**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**







**FORM
      10-QSB**





**(Mark
      one)**


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





**For
                the quarterly period ended June 30,
                2007.**





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





**For
                the transition period from ____________ to
                ____________.**





**Commission
      File Number 000-26013**








**AURIGA
      LABORATORIES, INC.**


(Exact
      Name of Small Business Issuer as Specified in its Charter)





**Delaware**
            
            **84-1334687**(State
                or other jurisdiction ofincorporation or organization)
            
            ****(I.R.S.
                Employer Identification No.)





**10635
                Santa Monica Boulevard, Suite 120**
              **Los
                Angeles, CA**
            
            **90025**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)




**(310)
      461-3600**


(Issuer's
      telephone number, including area code)





**2029
      Century Park East, Suite 1130, Los Angeles, CA 90067**


(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90
      days.      Yes x    No
o


Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).      Yes o      No
x




**APPLICABLE
      ONLY TO CORPORATE ISSUERS**





State
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: 44,243,000 as of June 30,
      2007.





Transitional
      Small Business Disclosure Format (check
      one):      Yes o   No x


1





**AURIGA
      LABORATORIES, INC.**


**INDEX
      TO FORM 10-QSB**





**PART
                I.**
            **FINANCIAL
                INFORMATION**
            44Item
                1.
            Financial
                Statements.(a)
            Consolidated
                Balance Sheets at June 30, 2007 (unaudited) and December 31,
                2006.
            4(b)
            Consolidated
                Statements of Operations for the Three Months Ended June 30, 2007
                (unaudited)
              and
                June 30, 2006 (unaudited).
            5(c)
            Consolidated
                Statements of Operations for the Six Months Ended June 30, 2007
                (unaudited)
              and
                June 30, 2006 (unaudited).
            6(d)
            Consolidated
                Statements of Cash Flows for the Six Months Ended June 30, 2007
                (unaudited)
              and
                June 30, 2006 (unaudited).
            7(e)
            Condensed
                Notes to Consolidated Financial Statements.
            8Item
                2.
            Management's
                Discussion and Analysis or Plan of Operation.
            21Item
                3.
            Controls
                and Procedures.
            28**PART
                II.**
            **OTHER
                INFORMATION**
            28Item
                1.
            Legal
                Proceedings.
            28Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds.
            28Item
                3.
            Defaults
                Upon Senior Securities.
            28Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            29Item
                5.
            Other
                Information.
            29Item
                6.
            Exhibits.
            30**SIGNATURES**
            32




2





**FORWARD-LOOKING
      STATEMENTS**





This
      Quarterly Report on Form 10-QSB (“Form10-QSB”) contains “forward-looking
      statements” within the meaning of the Private Securities Litigation Reform Act
      of 1995. All statements other than statements of historical fact are
“forward-looking statements” for purposes of federal and state securities laws,
      including, but not limited to, any projections of earnings, revenue or other
      financial items; any statements of the plans, strategies and objectives of
      management for future operations; any statements concerning proposed new
      products or developments; any statements regarding future economic conditions
      or
      performance; any statements of belief; and any statements of assumptions
      underlying any of the foregoing.





Although
      we believe that the expectations reflected in any of our forward-looking
      statements are reasonable, actual results could differ materially from those
      projected or assumed in any of our forward-looking statements. Our future
      financial condition and results of operations, as well as any forward-looking
      statements, are subject to change and inherent risks and uncertainties. The
      factors impacting these risks and uncertainties include, but are not limited
      to:





**•**
            our
                ability to identify, develop or obtain, and introduce new products;





**•**
            our
                ability to successfully conduct clinical and preclinical trials for
                our
                new products;





**•**
            increased
                competitive pressures from existing competitors and new
                entrants;





**•**
            adverse
                state or federal legislation or regulation that increases the costs
                of
                compliance, or adverse findings by a regulator with respect to existing
                operations;





**•**
            our
                ability to obtain required regulatory approvals to develop and market
                our
                product candidates;





**•**
            our
                ability to execute our development plan on time and on budget;





**•**
            fluctuations
                in general economic conditions;





**•**
            the
                loss of customers or sales weakness;





**•**
            our
                inability to achieve future sales levels or other operating
                results;





**•**
            the
                unavailability of funds for capital expenditures; and





**•**
            the
                risk of product liability claims.





Forward-looking
      statements may include the words “may,” “could,” “will,” “estimate,” “intend,”
“continue,” “believe,” “expect,” “desire,” “goal,” “should,” “objective,”
“seek,” “plan,” “strive” or “anticipate,” as well as variations of such words or
      similar expressions, or the negatives of these words. These forward-looking
      statements present our estimates and assumptions only as of the date of this
      Form 10-QSB. Except for our ongoing obligation to disclose material information
      as required by the federal securities laws, we do not intend, and undertake no
      obligation, to update any forward-looking statement.





We
      caution readers not to place undue reliance on any such forward-looking
      statements. Should one or more of these risks or uncertainties materialize,
      or
      should underlying assumptions prove incorrect, actual outcomes will likely
      vary
      materially from those indicated. For a detailed description of these and other
      factors that could cause actual results to differ materially from those
      expressed in any forward-looking statement, please refer to the section entitled
      “Risk Factors.”


3





**PART
                1.**
            **FINANCIAL
                INFORMATION**





**Item
                1.**
            **Financial
                Statements.**





**AURIGA
      LABORATORIES, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      BALANCE SHEETS**





ASSETS
            
            JUNE 30, 2007
              (unaudited)
            
            DECEMBER 31,
              2006CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            344,267
            
            $
            259,580Accounts
                receivable, net
            
            
            3,713,369
            
            
            969,962Inventory
            
            
            1,444,849
            
            
            426,417Prepaid
                expenses
            
            
            976,280
            
            
            756,378Total
                Current Assets
            
            
            6,478,765
            
            
            2,412,337PROPERTY
                AND EQUIPMENT, net
            
            
            367,738
            
            
            326,792OTHER
                ASSETSIntangibles,
                net
            
            
            7,543,730
            
            
            7,768,476Restricted
                cash
            
            
            —
            
            
            75,560Deposits
            
            
            21,545
            
            
            16,775Total
                Other Assets
            
            
            7,565,276
            
            
            7,860,811TOTAL
                ASSETS
            
            $
            14,411,779
            
            $
            10,599,940LIABILITIES
                AND STOCKHOLDERS' EQUITYCURRENT
                LIABILITIESAccounts
                payable
            
            $
            2,586,622
            
            $
            1,742,441Accrued
                expenses
            
            
            1,961,008
            
            
            1,263,718Bank
                notes payable
            
            
            800,000
            
            
            62,272Royalties
                payable
            
            
            160,720
            
            
            326,308Product
                licenses payable
            
            
            1,300,000
            
            
            800,000Related-party
                convertible note
            
            
            
            
            
            632,000Senior
                secured promissory notes (net of loan discountsof
                $0 and $1,006,396 as of June 30, 2007 andDecember
                31, 2006, respectively)
            
            
            
            
            
            1,462,354Deposit
                on stock subscriptions
            
            
            607,000
            
            
            —Other
                liabilities
            
            
            12,000
            
            
            —Total
                Current Liabilities
            
            
            7,427,350
            
            
            6,289,093LONG-TERM
                DEBTProduct
                licenses payable
            
            
            —
            
            
            750,000Total
                Long-Term Debt
            
            
            —
            
            
            750,000Total
                Liabilities
            
            
            7,427,350
            
            
            7,039,093STOCKHOLDERS'
                EQUITYPreferred
                stock: $0.001 par value, 10,000,000 sharesauthorized;
                no shares issued and outstanding
            
            
            —
            
            
            —Common
                stock: $0.001 par value, 250,000,000 sharesauthorized;
                44,243,000 and 41,139,390 shares issuedand
                outstanding as of June 30, 2007 andDecember
                31, 2006, respectively
            
            
            44,243
            
            
            41,139Additional
                paid-in capital
            
            
            24,014,478
            
            
            18,382,385Accumulated
                deficit
            
            
            (17,074,292
            )
            
            (14,862,677
            )Total
                Stockholders' Equity
            
            
            6,984,429
            
            
            3,560,847TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY
            
            $
            14,411,779
            
            $
            10,599,940





The
      accompanying condensed notes are an integral part of these interim financial
      statements.


4


**AURIGA
      LABORATORIES, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





THREE MONTHS
              ENDED
              JUNE 30, 2007
              (unaudited)
            
            THREE MONTHS
              ENDED
              JUNE 30, 2006
              (unaudited)NET
                REVENUESProducts
            
            $
            4,906,605
            
            $
            506,995Total
                Net Revenues
            
            
            4,906,605
            
            
            506,995COST
                OF GOODS SOLDMaterials
                and supplies
            
            
            610,562
            
            
            75,781Royalties
            
            
            50,697
            
            
            202,147Distribution
            
            
            305,754
            
            
            52,219Total
                Cost of Goods Sold
            
            
            967,012
            
            
            330,147GROSS
                PROFIT
            
            
            3,939,593
            
            
            176,848OPERATING
                EXPENSESSales,
                marketing and trade expenses (includes non-cash equity instrument
                related
                expenses of $57,244 and $0 for the three months ended June 30, 2007
                and
                2006, respectively)
            
            
            1,625,014
            
            
            1,543,940General
                and administrative expenses (includes non-cash equity instrument
                related
                expenses of $844,924 and $1,121,455 for the three months ended June
                30,
                2007 and 2006, respectively.)
            
            
            2,428,129
            
            
            1,994,090Research
                and development expenses (includes non-cash equity instrument related
                expenses of $124,785 and $0 for the three months ended June 30, 2007
                and
                2006, respectively)
            
            
            412,766
            
            
            266,860Total
                Operating Expenses
            
            
            4,465,909
            
            
            3,804,890LOSS
                FROM OPERATIONS
            
            
            (526,316
            )
            
            (3,628,042
            )OTHER
                INCOME(EXPENSES)Interest
                expense
            
            
            (227,651
            )
            
            (44,453
            )Non-cash
                financing expense
            
            
            —Other
                income(expenses)
            
            
            (481,440
            )
            
            (30,292
            )Total
                Other Income(Expenses)
            
            
            (709,091
            )
            
            (74,745
            )LOSS
                BEFORE TAXES
            
            
            (1,235,407
            )
            
            (3,702,787
            )INCOME
                TAXES
            
            
            —
            
            
            —NET
                LOSS
            
            $
            (1,235,407
            )
            $
            (3,702,787
            )NET
                LOSS PER COMMON SHARE, BASIC AND DILUTED
            
            $
            (0.03
            )
            $
            (0.11
            )WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
            
            
            43,442,576
            
            
            33,385,592




The
      accompanying condensed notes are an integral part of these interim financial
      statements.


5


**AURIGA
      LABORATORIES, INC. AND SUBSIDIARIES**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





SIX MONTHS
              ENDED
              JUNE 30, 2007
              (unaudited)
            
            SIX MONTHS
              ENDED
              JUNE 30, 2006
              (unaudited)NET
                REVENUESProducts
            
            $
            11,672,630
            
            $
            3,526,296Total
                Net Revenues
            
            
            11,672,630
            
            
            3,526,296COST
                OF GOODS SOLDMaterials
                and supplies
            
            
            1,548,802
            
            
            484,464Royalties
            
            
            1,084,359
            
            
            694,664Distribution
            
            
            483,302
            
            
            186,670Total
                Cost of Goods Sold
            
            
            3,116,463
            
            
            1,365,798GROSS
                PROFIT
            
            
            8,556,167
            
            
            2,160,498OPERATING
                EXPENSESSales,
                marketing and trade expenses (includes non-cash equity instrument
                related
                expenses of $364,017 and $0 for the three months ended June 30, 2007
                and
                2006, respectively)
            
            
            3,380,073
            
            
            3,171,038General
                and administrative expenses (includes non-cash equity instrument
                related
                expenses of $1,904,659 and $1,213,571 for the three months ended
                June 30,
                2007 and 2006, respectively.)
            
            
            4,557,510
            
            
            3,234,946Research
                and development expenses (includes non-cash equity instrument related
                expenses of $515,896 and $0 for the three months ended June 30, 2007
                and
                2006, respectively)
            
            
            1,035,055
            
            
            421,084Total
                Operating Expenses
            
            
            8,972,638
            
            
            6,827,068LOSS
                FROM OPERATIONS
            
            
            (416,471
            )
            
            (4,666,570
            )OTHER
                INCOME(EXPENSES)Interest
                expense
            
            
            (1,122,132
            )
            
            (104,272
            )Non-cash
                financing expense
            
            
            —
            
            
            (1,986,592
            )Other
                income(expenses)
            
            
            (673,214
            )
            
            (29,500
            )Total
                Other Income(Expenses)
            
            
            (1,795,346
            )
            
            (2,120,454
            )LOSS
                BEFORE TAXES
            
            
            (2,211,817
            )
            
            (6,787,024
            )INCOME
                TAXES
            
            
            —
            
            
            —NET
                LOSS
            
            $
            (2,211,817
            )
            $
            (6,787,024
            )NET
                LOSS PER COMMON SHARE, BASIC AND DILUTED
            
            $
            (0.05
            )
            $
            (0.21
            )WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
            
            
            42,557,588
            
            
            31,962,710




The
      accompanying condensed notes are an integral part of these interim financial
      statements.


