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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the quarterly period ended: March 31, 2005

OR

[_] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period from: to

Commission File Number: 000-030813

AlphaRx, Inc.(Name of Small Business Issuer in its Charter)

Delaware
      98-0177440(State or other jurisdiction of
      (I.R.S.
      Employer Identification No.)incorporation or organization)


168 Konrad Crescent, Suite 200 
Markham, Ontario, Canada L3R 9T9 
(Address of principal executive offices)

Registrant's telephone number, including area
code: (905) 479-3245

Securities registered pursuant to Section 12(b)
of the Act: None

Securities registered pursuant to Section 12(g)
of the Act: 
Common Stock, $.0001 par value 
(Title of Class)

Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 [ ]

The number of outstanding shares of registrant's Common Stock
on May 17, 2005 was 57,508,112.

Transitional Small Business Disclosure Format. Yes [ ] No [X]

1

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ALPHARX, INC.

FORM 10-QSB

MARCH 31, 2005

TABLE OF CONTENTS

|Unaudited Interim
    Consolidated Balance Sheets as of March 31, 2005           |   
|-------------------------------------------------------------------------------- | --
|and
    September 30, 2004                                                       | 3 
|                                                                                 |   
|Unaudited Interim
    Consolidated Statements of Operations for the six months   |   
|ended March 31, 2005 and March 31, 2004                                          | 4 
|                                                                                 |   
|Unaudited Interim
    Consolidated Statements of Operations for the three months |   
|ended March 31, 2005 and March 31, 2004                                          | 5 
|                                                                                 |   
|Unaudited Interim
    Consolidated Statements of Changes in Shareholders' Equity |   
|(Deficiency)                                                                     | 6 
|                                                                                 |   
|Unaudited Interim
    Consolidated Statements of Cash Flow for the six months    |   
|ended March 31, 2005 and March 31, 2004                                          | 8 
|                                                                                 |   
|Condensed Notes to
    Unaudited Interim Consolidated Financial Statements       | 9 
|                                                                                 |   
|Management's
    Discussion and Analysis of Financial Condition and Plan         | 14
|of
    Operation                                                                 |   
|                                                                                 |   
|Other Information                                                                | 18

2

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ALPHARx, INC.
INTERIM CONSOLIDATED BALANCE SHEETS 
AS AT MARCH 31, 2005 AND SEPTEMBER 30,2004 
(UNAUDITED)

|                                                        |   | March 31,   | September 30,
|------------------------------------------------------- | - | ----------- | -------------
|                                                        |   | 2005        |              
|CURRENT ASSETS                                          |   |             |              
|                                                        |   |             |              
|Cash and Cash Equivalents                               | $ | 1,569,236   | $            
|Accounts Receivable, net                                |   | 54,912      |              
|Prepaid Expenses                                        |   | 76,340      |              
|Inventory                                               |   | 213,572     |              
|                                                        |   |             |              
|TOTAL CURRENT ASSETS                                    |   | 1,914,060   |              
|                                                        |   |             |              
|                                                        |   |             |              
|PROPERTY, PLANT & EQUIPMENT, net                        |   | 247,167     |              
|OTHER ASSETS                                            |   |             |              
|Licensing Right (Note 3)                                |   | 1           |              
|                                                        |   |             |              
|TOTAL ASSETS                                            |   | 2,161,228   |              
|                                                        |   |             |              
|CURRENT LIABILITIES                                     |   |             |              
|Accounts Payable and Accrued
    Liabilities            |   | 400,378     |              
|Notes Payable (Note 4)                                  |   | -           |              
|Litigation Liability (Note 5 )                          |   | 25,000      |              
|TOTAL CURRENT LIABILITIES                               |   | 425,378     |              
|                                                        |   |             |              
|CONTINGENCIES AND COMMITMENTS (Note 9)                  |   |             |              
|                                                        |   |             |              
|SHAREHOLDERS' EQUITY                                    |   |             |              
|Common Stock: $ 0.0001 par value,                       |   |             |              
|Authorized 250,000,000 shares;
    issued and           |   |             |              
|outstanding 57,508,112 shares
    (September 30, 2004 - |   | 5,752       |              
|52,304,642)                                             |   |             |              
|Additional paid-in capital                              |   | 10,145,696  |              
|Deficit                                                 |   | (8,415,598) |              
|                                                        |   |             |              
|TOTAL SHAREHOLDERS' EQUITY                              |   | 1,735,850   |              
|                                                        |   |             |              
|TOTAL LIABILITIES AND SHAREHOLDERS'                     | $ | 2,161,228   | $            
|EQUITY                                                  |   |             |              

