statements  set forth in the Form 10-K for the fiscal year ended July 31,  2004.
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.


                                       24
<PAGE>


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 of January 31, 2005,  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 over
financial  reporting  during the three months ended  January 31, 2005 or, to our
knowledge,  in other factors that have  materially  affected,  or are materially
likely to affect, these controls.

         We are currently undergoing a comprehensive effort to ensure compliance
with Section 404 of the Sarbanes-Oxley Act of 2002. As an accelerated filer with
a  fiscal  year  end of  July  31,  we must  first  begin  to  comply  with  the
requirements of Section 404 for the fiscal year ending July 31, 2005. We believe
that our present  internal  control  program has been  effective at a reasonable
assurance  level to ensure that our financial  reporting has not been materially
misstated.  Nonetheless,  during the remaining periods through July 31, 2005, we
will  continue to review,  and where  necessary,  enhance our  internal  control
design and documentation, management review, and ongoing risk assessment as part
of our internal control program.

PART II. OTHER INFORMATION

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         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.

         During the quarter ended January 31, 2005, we issued  224,931 shares of
restricted  common stock and five-year  warrants to purchase  224,931  shares of
common stock with an exercise  price of $1.00 per share upon the  conversion  of
notes payable in the amount of $112,465 by an unrelated party.

         During the quarter  ended  January 31, 2005, we issued 20,000 shares of
common stock upon the exercise of warrants by an unrelated party, which resulted
in aggregate gross proceeds of $25,000 to us. We have previously  registered the
resale of these shares by the stockholders on a Form S-1 registration statement.

         During the quarter  ended  January 31, 2005,  we issued 3,000 shares of
restricted common stock as payment for services rendered.  A non-cash expense of
$13,500 was recorded by the Company for these shares,  based upon the fair value
of the common stock at the date of issuance.


                                       25
<PAGE>


         ISSUER PURCHASES OF EQUITY SECURITIES

         We did not  repurchase any shares of our common stock during the second
quarter of fiscal 2005.

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

         (a) An annual meeting of stockholders was held on January 27, 2005.

         (b)   All of our current directors, Kuslima Shogen, John P. Brancaccio,
               Stephen K. Carter, Donald R. Conklin,  James J. Loughlin,  Andrew
               P. Savadelis,  David Sidransky and Paul M. Weiss, were elected at
               the annual meeting.

         (c)   The matters  voted upon at the annual  meeting and the results of
               the voting, including broker non-votes where applicable,  are set
               forth below:

                    (i)  For the election of directors
<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------------------
                                     Number of Shares of       Number of Shares of Common       Number of Broker
              Director              Common Stock Voted For           Stock Withheld                Non-Votes
     ----------------------------------------------------------------------------------------------------------------
     <S>                                  <C>                           <C>                            <C>
     Kuslima Shogen                       27,595,108                    108,339                        0
     ----------------------------------------------------------------------------------------------------------------
     John P. Brancaccio                   27,611,830                     91,617                        0
     ----------------------------------------------------------------------------------------------------------------
     Stephen K. Carter                    27,615,260                     88,187                        0
     ----------------------------------------------------------------------------------------------------------------
     Donald R. Conklin                    27,594,430                    109,017                        0
     ----------------------------------------------------------------------------------------------------------------
     James J. Loughlin                    27,594,350                    109,097                        0
     ----------------------------------------------------------------------------------------------------------------
     Andrew P. Savadelis                  27,567,458                    135,989                        0
     ----------------------------------------------------------------------------------------------------------------
     David Sidransky                      27,615,500                     87,947                        0
     ----------------------------------------------------------------------------------------------------------------
     Paul M. Weiss                        27,593,652                    109,795                        0
     ----------------------------------------------------------------------------------------------------------------
</TABLE>

                    (ii) Proposal to ratify the  appointment of J.H. Cohn LLP as
                         Alfacell's  independent  registered  public  accounting
                         firm for the year ending July 31, 2005.
<TABLE>

     ----------------------------------------------------------------------------------------------------------------
     Number of Shares of Common      Number of Shares of        Number of Shares of Common       Number of Broker
           Stock Voted For        Common Stock Voted Against    which Abstained from Voting          Non-Votes
     ----------------------------------------------------------------------------------------------------------------
             <C>                            <C>                           <C>                            <C>
             27,599,247                     93,687                        10,513                         0
     ----------------------------------------------------------------------------------------------------------------
</TABLE>

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
------                                         ----------                                         -----------------
<C>           <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)                                                                         *

</TABLE>

                                       26
<PAGE>

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

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>


*        Previously filed; incorporated herein by reference.

+        Filed herewith.



                                       27
<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)


March 11, 2005                           /s/ Andrew P. Savadelis
                                         -----------------------
                                         Chief Financial Officer (Principal
                                         Financial Officer and Chief Accounting
                                         Officer)



                                       28