6


**AURIGA
      LABORATORIES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




SIX MONTHS ENDED
              JUNE 30, 2007(unaudited)
            
            SIX MONTHS ENDED
              JUNE 30, 2006
              (unaudited)CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (2,211,817
            )
            $
            (6,787,024
            )Adjustments
                to reconcile net loss to net cash flows:Provided
                by (used) by operating activities:Depreciation
            
            
            330,579
            
            
            45,850Non-cash
                  expenses for equity instruments issued forcompensation
                  and services
            
            
            2,784,574
            
            
            3,200,163Amortization
                  of notes payable discounts and
                  finders’ fees
            
            
            1,096,253
            
            
            57,646Sales
                returns and allowances
            
            
            417,117
            
            
            —Bad
                debt expense
            
            
            300,468
            
            
            364Changes
                in assets and liabilities:Restricted
                cash
            
            
            75,560
            
            
            (50,697
            )Receivables
            
            
            (3,043,876
            )
            
            1,688,440Inventory
            
            
            (1,018,432
            )
            
            285,399Prepaid
                expenses
            
            
            (374,012
            )
            
            2,702Deposits
            
            
            (4,770
            )
            
            (16,775
            )Accounts
                payable
            
            
            806,681
            
            
            145,830Accrued
                expenses
            
            
            722,502
            
            
            1,059,088Royalties
                payable
            
            
            (165,588
            )
            
            (363,855
            )Net
                cash used by operating activities:
            
            
            (284,761
            )
            
            (732,869
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of fixed assets
            
            
            (114,279
            )
            
            (215,006
            )Payment
                of product licenses payable
            
            
            (250,000
            )Net
                cash used by investing activities:
            
            
            (364,279
            )
            
            (215,006
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Net
                proceeds from stock sales
            
            
            
            
            
            1,149,422Net
                proceeds from exercise of stock options
            
            
            23,124
            
            
            —Proceeds
                from stock subscriptions receivable
            
            
            2,573,625
            
            
            600,127Proceeds
                from bank notes payable
            
            
            800,000
            
            
            305,774Payments
                of bank notes payable
            
            
            (62,272
            )
            
            (757,235
            )Proceeds
                from deposits on stock subscriptions
            
            
            
            
            
            325,000Payments
                of convertible secured notes payable
            
            
            (132,000
            )
            
            —Purchase
                of treasury stock
            
            
            —
            
            
            (22,500
            )Payments
                on related party loan
            
            
            (2,468,750
            )
            
            (150,000
            )Net
                cash provided by financing activities:
            
            
            733,727
            
            
            1,450,588Net
                increase in cash
            
            
            84,687
            
            
            502,713Cash,
                beginning of period
            
            
            259,580
            
            
            12,639Cash,
                end of period
            
            $
            344,267
            
            $
            515,352SUPPLEMENTAL
                CASH FLOW DISCLOSURES:Interest
                paid
            
            $
            34,325
            
            $
            36,254NON-CASH
                INVESTING AND FINANCINGIntangible
                acquired with stock
            
            $
            32,500
            
            
            —Warrant
                exercised for stock and stock subscription
            
            
            —
            
            $
            20,000





The
      accompanying condensed notes are an integral part of these interim financial
      statements.


7




**AURIGA
      LABORATORIES, INC. AND SUBSIDIARIES**


**CONDENSED
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 2007 (Unaudited)**





**1.**
            **COMPANY
                OVERVIEW AND BASIS OF
                PRESENTATION.**





Auriga
      Laboratories, Inc. is the first specialty pharmaceutical company building a
      nationwide commission-based sales model. The company’s business model combines
      driving revenues through a variable cost commission-based sales structure,
      acquisition of proven brand names, introduction of new brands, and a strategic
      development pipeline, all of which are designed to enhance the growing direct
      relationships with physicians nationwide.





An
      innovative, commission-only sales force structure allows the company to cover
      sales territories that traditionally would not be a focus for large
      pharmaceutical companies. By the end of 2007, the company expects to have a
      total of 500 full-time equivalent sales representatives.





The
      Company operates out of four divisions. The first is the Auriga Branded
      Prescriptions division which focuses on the respiratory, dermatology, oncology
      and psychiatry markets. The second is the Auriga Consumer Brands division
      focusing initially in the respiratory over-the-counter and hair care markets.
      The third is the Advanced Topical Solutions Pharmaceuticals division which
      is
      dedicated primarily to Dermatologists with a secondary focus on
      Gastroenterologists and Colon-Rectal Specialists. The fourth is the Stesso
      Pharmaceuticals division which will commence distribution of authorized generic
      versions of our branded products that are facing competition from generic or
      therapeutically equivalent products during 2007.





The
      Company’s corporate strategy focuses on two primary objectives. The first is
      building an innovative, nationwide sales model that drives revenue through
      a
      variable cost, commission-only structure. The second is developing a diversified
      product portfolio by acquiring proven brands, the introduction of line
      extensions, reformulations, and the strategic development of our own
      products.





These
      interim consolidated financial statements have been prepared from the records
      of
      the Company without audit. In the opinion of management, all adjustments, which
      consist of only normal recurring adjustments to present fairly the financial
      position at June 30 2007, and the results of operations and cash flows for
      the
      three months and six months ended June 30, 2007 and 2006, respectively, have
      been made. These interim consolidated financial statements should be read in
      conjunction with the Company’s audited financial statements and notes thereto
      for the nine month transitional period ending December 31, 2006 and from
      Inception to March 31, 2006 contained in the Company’s Current Report on Form
      10-KSB filed with the Securities and Exchange Commission (“SEC”) on March 30,
      2007. The results of operations for the three months and six months ended June
      30, 2007 are not necessarily indicative of the results to be expected for any
      other interim period or for the full fiscal year.





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES.**





This
      summary of significant accounting policies of the Company is presented to assist
      in understanding the Company’s consolidated financial statements. The
      consolidated financial statements and consolidated notes are representations
      of
      the Company’s management, which is responsible for their integrity and
      objectivity. These accounting policies conform to accounting principles
      generally accepted in the United States of America, and have been consistently
      applied in the preparation of these consolidated financial
      statements.





Estimates





The
      process of preparing financial statements in conformity with accounting
      principles generally accepted in the United States of America requires the
      use
      of estimates and assumptions regarding certain types of assets, liabilities,
      revenues and expenses. Such estimates primarily relate to unsettled transactions
      and events as of the date of the financial statements. Accordingly, upon
      settlement, actual results may differ from estimated amounts.





Fair
      Value of Financial Instruments





The
      Company’s financial instruments, as defined by Statement of Financial Accounting
      Standards (“SFAS”) No. 107, “Disclosures about Fair Value of Financial
      Instruments,” include cash, receivables, prepaid expenses, payables, accrued
      expenses, royalties payable and short-term borrowings. All instruments are
      accounted for on an historical cost basis, which, due to the short maturity
      of
      these financial instruments, approximates fair value.




8




Reclassifications





Certain
      reclassifications have been made to the prior year to conform to the current
      presentation.





Cash
      and Cash Equivalents





The
      Company considers all highly-liquid investments, with a maturity of three months
      or less at the date of acquisition, to be cash equivalents.




Revenue
      Recognition





The
      Company recognizes revenue from the sale of pharmaceutical products, including
      shipping fees, if any, when title to the products is transferred to the customer
      (which usually occurs on delivery) and when collectibility is reasonably
      assured. Revenue from sales of the Company’s products is recorded, net of
      allowances. According to the terms of the Company’s sales contracts, a customer
      may only return up to a specified maximum amount of product under certain
      conditions. Sales return allowances for product returns and contractual rebates
      are calculated based upon current economic conditions and the underlying
      contractual terms as product is sold.





Accounting
      for Stock Options and Warrants Granted to Employees and
      Non-Employees





In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued a
      revision to SFAS No. 123R, “Accounting for Stock Based Compensation.” This
      statement supersedes Accounting Principles Board Opinion No. 25, “Accounting for
      Stock Issued to Employees,” and its related implementation guidance. This
      statement establishes standards for the accounting of transactions in which
      an
      entity exchanges its equity instruments for goods or services. It also addresses
      transactions in which an entity incurs liabilities in exchange for goods or
      services that are based on the fair value of the entity’s equity instruments or
      that may be settled by the issuance of those equity instruments. This statement
      focuses primarily on accounting for transactions in which an entity obtains
      employee services in share-based payment transactions. This statement does
      not
      change the accounting guidance for share-based payment transactions with parties
      other than employees provided in SFAS No. 123R. This statement does not address
      the accounting for employee share ownership plans, which are subject to the
      American Institute of Certified Public Accountants Statement of Position 93-6,
      “Employers’ Accounting for Employee Stock Ownership Plans.” The Company expects
      no changes to its financial reporting as a result of the application of the
      foregoing because it is already reporting and complying with the fair value
      method of SFAS No. 123R.





Provision
      for Taxes





Income
      taxes are provided based upon the liability method of accounting pursuant to
      SFAS No. 109, “Accounting for Income Taxes.” Under this approach, deferred
      income taxes are recorded to reflect the tax consequences in future years of
      differences between the tax basis of assets and liabilities and their financial
      reporting amounts at each year-end. A valuation allowance has been recorded
      against deferred tax assets as management does not believe the Company has
      met
      the “more likely than not” standard imposed by SFAS No. 109 to allow recognition
      of such an asset.





Basic
      and Diluted Earnings Per Share





The
      Company has adopted SFAS No. 128, “Earnings Per Share.” Basic earnings per share
      is computed by dividing net income(loss) by the weighted average number of
      common shares outstanding for the period. Diluted earnings per share is computed
      by dividing the net income(loss) by the weighted average number of basic shares
      outstanding increased by the number of shares that would be outstanding assuming
      conversion of the exercisable stock options and warrants. Diluted net loss
      per
      share is the same as basic net loss per share as of three and six months ended
      June 30, 2007 and June 30, 2006 as inclusion of the common stock equivalents
      would be anti-dilutive. A total of 26,739,968 and 14,021,995 shares of common
      stock issuable upon exercise of outstanding options and warrants were excluded
      from the calculation of common stock equivalents for the six months ended June
      30, 2007 and June 30, 2006, respectively.




9





Recent
      Accounting Pronouncements





In
      February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No.
      159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”), which permits entities to measure many financial instruments
      and certain other items at fair value that are not currently required to be
      measured at fair value. An entity would report unrealized gains and losses
      on
      items for which the fair value option has been elected in earnings at each
      subsequent reporting date. The objective is to improve financial reporting
      by
      providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions. The decision about whether
      to elect the fair value option is applied instrument by instrument, with a
      few
      exceptions; the decision is irrevocable; and it is applied only to entire
      instruments and not to portions of instruments. The statement requires
      disclosures that facilitate comparisons (a) between entities that choose
      different measurement attributes for similar assets and liabilities and (b)
      between assets and liabilities in the financial statements of an entity that
      selects different measurement attributes for similar assets and liabilities.
      SFAS No. 159 is effective for financial statements issued for fiscal years
      beginning after November 15, 2007. Early adoption is permitted as of the
      beginning of a fiscal year provided the entity also elects to apply the
      provisions of SFAS No. 157, “Fair Value Measurements, (“SFAS 157”). Upon
      implementation, an entity shall report the effect of the first remeasurement
      to
      fair value as a cumulative-effect adjustment to the opening balance of Retained
      Earnings. Since the provisions of SFAS 159 are applied prospectively, any
      potential impact will depend on the instruments selected for fair value
      measurement at the time of implementation. Management is evaluating the
      requirements of SFAS No. 159 and has not yet determined the impact on the
      Company’s consolidated financial statements.




In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48 “Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
      Statement No. 109” (“FIN 48”). FIN 48 clarified the accounting for uncertain
      income taxes
      recognized in an entity’s financial statements in accordance with FASB Statement
      109, “Accounting for Income Taxes” and prescribes a recognition threshold and
      measurement attributes for financial statement disclosure of tax positions
      taken
      or expected to be taken on a tax return. Under FIN 48, the impact of an
      uncertain income tax position on the income tax return must be recognized at
      the
      largest amount that is more-likely-than-not to be sustained upon audit by the
      relevant taxing authority. An uncertain income tax position will not be
      recognized if it has less than a 50% likelihood of being sustained.
      Additionally, FIN 48 provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition. FIN 48 is effective for fiscal years beginning after December 15,
      2006. The Company adopted the provisions of FASB Interpretation No. 48 on
      January 1, 2007. The Company recognized no increase in the liability for
      unrecognized tax benefits as a result of the adoption of FIN 48.




**3.**
            **ACCOUNTS
                RECEIVABLE.**





Accounts
      receivable as of June 30, 2007 and December 31, 2006 was as
      follows:





**June 30, 2007**
            
            **December 31, 2006**Accounts
                receivable
            
            $
            3,733,129
            
            $
            990,149Less:
                allowance for doubtful accounts
            
            
            19,760
            
            
            20,187Accounts
                receivable, net
            
            $
            3,713,369
            
            $
            969,962





Bad
      debt
      expense was approximately $300,000 and $364, respectively for the three months
      ended June 30, 2007 and 2006.




10




**4.**
            **INVENTORY.**





Inventory
      as of June 30, 2007 and December 31, 2006 was as follows:





**June
                30, 2007**
            
            **December
                31, 2006**Product
                inventory
            
            $
            1,502,755
            
            $
            571,516Less:
                reserves
            
            
            57,906
            
            
            145,099Inventory,
                net
            
            $
            1,444,849
            
            $
            426,417




**5.**
            **INTANGIBLE
                ASSETS.**




Intangible
      assets which are not deemed to have an indefinite life are amortized on a
      straight-line basis over their respective useful lives. The following table
      reflects the components of intangible assets of the Company as of June 30,
      2007:





**Gross Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net
                Amount**
            
            **Expected Life**Licensing
                rights/product lines
            
            $
            6,143,248
            
            $
            (391,834
            )
            $
            5,751,414
            
            
            2-15
                yearsSupply/distribution
                agreements
            
            
            1,700,000
            
            
            —
            
            
            1,700,000
            
            
            15
                yearsGoodwill
            
            
            92,316
            
            
            —
            
            
            92,316
            
            
            —Total
            
            $
            7,935,564
            
            $
            (391,834
            )
            $
            7,543,730
            
            
            —





As
      of
      June 30, 2007 the intangible assets of the Company included $92,316 of goodwill.
      For the three months ended June 30, 2007 and 2006, amortization expense related
      to the intangible assets of the Company were $135,345 and $0, respectively.
      For
      the six months ended June 30, 2007 and 2006, amortization expense related to
      the
      intangible assets of the Company were $257,246 and $0, respectively.





**6.**
            **NOTES
                PAYABLE.**





Bank
      Notes Payable





On
      May
      23, 2007, the Company entered into a Loan and Security Agreement (“Loan
      Agreement”) with Comerica Bank (“Comerica”). The Loan Agreement provides for a
      working capital line of credit of up to $2.0 million, based on 65% of eligible
      accounts receivable, secured by a first lien on substantially all of the assets
      of the Company, including intellectual property. The line of credit is repayable
      interest only monthly, with the principal due at the maturity date of May 31,
      2008. The line of credit accrues interest at Comerica’s Prime Rate plus 1.00%.
      The Company paid a $10,000 origination fee in connection with the closing of
      the
      credit facility. The Loan Agreement includes customary financial covenants.
      At
      June 30, 2007, the Company had advances outstanding of $800,000.





The
      Company had a $75,000 short-term financing facility with Wells Fargo Bank which
      was paid in full and closed in the first quarter of 2007. As of December 31,
      2006, the outstanding balance under this facility was $62,272, and the annual
      interest rate was 13.0%.





Related-Party
      Senior Secured Convertible Note





On
      August
      4, 2006, the Company issued to Sorrento Financial Partners, LLC (“SFP”) a senior
      secured convertible note (the “SFP Note”) in the principal amount of $632,000.
      The SFP Note bears interest at the rate of 8% per annum and is due and payable
      in full on May 15, 2007. Accrued interest on the SFP Note is payable monthly
      in
      arrears. The Company’s Chief Executive Officer (“CEO”) is the beneficial owner
      of SFP. Of the SFP Note’s principal amount of $632,000, (i) $400,000 represents
      funds advanced by SFP to the Company, and (ii) $232,000 represents an accrued
      bonus that was owed by the Company to its CEO. At SFP’s option, the SFP Note is
      convertible, in whole or in part and at any time after August 4, 2006 and prior
      to the SFP Note’s full repayment, into shares of Common Stock. The number of
      shares that are issuable upon a conversion of the SFP Note is equal to the
      amount determined by dividing (i) the outstanding principal amount of the SFP
      Note to be converted by (ii) the conversion price of $1.388.




11





On
      January 25, 2007, the Company and SFP executed a letter agreement amending
      the
      SFP Note. The letter agreement serves to amend the interest rate, establish
      a
      new repayment schedule, amend the seniority of the SFP Note such that it is
      now
      subordinate in right of payment to any and all other indebtedness of the Company
      senior in time to the issuance of the SFP Note, and amend the maturity date
      of
      the SFP Note by extending such date to October 15, 2007. On February 15, 2007,
      $132,000 of principal was paid to SFP. On April 12, 2007, SFP elected to convert
      the outstanding principal under the Senior Secured Convertible Note into common
      stock. The outstanding balance of $500,000 was converted at the stated
      conversion price of $1.388 per share. As a result, SFP was issued 360,230 shares
      of common stock.





For
      further information, see “Note 11 — Related Party Transactions.”





Related-Party
      Senior Secured Promissory Note





On
      August
      29, 2006, the Company issued to Levall Finance Corp. LLC (“LFC”) a senior
      secured promissory note (the “LFC Note”) in the principal amount of $1.5
      million, the proceeds of which were used to complete the licensing agreement
      for
      the Levall® product line. The LFC Note was amended on September 28, 2006 and
      December 8, 2006. As amended, the LFC Note is due and payable in full on the
      earlier to occur of (i) the closing by the Company of an equity or debt
      financing, the net proceeds of which equal or exceed $1.5 million, or (ii)
      May
      15, 2007. In lieu of interest payments, the Company issued a warrant exercisable
      for 1.5 million fully paid and non-assessable shares of Common Stock at an
      exercise price of $1.92. In connection with this warrant, the Company recorded
      $1,267,350 as a loan discount, which will be amortized over the life of the
      loan. As of June 30, 2007, the Company expensed $1,267,350 of this loan discount
      as interest expense, of which $219,350 was expensed during the three months
      ended June 30, 2007. The warrant provides LFC with “piggyback” registration
      rights with respect to shares of common stock acquired upon exercise of the
      warrant. As amended, the LFC Note requires the Company to make quarterly
      payments to LFC, commencing with the quarter ending December 31, 2006, equal
      to
      6.0% of gross sales by the Company (less customary deductions) of the Levall®
product line during the preceding quarter. This payment obligation continues
      in
      perpetuity. SFP is the managing member of LFC. The Company’s CEO is the
      beneficial owner of SFP.





On
      April
      3, 2007, the Company paid to LFC $750,000 towards the outstanding balance of
      the
      LFC Note. The remaining balance of $750,000 was paid on May 15, 2007.





For
      further information, see “Note 11 — Related Party Transactions.”





Related-Party
      Senior Secured Promissory Note





On
      September 28, 2006, the Company issued to Aquoral Finance Corp. LLC (“AFC”) a
      senior secured promissory note (the “AFC Note”). The AFC Note provides for up to
      $1.5 million of advances to be made by AFC from time to time, each advance
      requiring the Company’s
      consent. The proceeds from the AFC Note will be used to satisfy the Company’s
      obligations under the distribution agreement with Laboratoires Carilène (See
      Note 18 to the Company’s audited financial statements in the Current Report on
      Form 10-KSB filed with the SEC on March 30, 2007). All amounts advanced under
      the AFC Note are due and payable in full on the earlier to occur of (i) the
      closing by the Company of an equity or debt financing, the gross proceeds of
      which equal or exceed $1.5 million (exclusive of advances made under the AFC
      Note), or (ii) March 31, 2007. The AFC Note requires the Company to make
      quarterly payments to AFC, commencing with the quarter ending March 31, 2007,
      equal to 0.5% of the gross sales by the Company (less customary deductions)
      of
      its recently acquired AquoralTM product line during the preceding quarter for
      every $125,000 of outstanding funds advanced under the AFC Note. This payment
      obligation continues in perpetuity. SFP is the managing member of LFC. The
      Company’s CEO is the beneficial owner of SFP.





On
      April
      2, 2007, the Company paid to AFC $968,750 as payment in full of the AFC Note.





For
      further information, see “Note 11 — Related Party
      Transactions.”





**7.        
      Capital Stock.**





Preferred
      Stock





The
      Company is authorized to issue 10,000,000 shares of preferred stock, par value
      $0.001 per share. As of June 30, 2007, there were no shares of preferred stock
      issued or outstanding.




12




Common
      Stock





The
      Company is authorized to issue 250,000,000 shares of common stock, par value
      $0.001 per share. As of June 30, 2007, there were 44,243,000 shares
      of
      common stock issued and outstanding. The holders of shares of common stock
      are
      entitled to one vote for each share.





Private
      Placement





On
      April
      2, 2007, the Company initially sold in a private placement 1,600,000 Units
      at a
      price of $1.25 per Unit, for aggregate gross proceeds of $2,000,000. Each Unit
      was comprised of one share of our common stock and one common stock warrant.
      Each common stock warrant included in the Units entitles the holder to purchase
      one-fifth of a share of the company’s common stock at an exercise price of $1.60
      per share through April 2, 2010. The Units were sold solely to accredited
      investors. During the second quarter of 2007, the Company extended the private
      placement to include over allotments. The Company sold an additional 1,000,000
      Units at a price of $1.25 per Unit, for aggregate gross proceeds of $1,250,000.
      The final subscription proceeds were received on July 27, 2007.





**8.** **Equity
      Incentive Plans.**





2006
      Equity Incentive Plan





In
      August
      2006, the Company’s board of directors (“Board”) approved the Auriga
      Laboratories, Inc. 2006 Equity Incentive Plan, pursuant to which 1,500,000
      shares of common stock are available to be granted thereunder. Awards issued
      under this plan may be issued to employees, non-employee directors or
      consultants and advisors. Awards may be issued or granted in the form of stock
      options, stock appreciation rights, restricted shares, restricted stock units
      and performance-based awards. The value of each award is based upon the current
      fair market value of the common stock at the time of grant. The 2006 Equity
      Incentive Plan expires in August 2016. For the three and six months ended June
      30, 2007, the Company did not issue any shares of common stock or record any
      costs in connection with this plan. As of June 30, 2007, the Company has 9,263
      shares available for issuance under the 2006 Equity Incentive Plan.





2007
      Equity Incentive Plan





On
      January 3, 2007, the Board approved and the Company filed a Form S-8
      registration statement that includes 2,000,000 shares to be registered under
      the
      Auriga Laboratories, Inc. 2007 Equity Incentive Plan. The number of shares
      of
      common stock is the maximum number of shares issuable upon the exercise of
      options or vesting or granting of other awards, which may be granted pursuant
      to
      this plan. The registration statement also covers such additional number of
      shares of common stock as may become issuable as a result of any future
      adjustments in accordance with the terms of the plan, and which result in an
      increase in the number of outstanding shares of common stock available for
      award
      thereunder. The value of each award is based upon the current fair market value
      of the Common Stock at the time of grant. For the three months ended June 30,
      2007, the Company issued 131,500 shares of common stock and recorded $155,790
      in
      costs in connection with these issuances. For the six months ended June 30,
      2007, the Company issued 1,098,691
      shares of common stock and recorded $1,077,031 in costs in connection with
      these
      issuances. As of June 30, 2007, the Company has 771,408 shares available for
      issuance under the 2007 Equity Incentive Plan.





**9.         Stock
      Options.**





2005
      Stock Option Plan





Pursuant
      to the terms of the merger agreement between Auriga Laboratories, Inc. and
      Multi-Link Telecommunications, Inc., the Company assumed each outstanding option
      under the 2005 Stock Option Plan to purchase shares of pre-merger Auriga common
      stock, which options were exercisable for approximately 30.01 shares of common
      stock, with the exercise price being adjusted accordingly.





13




The
      Company has granted stock options to officers, employees and consultants as
      follows:





Number of
              Shares
              Subject to
              Issuance
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Life (in years)**Balance,
                March 31, 2006**
            
            
            5,554,547
            
            $
            0.60
            
            
            9.8Options
                granted
            
            
            410,188
            
            
            0.72Options
                cancelled
            
            
            (2,117,983
            )
            
            0.62Options
                exercised
            
            
            (15,007
            )
            
            0.42**Balance,
                December 31, 2006**
            
            
            3,831,745
            
            
            0.60
            
            
            9.2Options
                granted
            
            
            —
            
            
            —Options
                cancelled
            
            
            (218,843
            )
            
            1.72Options
                exercised
            
            
            (25,011
            )
            
            0.93**Balance,
                June 30, 2007**
            
            
            3,587,891
            
            $
            1.84
            
            
            8.9**Options
                exercisable (vested) at June 30, 2007**
            
            
            1,140,314
            
            $
            1.83
            
            
            8.8





During
      the three and six months ended June 30, 2007, the Company did not issue any
      options under the 2005 Stock Option Plan. The shares issuable upon exercise
      of
      the options are subject to a repurchase right of the Company in the event the
      grantee fails to meet certain vesting requirements. The options vest 12/48ths
      after one year of continuous service and 1/48th for each month thereafter until
      fully vested.




For
      the
      three and six months ended June 30, 2007, compensation expense associated with
      stock options that vested during the period was $141,380 and $602,988,
      respectively.





2006
      Stock Option Plan





In
      July
      2006, the stockholders of the Company approved the Auriga Laboratories, Inc.
      2006 Stock Option Plan, pursuant to which 7,000,000 shares of the Company’s
      common stock are available to be granted thereunder. Options granted under
      the
      2006 Stock Option Plan may be incentive stock options or nonstatutory stock
      options, as determined by the Board at the time of grant and subject to the
      applicable provisions of Section 422 of the Internal Revenue Code of 1986,
      as
      amended, as well as the regulations and interpretations promulgated under the
      2006 Stock Option Plan. Nonstatutory stock options may be granted to employees
      and consultants. Incentive stock options may be granted only to employees.
      The
      Board may at any time offer to repurchase for a payment in cash or shares of
      common stock an option previously granted under the 2006 Stock Option Plan
      based
      on such terms and conditions as the Board shall establish and communicate to
      the
      optionee at the time that such offer is made. The 2006 Stock Option Plan shall
      continue in effect for a term of 10 years following its adoption by the Board,
      which was August 29, 2006. The 2006 Stock Option Plan provided that the term
      of
      each option granted thereunder shall be no more than 10 years from the date
      of
      grant or such shorter term as may be provided in the option agreement, except
      that, in the case of an incentive stock option granted to a person who at the
      time of such grant is a 10% holder of the common stock, the term of the option
      shall be five years from the date of grant or such shorter term as may be
      provided in the option agreement.





The
      weighted average fair value per share of options granted during the three months
      ended June 30, 2007 was calculated, according to the Black-Scholes pricing
      model, at $1.08. The value of options was calculated on the date of the grant
      using the following assumptions:





Three Months Ended
              June 30, 2007
            
            Six Months Ended
              June 30, 2007Risk-free
                interest rate
            
            
            4.70
                to 5.04
            %
            
            4.70
                to 5.04
            %Expected
                dividend yield
            
            
            —
            
            
            —Expected
                lives
            
            
            10
                years
            
            
            10
                yearsExpected
                volatility
            
            
            62
                to 91
            %
            
            62
                to 91
            %




14




The
      Company has granted stock options to officers, employees and consultants as
      follows:





Number of
              Shares
              Subject to
              Issuance
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Life (in years)**Balance,
                March 31, 2006**
            
            
            —
            
            $
            —Options
                granted
            
            
            4
                ,186,230
            
            
            1.40Options
                cancelled
            
            
            (457,500
            )
            
            2.32Options
                exercised
            
            
            —
            
            
            —**Balance,
                December 31, 2006**
            
            
            3,728,730
            
            
            1.29
            
            
            9.4Options
                granted
            
            
            1,800,000
            
            
            1.08Options
                cancelled
            
            
            (1,187,228
            )
            
            1.46Options
                exercised
            
            
            —
            
            
            —**Balance,
                June 30, 2007**
            
            
            4,341,502
            
            $
            1.33
            
            
            9.1**Options
                exercisable (vested) at June 30, 2007**
            
            
            363,194
            
            $
            0.99
            
            
            8.8





During
      the three and six months ended June 30, 2007, 1,625,000 and 1,800,000,
      respectively, of stock options were granted under the 2006 Stock Option Plan
      to
      purchase shares of common stock. The shares issuable upon exercise of the
      options are subject to a repurchase right of the Company in the event the
      grantee fails to meet certain vesting requirements. As of June 30, 2007, there
      are 2,658,498 options available to be granted under this Plan.





For
      the
      three and six months ended June 30, 2007, compensation expense associated with
      stock options that vested during the period was $58,125 and $108,238,
      respectively.





2007
      Stock Option Plan





On
      January 3, 2007, the Board approved and the Company filed a Form S-8
      registration statement that includes 7,000,000 shares to be registered under
      the
      Auriga Laboratories, Inc. 2007 Stock Option Plan. The number of shares of common
      stock is the maximum number of shares issuable upon the exercise of options
      or
      vesting or granting of other awards, which may be granted pursuant to this
      plan.
      This registration statement also covers such additional number of shares of
      common stock as may become issuable as a result of any future adjustments in
      accordance with the terms of the plan, and which result in an increase in the
      number of outstanding shares of common stock available for award
      thereunder.





The
      weighted average fair value per share of options granted during the three and
      six months ended June 30, 2007 was calculated, according to the Black-Scholes
      pricing model, at $1.43 and $1.35, respectively. The value of options was
      calculated on the date of the grant using the following
      assumptions:





Three Months Ended
              June 30, 2007
            
            SixMonths Ended
              June 30, 2007Risk-free
                interest rate
            
            
            4.70
                - 5.04
            %
            
            4.70
                - 5.04
            %Expected
                dividend yield
            
            
            —
            
            
            —Expected
                 lives
            
            
            10
                years
            
            
            10
                yearsExpected
                volatility
            
            
            79
                to 110
            %
            
            79
                to 110
            %




The
      Company has granted stock options to officers, employees and consultants as
      follows:





Number of
              Shares
              Subject to
              Issuance
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted
              Average
              Remaining
              Contractual
              Life (in years)**Balance,
                December 31, 2006**
            
            
            —
            
            $
            —Options
                granted
            
            
            6,019,500
            
            
            1.35Options
                cancelled
            
            
            (505,000
            )
            
            1.24Options
                exercised
            
            
            —
            
            
            —**Balance,
                June 30, 2007**
            
            
            5,514,500
            
            
            1.39
            
            
            9.9**Options
                exercisable (vested) at June 30, 2007**
            
            
            173,333
            
            $
            0.79
            
            
            9.9




15




During
      the three and six months ended June 30, 2007, 1,797,000 and 6,019,500,
      respectively, stock options were granted under the 2007 Stock Option Plan to
      purchase shares of common stock. The shares issuable upon exercise of the
      options are subject to a repurchase right of the Company in the event the
      grantee fails to meet certain vesting requirements. As of June 30, 2007, there
      are 1,485,500 options available to be granted under this Plan.





For
      the
      three and six months ended June 30, 2007, compensation expense associated with
      stock option vesting during the period was $160,448 and $302,987,
      respectively.





**10.
      Common Stock Warrants.**





During
      the three and six months ended June 30, 2007, the Company issued 320,000
      warrants to acquire shares of common stock in connection with the private
      placement discussed in Note 7 - Capital Stock . As of June 30, 2007, warrants
      to
      purchase up to 13,296,075 shares of common stock were outstanding, and warrants
      to purchase 12,116,908 shares of common stock were vested.





For
      the
      three and six months ended June 30, 2007, compensation expense for services
      for
      warrants to purchase common stock using the Black Scholes Option Pricing Model
      was $542,987 and $1,085,975, respectively. The following assumptions were made
      to value the warrants: (i) risk-free interest rate between 4.93% and 5.00%;
      (ii)
      expected lives of 10 years; and (iii) expected volatility of 62%.





**11.
      Related-Party Transactions.**





Related-Party
      Senior Secured Convertible Note





On
      August
      4, 2006, the Company issued to Sorrento Financial Partners, LLC (“SFP”) a senior
      secured convertible note (the “SFP Note”) in the principal amount of $632,000.
      The SFP Note bears interest at the rate of 8% per annum and is due and payable
      in full on May 15, 2007. Accrued interest on the SFP Note is payable monthly
      in
      arrears. The Company’s Chief Executive Officer (“CEO”) is the beneficial owner
      of SFP. Of the SFP Note’s principal amount of $632,000, (i) $400,000 represents
      funds advanced by SFP to the Company, and (ii) $232,000 represents an accrued
      bonus that was owed by the Company to its CEO. At SFP’s option, the SFP Note is
      convertible, in whole or in part and at any time after August 4, 2006 and prior
      to the SFP Note’s full repayment, into shares of Common Stock. The number of
      shares that are issuable upon a conversion of the SFP Note is equal to the
      amount determined by dividing (i) the outstanding principal amount of the SFP
      Note to be converted by (ii) the conversion price of $1.388.





On
      January 25, 2007, the Company and SFP executed a letter agreement amending
      the
      SFP Note. The letter agreement serves to:





**•**
            Amend
                the interest rate as follows:





**•**
            For
                the period from August 4, 2006 through February 14, 2007, the SFP
                Note
                shall bear interest at the annual rate of eight percent (8%);
                and





**•**
            For
                the period from February 15, 2007 through October 15, 2007, the SFP
                Note
                shall bear interest at the annual rate of ten percent
                (10%);





**•**
            Establish
                the following repayment schedule:





**•**
            One
                Hundred Thirty Two Thousand Dollars ($132,000) of principal was paid
                to
                SFP on February 15, 2007; and





**•**
            The
                remaining Five Hundred Thousand Dollars ($500,000) of principal shall
                be
                paid in equal monthly installments of One Hundred Thousand Dollars
                ($100,000) beginning on June 15, 2007 with the final payment due
                on
                October 15, 2007;





**•**
            Amend
                the seniority of the SFP Note such that it is now subordinate in
                right of
                payment to any and all other indebtedness of the Company senior in
                time to
                the issuance of the SFP Note; and





**•**
            Amend
                the maturity date of the SFP Note by extending such date to October
                15,
                2007.





On
      April
      12, 2007, SFP elected to convert the remaining outstanding principal under
      the
      SFP Note into common stock of the Company. The outstanding balance of $500,000
      was converted at the stated conversion price of $1.388 per share. As a result,
      SFP was issued 360,230 shares of common stock of the Company.


16





Related-Party
      Senior Secured Promissory Note





On
      August
      29, 2006, the Company issued to Levall Finance Corp. LLC (“LFC”) a senior
      secured promissory note (the “LFC Note”) in the principal amount of $1.5
      million, the proceeds of which were used to complete the licensing agreement
      for
      the Levall® product line. The LFC Note was amended on September 28, 2006 and
      December 8, 2006. As amended, the LFC Note is due and payable in full on the
      earlier to occur of (i) the closing by the Company of an equity or debt
      financing, the net proceeds of which equal or exceed $1.5 million, or (ii)
      May
      15, 2007. In lieu of interest payments, the Company issued a warrant exercisable
      for 1.5 million fully paid and non-assessable shares of Common Stock at an
      exercise price of $1.92. In connection with this warrant, the Company recorded
      $1,267,350 as a loan discount, which will be amortized over the life of the
      loan. As of June 30, 2006, the Company expensed $1,267,350 of this loan discount
      as interest expense, of which $219,350 was expensed during the three months
      ended June 30, 2007. The warrant provides LFC with “piggyback” registration
      rights with respect to shares of common stock acquired upon exercise of the
      warrant. The LFC Note requires the Company to make quarterly payments to LFC,
      commencing with the quarter ending December 31, 2006, equal to 6.0% of gross
      sales by the Company (less customary deductions) of the Levall® product line
      during the preceding quarter. This payment obligation continues in perpetuity.





The
      LFC
      Note is secured by a first-priority perfected security interest in all of the
      Company’s assets. The first priority security provided by the Company is on a
      pro-rata basis and *pari
      passu* to
      the
      senior secured note entered into by the Company and Aquoral Finance Corp. LLC
      (“AFC”) dated September 28, 2006 and is senior in right of payment to any and
      all of the Company’s other indebtedness. The Company can prepay all or any
      portion of the LFC Note at any time without premium or penalty. As a condition
      to the foregoing transaction, the Company and SFP were required to enter into
      a
      subordination agreement with LFC pursuant to which SFP agreed that all amounts
      owed to it by the Company would be subordinated to amounts owed to
      LFC.





SFP
      is
      the managing member of LFC. The Company’s CEO contributed $125,000 to LFC in
      exchange for his ownership interest in LFC. The remaining contributions to
      LFC
      were made by individuals who are not affiliates of the Company. On April 3,
      2007, the Company paid to LFC $750,000 towards the outstanding balance of the
      LFC Note. The remaining balance of $750,000 was paid on May 15, 2007.





Related-Party
      Senior Secured Promissory Note





On
      September 28, 2006, the Company issued to AFC a senior secured promissory note
      (the “AFC Note”). The AFC Note provided for up to $1.5 million of advances to be
      made by AFC from time to time, each advance requiring the Company’s consent. The
      proceeds from the AFC Note were used to satisfy the Company’s obligations under
      the distribution agreement with Carilène. All amounts advanced under the AFC
      Note are due and payable in full on the earlier to occur of (i) the closing
      by
      the Company of an equity or debt financing, the gross proceeds of which equal
      or
      exceed $1.5 million (exclusive of advances made under the AFC Note), or (ii)
      March 31, 2007. The AFC Note requires the Company to make quarterly payments
      to
      AFC, commencing with the quarter ending March 31, 2007, equal to 0.5% of the
      gross sales by the Company (less customary deductions) of its recently acquired
      AquoralTM product line during the preceding quarter for every $125,000 of
      outstanding funds advanced under the AFC Note. This payment obligation continues
      in perpetuity.





The
      AFC
      Note was secured by a first-priority security interest in all of the Company’s
      assets and is senior in right of payment to any and all of the Company’s other
      indebtedness, except that the AFC Note is *pari
      passu* with
      the
      Company’s $1.5 million obligation to LFC. As additional consideration, the
      Company agreed that, concurrent with each advance made by AFC under the AFC
      Note, it would issue to AFC a five-year warrant to acquire one share of Common
      Stock, at an exercise price of $1.50 per share, for each one dollar so advanced.
      The warrant provides AFC with “piggyback” registration rights with respect to
      shares of Common Stock acquired upon exercise of such warrant. As of June 30,
      2007, the Company had issued warrants to acquire up to 968,750 shares of Common
      Stock. In connection with these warrants, the Company recorded $676,509 as
      a
      loan discount that was amortized over the life of the loan. As of June 30,
      2007,
      the Company had expensed all $676,509 of this loan discount as interest expense,
      of which $348,348 was expensed during the six months ended June 30,
      2007.




17





SFP
      is
      the managing member of AFC. The Company’s CEO contributed $125,000 to AFC in
      exchange for his ownership interest in AFC. The remaining contributions to
      AFC
      were made by individuals who are not affiliates of the Company. Affiliates
      of
      the Company may make additional contributions to AFC to fund a portion of future
      advances under the AFC Note.





On
      April
      2, 2007, the Company paid to AFC $968,750 as payment in full of the AFC Note.





The
      Company believes that all of the transactions set forth above were made on
      terms
      no less favorable to it than could have been obtained from unaffiliated third
      parties. The Company intends that all future transactions with affiliated
      persons be approved by a majority of the Board, including a majority of the
      independent and disinterested outside directors on the Board, and be on terms
      no
      less favorable to the Company than could be obtained from unaffiliated third
      parties.





**12.
      Concentrations**




Customers





During
      the three months ended June 30, 2007 and 2006, two customers, each a wholesale
      distributor, accounted for a combined total of approximately 59% and 31% of
      the
      Company’s revenues, respectively. During the six months ended June 30, 2007 and
      2006, two customers, each a wholesale distributor, accounted for a combined
      total of approximately 46% and 43% of the Company’s revenues, respectively. No
      other customer accounted for more than 10% of the Company’s sales during the
      respective periods.





Suppliers





Some
      of
      the Company’s products are currently sourced from single qualified suppliers or
      manufacturers. The Company has not established arrangements with the alternative
      suppliers for these ingredients or from alternative manufacturers for the
      manufacture of our products. Any interruption of raw material supply, for any
      reason, in any of the required ingredients for our products or the manufacture
      of such products, could have a material adverse effect on the Company’s ability
      to manufacture our products or to obtain or maintain regulatory approval of
      such
      products.





**13.
      Commitments and Contingencies.**





Athlon
      Pharmaceuticals, Inc. License Agreement





On
      August
      31, 2006, the Company entered into a License Agreement with Athlon
      Pharmaceuticals, Inc. (“Athlon”) that sets forth the terms upon which the
      Company obtained the Levall® license from Athlon for the Levall® product line,
      together with all of Athlon’s intellectual property related to Levall® and
      certain other tangible and intangible assets related to, or necessary for the
      continued development and marketing of, the Levall® product line. The Levall®
product line consists of various pharmaceutical products marketed by Athlon
      that
      provide relief from coughing, congestion and rhinitis associated with
      respiratory infections such as the common cold, influenza, bronchitis and
      sinusitis. The Levall® license permits the Company to make, sell, market,
      distribute, import and otherwise transfer the Levall® products on a worldwide
      basis. As consideration for the Levall® license, the Company agreed to pay
      Athlon $1.5 million in upfront fees and 2,500,000 shares of its restricted
      common stock. Additionally, the Company also agreed to pay Athlon a royalty
      payment equal to 50% of net sales up to $10,000,000 through the end of the
      first
      year following the closing date of the license agreement, with such rate to
      decrease to 20% for net sales in excess of $10,000,000. The royalty payments
      for
      the second and third years of the license agreement were equal to 35% of net
      sales and 25% of net sales, respectively. In addition, the license agreement
      provided for royalty payments equal to 8% of net sales for each year following
      the third year until such time as the aggregate royalty payments totaled
      $20,000,000, plus royalty payments equal to 1% of net sales for each year
      subsequent thereto.




18




On
      February 9, 2007, the Company filed a lawsuit against Athlon in the United
      States District Court for the Northern District of Georgia under the caption *Auriga
      Laboratories, Inc. v. Athlon Pharmaceuticals, Inc.* ,
      No. 1:07-CV-0308-CC (2007), regarding certain sales practices allegedly
      engaged in by Athlon regarding the Levall® products. On February 23, 2007, the
      Company entered into a settlement agreement with Athlon to settle this dispute.
      The settlement agreement provides that Athlon will refrain from certain
      allegedly unfair competitive practices, including making or distributing false,
      misleading, deceptive or disparaging statements, representations and/or writings
      regarding the Company and/or the Levall® products. Pursuant to the settlement
      agreement, the Company agreed to dismiss the litigation referred to above by
      filing a stipulation of dismissal with prejudice within five business days
      following the execution of the settlement agreement. The settlement agreement
      also contains certain customary terms, including releases by each of the parties
      for any and all claims each may have against the other through the date of
      the
      settlement agreement.




The
      letter agreement entered into with Athlon in connection with the settlement
      agreement amends the license agreement by reducing the period of time for which
      the Company is obligated to make royalty payments at the rate of 50% of net
      sales from the first year following the closing date of the license agreement
      to
      December 31, 2006. Furthermore, effective February 1, 2007, the royalty payment
      rate on all sales by the Company is reduced to 25% of net sales, until such
      time
      as the aggregate royalty payments total $10,000,000. Once aggregate royalty
      payments total $10,000,000, the Company will not be required to make any further
      royalty payments to Athlon, thus potentially reducing the total royalty payments
      required under the license agreement by approximately $10,000,000.




In
      addition, the letter agreement reduces the frequency of the Company’s reporting
      and payment obligations. The license agreement previously required monthly
      reports and payments until such time as the aggregate royalty payments equaled
      or exceeded $10,000,000, with such reports and payments to be made on a
      quarterly basis thereafter. The license agreement now only requires quarterly
      reports and payments.





Employment
      Agreements





As
      part
      of an executive employment agreement with Alan Roberts, Chief Scientific
      Officer, on March 1, 2007, the board of directors of the Company approved the
      issuance of a non-statutory stock option to purchase two hundred seventy-five
      thousand (275,000) shares of the Company’s common stock under its 2007 Stock
      Option Plan. The agreement provides for an exercise price of $1.24 per share,
      which is equal to the closing price as reported on the OTC Bulletin Board on
      the
      date of grant. The option vests as follows: (a) one-forth (1/4) of the option
      is
      exercisable on the first anniversary of the date of grant; and (b) subject
      to
      the executive’s continued employment by the Company, 1/48 th of the
      remaining number of shares of common stock subject to the option shall vest
      each
      month thereafter. The employment agreement also contains severance provisions
      and other covenants.





On
      May 9,
      2007, the Company entered into an employment agreement (the “Agreement”) with
      its Chief Executive Officer and Chairman of the Board, Philip S. Pesin. On
      May
      9, 2007, the Agreement became effective and superseded Mr. Pesin’s current
      employment agreement. The term of the Agreement is for two years, expiring
      on
      May 9, 2009. The Company has the option to extend the Agreement for an
      additional two-year period prior to the expiration of the initial term.





Under
      the
      Agreement, Mr. Pesin’s base salary is set at $425,000 annually, but is to be
      reviewed annually in accordance with the Company’s executive compensation
      policies. In addition, Mr. Pesin is entitled to an annual bonus, payable
      quarterly, based on increases in the Company’s market capitalization as follows:
      for every $1,000,000 increase in the Company’s market capitalization, initially
      measured as of May 9, 2007, Mr. Pesin will be entitled to a $10,000 bonus.





The
      Company may terminate Mr. Pesin’s employment at any time with or without cause.
      If Mr. Pesin is terminated without cause or because of death or “disability” (as
      that term is defined in the agreement), he will be entitled to a lump-sum
      severance payment equal to his base salary for a period of twenty-four months
      following his termination, plus continued health benefits during such period.
      In
      addition, if the Company terminates Mr. Pesin without cause, then all
      outstanding options and warrants held by him will vest immediately. Mr. Pesin
      receives no benefits if he is terminated for cause.





If
      Mr.
      Pesin resigns for “good cause” (as that term is defined in the agreement) or
      resigns following the Company’s change in control, then he will be entitled to a
      lump-sum severance payment equal to his base salary for a period of twenty-four
      months following his termination, plus continued health benefits during such
      period. In addition, in such event, all outstanding options and warrants held
      by
      Mr. Pesin will vest immediately.





Under
      the
      Agreement, Mr. Pesin is also entitled to earn long-term incentive awards and
      to
      participate in all other benefits plans and perquisites in which the Company’s
      other executives and employees are eligible to participate, at the discretion
      of
      the Board. Mr. Pesin is also entitled to five weeks paid vacation per year
      and
      to reimbursement of certain expenses.




19





The
      Agreement also provides for the grant to Mr. Pesin of a nonstatutory stock
      option to purchase 3,000,000 shares of the Company’s common stock, with an
      exercise price of $1.57, which is the closing price of the common stock of
      the
      Company on the OTC Bulletin Board on May 9, 2007. The option vests as follows:
      (i) twenty-five percent of the option is exercisable on May 9, 2008; and (ii)
      subject to Mr. Pesin’s continued service as the Company’s Chief Executive
      Officer, 1/24th of the total number of shares of common stock subject to the
      option will vest each month thereafter.





**14.
      Subsequent Events.**





Private
      Placement





On
      April
      2, 2007, the Company initially sold in a private placement 1,600,000 Units
      at a
      price of $1.25 per Unit, for aggregate gross proceeds of $2,000,000. Each Unit
      was comprised of one share of our common stock and one common stock warrant.
      Each common stock warrant included in the Units entitles the holder to purchase
      one-fifth of a share of the company’s common stock at an exercise price of $1.60
      per share through April 2, 2010. The Units were sold solely to accredited
      investors. During the second quarter of 2007, the Company extended the private
      placement to over allotments. The Company sold an additional 1,000,000 Units
      at
      a price of $1.25 per Unit, for aggregate gross proceeds of $1,250,000. The
      final
      subscription proceeds were received on July 27, 2007.





Termination
      of Agreements





Termination
      of Agreement with River’s Edge Pharmaceuticals LLC





On
      July
      17, 2007, the Company terminated its agreement with River’s Edge Pharmaceuticals
      LLC (“River’s Edge”).





As
      disclosed in the Company’s Form 8-k filed on October 23, 2006, on October 18,
      2006, Auriga Laboratories, Inc. (the “Company”) and River’s Edge entered into
      that certain Agreement For Authorized Generic and Acquisition of Dermatology
      Products (the “Distribution Agreement”). The Distribution Agreement provided
      that River’s Edge would market and distribute authorized generic equivalents of
      certain branded pharmaceutical products manufactured and distributed by the
      Company (the “Authorized Generics”), and receive a percentage of the net sales
      of Authorized Generics. River’s Edge had obligations under the Distribution
      Agreement with respect to the development of certain single source dermatology
      pharmaceutical formulations (the “DERM Product(s)”). The Company retained
      ownership of the intellectual property related to the DERM products.





The
      Company terminated the Distribution Agreement because River’s Edge failed to
      perform its obligations under the Distribution Agreement. As a result of the
      termination, River’s Edge will cease marketing the Authorized Generics and the
      Company will have no further obligations.





Termination
      of Agreement with Pharmelle LLC





On
      July
      17, 2007, the Company terminated its agreement with Pharmelle LLC (“Pharmelle”).





As
      disclosed in the Company’s Form 8-k filed on October 26, 2006, on October 20,
      2006, the Company and Pharmelle entered into that certain Co-Promotion Agreement
      (the “Co-Promote Agreement”). The Co-Promote Agreement provided for the
      exclusive appointment of Pharmelle in the United States as the co-promotor
      and
      marketer of the Company’s AQUORAL xerostomia (dry mouth) product (the
“Product”). The Product was to be marketed by Pharmelle and its sales force to
      doctors who treat conditions of the urogenital systems (“Specialists”). For its
      promotion and marketing services, the Co-Promote Agreement provided that
      Pharmelle would receive, for each quarter occurring while the Agreement was
      in
      effect, a percentage of net sales made during such quarterly period.





The
      Company terminated the Co-Promote Agreement because Pharmelle failed to perform
      its obligations under the Co-Promote Agreement. As a result of the termination,
      Pharmelle will cease promoting the Products and the Company will have no further
      obligations.




20





**Item
                2.**
            **Management’s
                Discussion and Analysis or Plan of
                Operation.**




Investors
      should read the following discussion and analysis in conjunction with the
      consolidated financial statements and related consolidated notes of Auriga
      Laboratories, Inc. (the “Company,” “we,” “us” or “our”) contained in this
      Quarterly Report on Form 10-QSB (“Form 10-QSB”) and our Form 10-KSB filed with
      the Securities and Exchange Commission (the “SEC”) on March 31, 2007, which
      includes our audited financial statements and related notes for the periods
      from
      April 1, 2006 to December 31, 2006 and April 12, 2005 (“Inception”) through
      March 31, 2006 (under the name of Multi-Link Telecommunications,
      Inc.).





**OVERVIEW**





Auriga
      Laboratories, Inc. is the first specialty pharmaceutical company building a
      nationwide commission-based sales model. The company’s high-growth business
      model combines driving revenues through a variable cost commission-based sales
      structure, acquisition of proven brand names, introduction of new brands, and
      a
      strategic development pipeline, all of which are designed to enhance the growing
      direct relationships with physicians nationwide.





An
      innovative, commission-only sales force structure allows the company to cover
      sales territories that traditionally would not be a focus for large
      pharmaceutical companies. By the end of 2007, the company expects to have a
      total of 500 full-time equivalent sales representatives.





The
      company operates out of four divisions. The first is the Auriga Branded
      Prescriptions division which focuses on the respiratory, dermatology, oncology
      and psychiatry markets. We are focused on delivering unique solutions for the
      respiratory, dermatology and psychiatry markets. Our product portfolio consists
      of our AquoralTM, ZinxTM, AkurzaTM, XyralidTM, Extendryl® and Levall® product lines.
      Our AquoralTM product line, which we launched in February 2007, after receiving
      marketing clearance from the Food and Drug Administration, is a
      prescription-only device for the treatment of xerostomia, or the condition
      of
      dry mouth. Our ZinxTM products are indicated for relief of symptoms associated
      with the common cold and allergies. Our Extendryl® and Levall® families of
      prescription products are indicated for relief of symptoms associated with
      a
      range of acute respiratory diseases. The Company is able to sell this product
      pursuant to the Drug Efficacy Study Implementation program.





The
      second division is the Advanced Topical Solutions Pharmaceuticals division
      which
      is dedicated primarily to Dermatologists with a secondary focus on
      Gastroenterologists and Colon-Rectal Specialists. Within the Dermatology sector,
      the initial product focus will be dermatologists who prescribe AKURZATM Cream
& Lotion (salicylic acid 6%) and XyralidTM LP Lotion (lidocaine HCl
      3%/hydrocortisone acetate 0.5%) convenience kit that also contains Clere(TM),
      a
      soap free cleanser. Currently, this division does not market any products to
      gastroenterologists and colon-rectal specialists.





The
      third
      division is the Auriga Consumer Brands division which will focus its efforts
      to
      market products to consumers, both direct and through retail chains. The initial
      focus of this division will be to market nasal gel, hair growth and
      over-the-counter respiratory products.





The
      fourth is the Stesso Pharmaceuticals division which will commence distribution
      of authorized generic versions of our branded products that are facing
      competition from generic or therapeutically equivalent products during the
      latter part of 2007.





The
      Company’s corporate strategy focuses on two primary objectives. The first is
      building an innovative, nationwide sales model that drives revenue through
      a
      variable cost, commission-only structure. The second is developing a diversified
      product portfolio by acquiring proven brands, the introduction of line
      extensions, reformulations, and the strategic development of our own
      products.





On
      June
      6, 2007, Auriga Laboratories, Inc., a Delaware corporation (the "Company")
      entered into a Licensing and Distribution Agreement ("Licensing Agreement ")
      with Laboratoires Carilène S.A.S a corporation existing under the laws of
      France, ("Supplier"). Under the terms of the License Agreement, Supplier has
      granted to the Company an exclusive license in the United States to sell,
      market, distribute, sublicense and exploit the lotion and shampoo products
      which
      incorporate Supplier's Silicium 44 ingredient ("Products"). Supplier will
      provide, and the Company will purchase from Supplier, all of the Company's
      needs
      for the Products. The Company will pay nonrefundable premiums totaling $1.5
      million, as follows: $250,000 upon commercial launch of the Products in the
      United States, $500,000 within 90 days after commercial launch, and $750,000
      upon the earlier of twelve months after the commercial launch of the Product
      or
      at the time that the Company achieves $5,000,000 of net sales in the first
      year.
      The Company will pay royalties equal to five percent (5 %) on net
      sales.




21




On
      May
      24, 2007, the Company announced that it had acquired the exclusive license
      to
      market a new over-the-counter intranasal lubricant developed by Dr. Donald
      Carter, MD, PC, a Colorado based Otolaryngologist.. Licensing this nasal gel
      is
      part of Auriga's strategic plan to grow its Consumer Brands Division which
      includes the launch of the aforementioned Zinx Lozenges into the OTC cough/cold
      category last February and introduction of additional Zinx OTC products this
      summer.




**CRITICAL
      ACCOUNTING POLICIES AND ESTIMATES**





There
      have been no material changes to our critical accounting policies and estimates
      since the end of our last fiscal year. For detailed information on our critical
      accounting policies and estimates, see our financial statements and notes
      thereto included in this Form 10-QSB and the audited financial statements as
      of
      and for the period from April 1, 2006 to December 31, 2006 included in our
      Form
      10-KSB filed with the Securities and Exchange Commission on March 30,
      2007.





The
      following discussion and analysis of our financial condition and results of
      operations is based upon our consolidated financial statements, which have
      been
      prepared in accordance with the standards of the Public Company Accounting
      Oversight Board (United States). The preparation of these financial statements
      requires us to make estimates and judgments that affect the reported amounts
      of
      assets, liabilities, revenues and expenses, and related disclosure of contingent
      assets and liabilities. On an ongoing basis, we evaluate our estimates
      including, among others, those affecting revenues, the allowance for doubtful
      accounts, and the useful lives of tangible and intangible assets. The discussion
      below is intended to be a brief discussion of some of the judgments and
      uncertainties that can impact the application of these policies and the specific
      dollar amounts reported in our financial statements. We base our estimates
      on
      historical experience and on various other assumptions that we believe to be
      reasonable under the circumstances, the results of which form our basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions, or if management made
      different judgments or utilized different estimates. Many of our estimates
      or
      judgments are based on anticipated future events or performance, and as such
      are
      forward-looking in nature, and are subject to many risks and uncertainties,
      including those discussed above and elsewhere in this Form 10-QSB. We do not
      undertake any obligation to update or revise this discussion to reflect any
      future events or circumstances.





We
      have identified below some of our accounting policies that we consider critical
      to our business operations and the understanding of our results of operations.
      This is neither a complete list of all of our accounting policies, nor does
      it
      include all the details surrounding the accounting policies we have identified.
      There are other accounting policies that are significant to us. For a more
      detailed discussion on the application of these and our other accounting
      policies, please refer to our “Consolidated Notes to Consolidated Financial
      Statements” included herein and to our “Consolidated Notes to Consolidated
      Financial Statements” included in our Form 10-KSB filed with the Securities and
      Exchange Commission on March 30, 2007.





**REVENUE
      RECOGNITION**





We
      recognize revenue from the sale of pharmaceutical products, including shipping
      fees, if any, when title to the product is transferred to the customer (which
      usually occurs on delivery) and when collectibility is reasonably assured.
      Revenue from sales of our products is recorded, net of allowances. According
      to
      the terms of our sales contracts, a customer may return up to a specified
      maximum amount of product if it is damaged, within six months of expired or
      has
      expired in the last twelve months. We calculate sales return allowances for
      product returns and contractual rebates based upon current economic conditions
      and the underlying contractual terms as product is sold. We recognize royalty
      revenue when it is earned.





**OPERATING
      EXPENSES**





We
      have segregated our recurring operating expenses among four categories: cost
      of
      goods sold, including royalties; sales, marketing and trade expenses; general
      and administrative expenses; and research and development. Cost of goods sold
      includes the direct costs associated with materials and supplies, royalties
      and
      distribution. Sales, marketing and trade expenses include salaries for sales
      and
      marketing staff, advertising and promotional expenses, samples used by the
      sales
      force, market research and travel expenses. General and administrative expenses
      includes salaries and benefits for our executives, business development, human
      resources, finance, information technology staffing and general operating
      expenses. General operating expenses includes overall corporate expenses, such
      as rent, supplies, and corporate financial promotion activities. Research and
      development expenses includes research into development of proprietary patents,
      development of applications for rapid-dissolve technology, partnerships with
      third parties in developing proprietary drug delivery technologies and
      development of line extensions to our existing product lines. These expenses
      also include salaries and benefits, legal fees for patent reviews and scientific
      advisory board stipends attributable to such development
      activities.





22





**RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND THREE MONTHS ENDED
      JUNE 30, 2006**





The
      following table provides a reconciliation of gross revenues to net revenues
      for
      the unaudited, three month periods ended June 30, 2007 and 2006 for purposes
      of
      providing additional disclosure and detail to our revenues:





**Reconciliation
                of Gross to Net Revenues**
            
            **Three
                months ended**
              **June
                30, 2007**
            
            **Three
                months ended**
              **June
                30, 2006**Gross
                revenues
            
            $
            7,221,330
            
            $
            568,575Less:
                Sales discounts
            
            
            (1,087,098
            )
            
            (21,780
            )Less:
                Sales returns reserve
            
            
            (1,227,627
            )
            
            (39,800
            )Net
                Revenues
            
            $
            4,906,605
            
            $
            506,995




The
      following is a numerical summary of certain of our results of operations for
      the
      three months ended June 30, 2007 and June 30, 2006:




**Three
                months ended**
              **June
                30, 2007**
            
            **Three
                months ended**
              **June
                30, 2006**Net
                revenues
            
            $
            4,906,605
            
            $
            506,995Cost
                of goods sold
            
            
            (967,012
            )
            
            (330,147
            )Gross
                profit
            
            
            3,939,593
            
            
            176,848Operating
                expenses
            
            
            (4,465,909
            )
            
            (3,804,890
            )Income
                (loss) from operations
            
            
            (526,316
            )
            
            (3,628,042
            )Other
                expenses
            
            
            (709,091
            )
            
            (74,745
            )Net
                loss
            
            $
            (1,235,407
            )
            $
            (3,702,787
            )




**The
      following analysis and discussion pertains to our results of operations for
      the
      three months ended June 30, 2007, compared to our results of operations for
      the
      three months ended June 30, 2006.**




*Net
      Revenue* .
      Our net
      revenues for the three months ended June 30, 2007 increased $4,399,610, or
      868%,
      to $4,906,605, as compared to $506,995 for the three months ended June 30,
      2006.
      (See Below) We began operations in April, 2005 and began actively selling and
      promoting the Extendryl ® line
      during the quarter ended September 30, 2005. Extendryl ® was the
      Company’s only product line during the quarter ended June 30, 2006, as compared
      to, AquoralTM, ZinxTM, AkurzaTM, Extendryl ® and
      Levall ® product
      lines during the current quarter. The increase in discounts primarily reflects
      the launch of large quantities of new products to major wholesalers. The
      increase in the sales returns reserve reflects the potential uncertainty of
      the
      FDA action described further in Risk Factors - FDA Action Regarding
      Guaifenesin.


*Cost
      of Goods Sold* .
      Cost of
      goods, which includes materials, royalties, and distribution costs for the
      three
      months ended June 30, 2007 increased $636,865, or 193%, to $967,012, as compared
      to $330,147 for the three months ended June 30, 2006. This increase in cost
      of
      goods sold was a result of higher revenue during the current quarter, partially
      offset by the change in the product mix reflecting favorable royalty terms.


*Sales,
      Marketing and Trade Expenses* .
      Sales,
      marketing and trade expenses for the three months ended June 30, 2007 increased
      $81,074, or 5%, to $1,625,014, as compared to $1,543,940 for the three months
      ended June 30, 2006. The increase in sales, marketing and trade expenses was
      primarily due to $57,244 of non-cash equity instrument costs for the three
      months ended June 30, 2007. Increased commission-based sale expenses and
      training during the three month period ending June 30 2007, were offset by
      the
      reduced costs associated with salaried sales representatives under the sales
      model that existed prior to July 2006. We anticipate that the commission expense
      will continue to increase as we expand our nationwide presence.




23




*General
      and Administrative Expense* .
      General
      and administrative expenses for the three months ended June 30, 2007 increased
      $434,039, or 22%, to $2,428,129, as compared to $1,994,090 for the three months
      ended June 30, 2006. Total general and administrative expenses as a percentage
      of net revenues decreased from 393% for the three months ended June 30, 2006
      to
      49% for the three months ended June 30, 2007. Increased general and
      administrative expenses were primarily related to additional headcount, salary
      increases and bonus related expenses. Additionally, $135,345 of the increase
      can
      be attributed to an increase in non-cash amortization expense. General and
      administrative expenses excluding non-cash compensation, depreciation and
      amortization as a percentage of net revenue decreased from 167% for the three
      months ended June 30, 2006 to 29% for the three months ended June 30, 2007.


*Research
      and Development Expense* .
      Research and development expenses increased $145,906, or 55%, to $412,766 for
      the three months ended March 31, 2007, as compared to $266,860 for the
      three months ended March 31, 2006. This increase was primarily due to
      $124,785 of non-cash equity instrument costs related to staff additions and
      also
      our increased investment in development projects.


*Interest
      Expense* .
      Interest expense increased $183,198 to $227,651 for the three months ended
      June
      30, 2007, as compared to $44,453 for the three months ended June 30, 2006.
      The
      interest expense is primarily comprised of non-cash, discount amortization
      on
      two senior secured promissory notes that began during the three months ended
      September 30, 2006 and were paid off completely in April 2007. As of April
      2007, the company no longer has any long-term debt.


*Other
      Expenses.* Other
      Expenses increased $451,148 to $481,440 for the three months ended June 30,
      2007, as compared to $30,292 for the three months ended June 30, 2006. The
      increase in other expenses is primarily attributed bad debt expense of
      approximately $300,000 and higher customer discounts based on increased sales
      volume.




**RESULTS
      OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND SIX MONTHS ENDED JUNE
      30, 2006**





The
      following table provides a reconciliation of gross revenues to net revenues
      for
      the unaudited, six month periods ended June 30, 2007 and 2006 for purposes
      of
      providing additional disclosure and detail to our revenues:





**Reconciliation
                of Gross to Net Revenues**
            
            **Six
                months ended**
              **June
                30, 2007**
            
            **Six
                months ended**
              **June
                30, 2006**Gross
                revenues
            
            $
            16,120,553
            
            $
            3,756,340Less:
                Sales discounts
            
            
            (2,349,406
            )
            
            (190,244
            )Less:
                Sales returns reserve
            
            
            (2,098,517
            )
            
            (39,800
            )Net
                Revenues
            
            $
            11,672,630
            
            $
            3,526,296





The
      following is a numerical summary of certain of our results of operations for
      the
      six months ended June 30, 2007 and June 30, 2006:




**Six
                months ended**
              **June
                30, 2007**
            
            **Six
                months ended**
              **June
                30, 2006**Net
                revenues
            
            $
            11,672,630
            
            $
            3,526,296Cost
                of goods sold
            
            
            (3,116,463
            )
            
            (1,365,798
            )Gross
                profit
            
            
            8,556,167
            
            
            2,160,498Operating
                expenses
            
            
            (8,972,638
            )
            
            (6,827,068
            )Income
                (loss) from operations
            
            
            (416,471
            )
            
            (4,666,570
            )Other
                expenses
            
            
            (1,795,346
            )
            
            (2,120,454
            )Net
                loss
            
            $
            (2,211,817
            )
            $
            (6,787,024
            )




**The
      following analysis and discussion pertains to our results of operations for
      the
      six months ended June 30, 2007, compared to our results of operations for the
      six months ended June 30, 2006.**




*Net
      Revenue* .
      Our net
      revenues for the six months ended June 30, 2007 increased $8,146,334, or 231%,
      to $11,672,630, as compared to $3,526,296 for the six months ended June 30,
      2006. We began operations in April, 2005 and began actively selling and
      promoting the Extendryl ® line
      during the quarter ended September 30, 2005. Extendryl ® was the
      Company’s only product line during the quarter ended June 30, 2006, as compared
      to, AquoralTM, ZinxTM, AkurzaTM, Extendryl ® and
      Levall ® product
      lines during the current quarter. The increase in discounts primarily reflects
      the launch of large quantities of new products to major wholesalers. The
      increase in the sales returns reserve reflects the potential uncertainty of
      the
      FDA action described further in Risk Factors - FDA Action Regarding
      Guaifenesin.




24




*Cost
      of Goods Sold* .
      Cost of
      goods, which includes materials, royalties, and distribution costs for the
      six
      months ended June 30, 2007 increased $1,750,664, or 128%, to $3,116,463, as
      compared to $1,365,798 for the six months ended June 30, 2006. This increase
      in
      cost of goods sold was a result of higher revenue during the current quarter,
      partially offset by the change in the product mix reflecting favorable royalty
      terms.


*Sales,
      Marketing and Trade Expenses* .
      Sales,
      marketing and trade expenses for the six months ended June 30, 2007 increased
      $209,035, or 7%, to $3,380,073, as compared to $3,171,038 for the six months
      ended June 30, 2006. The increase in sales, marketing and trade expenses was
      primarily due to $364,017 of non-cash equity instrument costs for the six months
      ended June 30, 2007. Increased commission-based sale expenses, samples, and
      training during the six month period ending June 30 2007, were offset by the
      reduced costs associated with salaried sales representatives under the sales
      model that existed prior to July 2006. We anticipate that the commission expense
      will continue to increase as we expand our nationwide presence.


*General
      and Administrative Expense* .
      General
      and administrative expenses for the six months ended June 30, 2007 increased
      $1,322,564, or 41%, to $4,557,510, as compared to $3,234,946 for the six months
      ended June 30, 2006. Increased general and administrative expenses were
      primarily related to additional headcount, salary increases and bonus related
      expenses. Additionally, year-over-year non-cash expenses in the form of equity
      and amortization increased by $691,088, and $257,246, respectively. Total
      general and administrative expenses as a percentage of net revenues decreased
      from 92% for the six months ended June 30, 2006 to 39% for the six months ended
      June 30, 2007.


*Research
      and Development Expense* .
      Research and development expenses increased $613,969, or 146%, to $1,035,055
      for
      the six months ended June 30, 2007, as compared to $421,084 for the six months
      ended June 30, 2006. This increase was primarily due to $515,896 of non-cash
      equity instrument costs related to staff additions and also our increased
      investment in development projects. We expect expenses in this area to continue
      to increase in the future as we develop new products designed to significantly
      increase our market share in our targeted market areas.


*Interest
      Expense* .
      Interest expense increased $1,017,860 to $1,122,132 for the six months ended
      June 30, 2007, as compared to $104,272 for the six months ended June 30, 2006.
      The interest expense is primarily comprised of non-cash, discount amortization
      on two senior secured promissory notes that began during the three months ended
      September 30, 2006. The balance of this expense is primarily related to the
      note payable owed to a related party for a convertible secured note.


*Other
      Expenses.* Other
      Expenses increased $643,624 to $673,214 for the six months ended June 30, 2007,
      as compared to $29,500 for the six months ended June 30, 2006. The increase
      in
      other expenses is primarily attributed to bad debt expense of approximately
      $300,000 and higher customer discounts based on increased sales
      volume.




**LIQUIDITY
      AND CAPITAL RESOURCES**





The
      following section discusses the effects of changes in our balance sheet and
      cash
      flow on our liquidity and capital resources.





Since
      inception, we have incurred significant operating and net losses and have
      historically been unable to meet our cash flow needs with internally generated
      funds. Our cash requirements (primarily working capital requirements and cash
      for product development activities) have been satisfied through borrowings
      and
      the issuance of securities in a number of private placements. At
      June
      30 , 2007, we had cash and cash equivalents on hand of approximately $344,267,
      a
      negative working capital position of $948,585 and no long-term
      debt.





On
      May
      23, 2007, the Company entered into a Loan and Security Agreement (“Loan
      Agreement”) with Comerica Bank (“Comerica”). The Loan Agreement provides for a
      working capital line of credit of up to $2.0 million, based on 65% of eligible
      accounts receivable, secured by a first lien on substantially all of the assets
      of the Company, including intellectual property. The line of credit is repayable
      interest only monthly, with the principal due at the maturity date of May 31,
      2008. The line of credit accrues interest at Comerica’s Prime Rate plus 1.00%.
      The Company paid a $10,000 origination fee in connection with the closing of
      the
      credit facility. The Loan Agreement includes customary covenants. At June 30,
      2007, the Company had advances outstanding of $800,000.





On
      April
      2, 2007, the Company sold in a private placement 1,600,000 Units at a price
      of
      $1.25 per Unit, for aggregate gross proceeds of $2,000,000. Each Unit was
      comprised of one share of our common stock and one common stock warrant. Each
      common stock warrant included in the Units entitles the holder to purchase
      one-fifth of a share of the company’s common stock at an exercise price of $1.60
      per share through April 2, 2010. The Units were sold solely to accredited
      investors. During June 2007, the Company extended the private placement to
      include additional investors. The Company sold an additional 1,000,000 Units
      at
      a price of $1.25 per Unit, for aggregate gross proceeds of $1,250,000. The
      final
      subscription proceeds were received on July 27, 2007.





25




On
      a
      going forward basis, management plans to continue to focus on our existing
      AquoralTM, ZinxTM, AkurzaTM, XyralidTM, Extendryl®, and Levall® product lines and
      continue to acquire proven brand name products. We may need to continue to
      raise
      additional equity or debt financing to adequately fund our strategies and to
      satisfy our ongoing working capital requirements. If we are unable to obtain
      such financing in a timely manner, we could be forced to curtail or cease
      operations. Even if we are able to pursue these strategies, there can be no
      assurances that we will ever attain profitability. The accompanying consolidated
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.





Our
      cash and cash equivalents were approximately $344,000 on June 30, 2007, as
      compared to approximately $260,000 at December 31, 2006. Net cash used in
      operating activities for the six months ended June 30, 2007 was $284,761. This
      use of cash was primarily the result of a net loss of $2,211,817 and net working
      capital changes of $3,002,000 mostly offset by $4,929,000 of non-cash items.
      The
      major factors affecting the uses of net working capital were
      approximate increases in accounts receivable and inventory of $3,044,000
      and $1,018,000, respectively.





Net
      cash used in investing activities for the six months ended June 30, 2007 was
      approximately $364,000. The uses of cash were for purchases of fixed assets
      and
      a progress payment for a product licenses payable.





Net
      cash provided by financing activities for the six months ended June 30, 2007
      was
      approximately $733,000. The cash provided was primarily from approximately
      $2,574,000 from proceeds on stock subscriptions for the private placement
      offering to qualified investors that closed on July 27, 2007 and from advances
      on our line of credit. This was partially offset by the payment of $2,469,000
      on
      related-party loans, payments of $132,000 on a convertible secured notes
      payable, and $62,000 on the Wells Fargo Bank notes payable.





On
      August
      4, 2006, we issued to Sorrento Financial Partners, LLC (“SFP”) a senior secured
      convertible note (the “SFP Note”) in the principal amount of $632,000. The SFP
      Note bears interest at the rate of 8% per annum and is due and payable in full
      on May 15, 2007. Accrued interest on the SFP Note is payable monthly in arrears.
      Our Chief Executive Officer (“CEO”) is the beneficial owner of SFP. Of the SFP
      Note’s principal amount of $632,000, (i) $400,000 represents funds advanced by
      SFP to the Company, and (ii) $232,000 represents an accrued bonus that was
      owed
      by us to our CEO. At SFP’s option, the SFP Note is convertible, in whole or in
      part and at any time after August 4, 2006 and prior to the SFP Note’s full
      repayment, into shares of common stock. The number of shares that are issuable
      upon a conversion of the SFP Note is equal to the amount determined by dividing
      (i) the outstanding principal amount of the SFP Note to be converted by (ii)
      the
      conversion price of $1.388.





On
      January 25, 2007, we executed a letter agreement with SFP amending the SFP
      Note.
      The letter agreement serves to amend the interest rate, establish a new
      repayment schedule, amend the seniority of the SFP Note such that it is now
      subordinate in right of payment to any and all other indebtedness of the Company
      senior in time to the issuance of the SFP Note, and amend the maturity date
      of
      the SFP Note by extending such date to October 15, 2007. On February 15, 2007
      $132,000 of principal was paid to SFP. On April 12, 2007, SFP elected to convert
      the outstanding principal under the Senior Secured Convertible Note into common
      stock. The outstanding balance of $500,000 was converted at the stated
      conversion price of $1.388 per share. As a result, SFP was issued 360,230 shares
      of common stock.





On
      August
      29, 2006, we issued to Levall Finance Corp. LLC (“LFC”) a senior secured
      promissory note (the “LFC Note”) in the principal amount of $1.5 million, the
      proceeds of which were used to complete the licensing agreement for the Levall®
product line. The LFC Note was amended on September 28, 2006 and December 8,
      2006. As amended, the LFC Note is due and payable in full on the earlier to
      occur of (i) the closing by us of an equity or debt financing, the net proceeds
      of which equal or exceed $1.5 million, or (ii) May 15, 2007. In lieu of interest
      payments, we issued a warrant exercisable for 1.5 million fully paid and
      non-assessable shares of Common Stock at an exercise price of $1.92. In
      connection with this warrant, we recorded $1,267,350 as a loan discount, which
      will be amortized over the life of the loan. As of June 30, 2006, we expensed
      $1,267,350 of this loan discount as interest expense, of which $219,350 was
      expensed during the three months ended June 30 31, 2007. The warrant provides
      LFC with “piggyback” registration rights with respect to shares of common stock
      acquired upon exercise of the warrant. The LFC Note requires us to make
      quarterly payments to LFC, commencing with the quarter ending December 31,
      2006,
      equal to 6.0% of gross sales by us (less customary deductions) of the Levall®
product line during the preceding quarter. This payment obligation continues
      in
      perpetuity.





26




On
      April
      3, 2007, we paid to LFC $750,000 towards the outstanding balance of the LFC
      Note. The remaining balance of $750,000 was paid on May 15, 2007.





On
      September 28, 2006, we issued to AFC a senior secured promissory note (the
“AFC
      Note”). The AFC Note provides for up to $1.5 million of advances to be made by
      AFC from time to time, each advance requiring our consent. The proceeds from
      the
      AFC Note will be used to satisfy our obligations under the distribution
      agreement with Carilène. All amounts advanced under the AFC Note are due and
      payable in full on the earlier to occur of (i) the closing by us of an equity
      or
      debt financing, the gross proceeds of which equal or exceed $1.5 million
      (exclusive of advances made under the AFC Note), or (ii) March 31, 2007. The
      AFC
      Note requires us to make quarterly payments to AFC, commencing with the quarter
      ending March 31, 2007, equal to 0.5% of the gross sales by us (less customary
      deductions) of its recently acquired AquoralTM product line during the preceding
      quarter for every $125,000 of outstanding funds advanced under the AFC Note.
      This payment obligation continues in perpetuity.





The
      AFC
      Note is secured by a first-priority security interest in all of our assets
      and
      is senior in right of payment to any and all of our other indebtedness, except
      that the AFC Note is *pari
      passu* with
      our
      $1.5 million obligation to LFC. As additional consideration, we agreed that,
      concurrent with each advance made by AFC under the AFC Note, we would issue
      to
      AFC a five-year warrant to acquire one share of Common Stock, at an exercise
      price of $1.50 per share, for each one dollar so advanced. The warrant provides
      AFC with “piggyback” registration rights with respect to shares of Common Stock
      acquired upon exercise of such warrant. As of June 30, 2007, we had issued
      warrants to acquire up to 968,750 shares of Common Stock. In connection with
      these warrants, we recorded $676,509 as a loan discount that will be amortized
      over the life of the loan. As of June 30, 2007, we had expensed all $676,509
      of
      this loan discount as interest expense, of which $348,348 was expensed during
      the first three months of this fiscal year.





SFP
      is
      the managing member of AFC. Our CEO contributed $125,000 to AFC in exchange
      for
      his ownership interest in AFC. The remaining contributions to AFC were made
      by
      individuals who are not our affiliates. Our affiliates may make additional
      contributions to AFC to fund a portion of future advances under the AFC Note.
      On
      April 2, 2007, we paid to AFC $968,750 as payment in full of the AFC Note.





**RISK
      FACTORS**





*Risks
      Related To Our Business*





FDA
      ACTION REGARDING GUAIFENESIN




On
      May
      25, 2007, FDA announced its intention to take enforcement action against
      companies that market drug products, which have not received formal FDA
      approval, in a timed-release dosage form that contain guaifenesin. In a May
      29,
      2007 Federal Register notice, the agency stated that the enforcement policy
      applies to any drug product in a timed-released form that contains guiaifenesin.
      See 72 Fed. Reg 29517.




The
      Federal Register notice stated that products that have an NDC number and are
      listed with the agency may continue to be manufactured until August 27, 2007.
      The Federal Register notice also states that, on or before November 26, 2007,
      affected products should not be introduced into interstate
      commerce.




Auriga
      will comply with the FDA notice and will discontinue manufacture of Extendryl® G
      Extended Release Tablets, Extendryl® HC Extended Release Tablets, and ZinxTM
Congestion Kit products by August 27, 2007. Auriga will cease shipping these
      affected products into interstate commerce by November 26, 2007.




Auriga
      believes that the FDA enforcement action regarding the shipment of affected
      products into interstate commerce applies only to manufacturers, and does not
      extend to distributors who may continue to ship these products to exhaust
      existing inventory after November 26, 2007.




In
      addition, Auriga believes that FDA’s action is limited to guaifenesin products
      in timed-release or extended-release form. In the FDA’s May 25, 2007 guidance
      document entitled, “Questions and Answers about FDA’s Enforcement Action Against
      Unapproved Timed-Release Guaifenesin Products, FDA noted that, “Immediate
      release guaifenesin products are unaffected by today’s action and will remain on
      the market.” Therefore, Auriga believes that only Extendryl® G, Extendryl® HC,
      and ZinxTM Congestion Kit are affected by FDA’s recent action.




27




WE
      HAVE
      INCURRED SIGNIFICANT OPERATING AND NET LOSSES SINCE OUR INCEPTION.




We
      have
      incurred significant operating and net losses and have historically been unable
      to meet our cash flow needs with internally generated funds.  Our cash
      requirements (primarily working capital requirements and cash for product
      development activities) have been satisfied through borrowings and the issuance
      of securities in a number of private placements.  At June 30 , 2007, we had
      cash and cash equivalents on hand of approximately $344,267, a negative working
      capital position of $948,585 and no long-term debt.  On a going forward
      basis, management plans to continue to focus on our existing AquoralTM, ZinxTM,
      AkurzaTM, XyralidTM, Extendryl®,
      and Levall® product lines and continue to acquire proven brand name
      products.  We may need to continue to raise additional equity or debt
      financing to adequately fund our strategies and to satisfy our ongoing working
      capital requirements.  If we are unable to obtain such financing in a
      timely manner, we could be forced to curtail or cease operations.  Even if
      we are able to pursue these strategies, there can be no assurances that we
      will
      ever attain profitability.  The financial statements included herein do not
      include any adjustments that might result from the outcome of this
      uncertainty .




**Item
                3.**
            **Controls
                and Procedures.**





We
      carried out an evaluation, under the supervision and with the participation
      of
      management, including our principal executive officer and principal financial
      officer, of the effectiveness of the design and operation of our disclosure
      controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) under
      the Securities Exchange Act of 1934, as amended) as of the end of the period
      covered by this Form 10-QSB. Based upon that evaluation, our principal
      executive officer and principal financial officer concluded that our disclosure
      controls and procedures are effective in timely alerting them to material
      information relating to us that is required to be included in our periodic
      reports filed with the SEC.





During
      the six months and quarter ended June 30, 2007, there were no changes in our
      internal controls over financial reporting that materially affected, or are
      reasonably likely to materially affect, our internal controls over financial
      reporting.




**PART
                2.**
            **OTHER
                INFORMATION**





**Item
                1.**
            **Legal
                Proceedings.**





Not
      Applicable.





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





On
      April
      2, 2007, the Company initially sold in a private placement 1,600,000 Units
      at a
      price of $1.25 per Unit, for aggregate gross proceeds of $2,000,000. Each Unit
      was comprised of one share of our common stock and one common stock warrant.
      Each common stock warrant included in the Units entitles the holder to purchase
      one-fifth of a share of the company’s common stock at an exercise price of $1.60
      per share through April 2, 2010. The Units were sold solely to accredited
      investors. During the second quarter of 2007, the Company extended the private
      placement to over allotments. The Company sold an additional 1,000,000 Units
      at
      a price of $1.25 per Unit, for aggregate gross proceeds of $1,250,000. The
      final
      subscription proceeds were received on July 27, 2007.





**Item
                3.**
            **Defaults
                Upon Senior Securities.**


None.





28




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


On
        June
        22, 2007, we held our annual meeting of stockholders. At the annual meeting,
        our
        stockholders:
  (i) elected
        three
        members to the Board of Directors to serve until the next annual meeting
        anduntil their successors are duly elected and qualified;
  (ii)approved
        the Auriga
        Laboratories, Inc. 2007 Stock Option Plan; and
  (iii) ratified
        the selection of Williams & Webster PS as our independent registered public
        accounting firm
        for
        the year ending December 31, 2007.
  A
        total
        of 24,584,556 shares of Common Stock were present in person or by proxy at
        the
        annual meeting, or approximately
        56% of the voting power of the Company entitled to vote at the annual meeting.
        Each share of
        Common
        Stock was entitled to one vote on each matter brought before the
        meeting.
 
 The
        votes
        cast on the matters that were brought before the annual meeting, including
        broker non-votes where applicable,
        were as set forth below:
 
 **Number
                  of Votes****In
                  Favor**
              
              **Withheld**Nominees
                  for Election to Board of Directors:Philip
                  S. Pesin
              
              
              23,926,093
              
              
              658,463Trevor
                  Pokorney
              
              
              23,926,093
              
              
              658,463Elliot
                  Maza
              
              
              23,926,093
              
              
              658,463
 
 For
        approval of the Auriga Laboritories, Inc. 2007 Stock Option Plan, the vote
        count
        was as follows:
 
 For
              18,307,622Against
              1,232,533Abstentions
              125,657Broker
                  Non-Votes
              4,918,744
 
 For
        ratification of Williams & Webster PS as our Independent Registered Public
        Accounting Firm, the vote count
        was
        as follows:
 
 For
              23,890,743Against
              629,430Abstentions
              64,383


**Item
                5.**
            **Other
                Information.**





Not
      applicable.





29




**Item
                6.**
            **Exhibits.**


The
        following exhibits are attached hereto and filed
        herewith:





**Exhibit**
              **Number**
            
            **Description
                of Exhibit**10.1
            
            Auriga
                Laboratories, Inc. Offer Letter to Elliot M. Maza dated May 4, 2007
                (accepted by Mr. Maza on May 8, 2007). (1)10.2
            
            Indemnification
                Agreement entered into between Auriga Laboratories, Inc. and Elliot
                M.
                Maza dated May 8, 2007. (2)10.3
            
            Auriga
                Laboratories, Inc. Nonstatutory Stock Option granted to Elliot M.
                Maza on
                May 4, 2007. (3)10.4
            
            Executive
                Employment Agreement entered into between Auriga Laboratories, Inc.
                and
                Philip S. Pesin dated May 9, 2007. (4)10.5
            
            Auriga
                Laboratories, Inc. Nonstatutory Stock Option granted to Philip S.
                Pesin on
                May 9, 2007. (5)10.6
            
            License
                Agreement dated as of May 17, 2007 by and between the Company and
                Ellevan LLC. (6)10.7
            
            Loan
                and Security Agreement dated as of May 23, 2007 by and between
                Comerica Bank and the Registrant and its subsidiaries, Auriga Operations,
                Inc., Stesso Pharmaceuticals LLC, and Auriga Pharmaceuticals LLC.
                (7)10.8
            
            Form
                of Intellectual Property Security Agreement dated as of May 23, 2007
                by and between Comerica Bank and the Registrant and its subsidiaries,
                Auriga Operations, Inc., Stesso Pharmaceuticals LLC, and Auriga
                Pharmaceuticals LLC. (8)10.9
            
            Form
                of Unconditional Guaranty dated as of May 23, 2007 by and between
                Comerica Bank and the Registrant and its subsidiaries, Auriga Operations,
                Inc., Stesso Pharmaceuticals LLC, and Auriga Pharmaceuticals LLC.
                (9)10.10
            
            Form
                of Third Party Security Agreement dated as of May 23, 2007 by and
                between Comerica Bank and the Registrant and its subsidiaries, Auriga
                Operations, Inc., Stesso Pharmaceuticals LLC, and Auriga Pharmaceuticals
                LLC. (10)10.11
            
            Form
                of Stock Option Agreement for Directors and Executive Officers under
                the
                2007 Stock Option Plan. (11)10.12
            
            Auriga
                Laboratories, Inc. Offer Letter to Leonhard Dreimann dated June 22,
                2007 (accepted by Mr. Dreimann on June 22, 2007).
                (12)10.13
            
            Form
                of Indemnification Agreement for New Directors. (13)10.14
            
            Form
                of Auriga Laboratories, Inc. Nonstatutory Stock Option granted to
                New
                Directors. (14)10.15
            
            Auriga
                Laboratories, Inc. Offer Letter to Thomas Heck dated June 22, 2007
                (accepted by Mr. Heck on June 22, 2007). (15)10.16
            
            Licensing
                and Distribution Agreement dated June 56, 2007 by and between the
                Company
                and Laboratoires Carilene S.A.S#31.1
            
            Certification
                of the Registrant’s Principal Executive Officer pursuant to Rules
                13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934,
                as
                amended. #31.2
            
            Certification
                of the Registrant’s Principal Financial Officer pursuant to Rules
                13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934,
                as
                amended. #




30




**Exhibit**
              **Number**
            
            **Description
                of Exhibit**32.1
            
            Certification
                of the Registrant’s Principal Executive Officer pursuant to 18 U.S.C. §
                1350. #32.2
            
            Certification
                of the Registrant’s Principal Financial Officer pursuant to 18 U.S.C. §
                1350. #


____________


#
              Filed
                  herewith.*
              Unless
                  otherwise indicated below, the Commission file number to the exhibits
                  are
                  No. 000-26013.(1)
              Incorporated
                  herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 9,
                  2007, reporting an event dated May 4, 2007.(2)
              Incorporated
                  herein by reference to Exhibit 10.2 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 9,
                  2007, reporting an event dated May 4, 2007.(3)
              Incorporated
                  herein by reference to Exhibit 10.3 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 9,
                  2007, reporting an event dated May 4, 2007.(4)
              Incorporated
                  herein by reference to Exhibit 10.4 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 9,
                  2007, reporting an event dated May 9, 2007.(5)
              Incorporated
                  herein by reference to Exhibit 10.5 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 9,
                  2007, reporting an event dated May 9, 2007.(6)
              Incorporated
                  herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 24,
                  2007, reporting an event dated May 21, 2007.(7)
              Incorporated
                  herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 29,
                  2007, reporting an event dated May 23, 2007.(8)
              Incorporated
                  herein by reference to Exhibit 10.2 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 29,
                  2007, reporting an event dated May 23, 2007.(9)
              Incorporated
                  herein by reference to Exhibit 10.3 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 29,
                  2007, reporting an event dated May 23, 2007.(10)
              Incorporated
                  herein by reference to Exhibit 10.4 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  May 29,
                  2007, reporting an event dated May 23, 2007.(11)
              Incorporated
                  herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  June 5,
                  2007.(12)
              Incorporated
                  herein by reference to Exhibit 10.1 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  June 26,
                  2007, reporting an event dated June 22, 2007.(13)
              Incorporated
                  herein by reference to Exhibit 10.2 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  June 26,
                  2007, reporting an event dated June 22, 2007.(14)
              Incorporated
                  herein by reference to Exhibit 10.3 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  June 26,
                  2007, reporting an event dated June 22, 2007.(15)
              Incorporated
                  herein by reference to Exhibit 10.4 of the Registrant’s Current Report on
                  Form 8-K, filed with the Securities and Exchange Commission on
                  June 26,
                  2007, reporting an event dated June 22,
                  2007.




31




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.


**AURIGA
                LABORATORIES, INC.**Date: August
              9, 2007
            By:
            /s/ Philip
              S.
              PesinPhilip
              S. PesinChief
                Executive Officer and
              Chairman
                  of the Board of Directors
                (Principal
                  Executive Officer) Date: August
              9, 2007
            By:
            /s/ Charles
              R. BearchellCharles
                R. BearchellChief
                Financial Officer
              (Principal
                Accounting and Financial Officer)




32