See condensed notes to consolidated financial statements

3

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ALPHARx, INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2005 AND 2004 
(UNAUDITED)

|Six months ended March
    31,          |   | 2005        |   | 2004       
|--------------------------------------- | - | ----------- | - | -----------
|                                        |   |             |   |            
|SALES                                   | $ | 25,146      | $ | 362,610    
|                                        |   |             |   |            
|COST OF SALES                           |   | 11,079      |   | 146,185    
|                                        |   |             |   |            
|GROSS
    MARGIN                        |   | 14,067      |   | 216,425    
|                                        |   |             |   |            
|                                        |   |             |   |            
|SELLING AND
    ADMINISTRATIVE EXPENSES |   | 781,526     |   | 597,987    
|RESEARCH AND
    DEVELOPMENT EXPENSES   |   | 481,388     |   | 40,245     
|DEPRECIATION                            |   | 25,018      |   | 19,562     
|LOSS FROM OPERATIONS                    |   | (1,273,865) |   | (441,369)  
|                                        |   |             |   |            
|OTHER INCOME AND
    EXPENSES           |   |             |   |            
|                                        |   |             |   |            
|Interest
    Income/(expense)           |   | 18,087      |   | (861,000)  
|Write
    down of licensing rights      |   | -           |   | (229,999)  
|                                        |   |             |   |            
|LOSS BEFORE INCOME
    TAXES            |   | (1,255,778) |   | (1,532,368)
|                                        |   |             |   |            
|INCOME TAX                              |   | -           |   | -          
|                                        |   |             |   |            
|NET LOSS                                | $ | (1,255,778) | $ | (1,532,368)
|                                        |   |             |   |            
|NET LOSS PER COMMON
    SHARE, BASIC &  |   |             |   |            
|DILUTED                                 |   | (0.02)      |   | (0.09)     
|                                        |   |             |   |            
|WEIGHTED AVERAGE
    NUMBER OF COMMON   |   |             |   |            
|SHARES OUTSTANDING                      |   | 56,993,521  |   | 16,994,258 

See condensed notes to consolidated financial statements

4

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ALPHARx, INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 
(UNAUDITED)

|Three months ended
    March 31,        |   | 2005        |   | 2004       
|--------------------------------------- | - | ----------- | - | -----------
|                                        |   |             |   |            
|SALES                                   | $ | 16,200      | $ | 315,441    
|                                        |   |             |   |            
|COST OF SALES                           |   | 6,651       |   | 128,669    
|                                        |   |             |   |            
|GROSS
    MARGIN                        |   | 9,549       |   | 186,772    
|                                        |   |             |   |            
|                                        |   |             |   |            
|SELLING AND
    ADMINISTRATIVE EXPENSES |   | 488,210     |   | 327,070    
|RESEARCH AND
    DEVELOPMENT EXPENSES   |   | 327,376     |   | 28,817     
|DEPRECIATION                            |   | 13,568      |   | 8,518      
|LOSS FROM OPERATIONS                    |   | (819,605)   |   | (177,633)  
|                                        |   |             |   |            
|OTHER INCOME AND
    EXPENSES           |   |             |   |            
|                                        |   |             |   |            
|Interest
    Income/(expense)           |   | 8,261       |   | (861,000)  
|Write
    down of licensing rights      |   | -           |   | (229,999)  
|                                        |   |             |   |            
|LOSS BEFORE INCOME
    TAXES            |   | (811,344)   |   | (1,268,632)
|                                        |   |             |   |            
|INCOME TAX                              |   | -           |   | -          
|                                        |   |             |   |            
|NET LOSS                                |   | $ (811,344) | $ | (1,268,632)
|                                        |   |             |   |            
|NET LOSS PER COMMON
    SHARE, BASIC &  |   |             |   |            
|DILUTED                                 |   | (0.01)      |   | (0.07)     
|                                        |   |             |   |            
|WEIGHTED AVERAGE
    NUMBER OF COMMON   |   |             |   |            
|SHARES OUTSTANDING                      |   | 57,508,112  |   | 17,020,082 

See condensed notes to consolidated financial statements

5

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ALPHARx, INC.

INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY 
(UNAUDITED)

|                        | Common Stock | Additional | Retained   | Total       
|----------------------- | ------------ | ---------- | ---------- | ------------
|                        | Number of    |            | Paid-in    | Earnings    
|                        | Shares       | Amount     | Capital    | (Deficit)   
|                        |              |            |            |             
|                        |              |            |            |             
|Balance at              |              |            |            |             
|September 30,           |              |            |            |             
|2003                    | 16,920,082   | 1,692      | 4,024,039  | (4,225,980) 
|                        |              |            |            |             
|Issuances of            |              |            |            |             
|Common Stock            |              |            |            |             
|for consulting,         |              |            |            |             
|legal services          | 100,000      | 11         | 29,990     |             
|                        |              |            |            |             
|Conversion of           |              |            |            |             
|Promissory              |              |            |            |             
|Notes                   | 3,752,340    | 375        | 1,535,859  |             
|                        |              |            |            |             
|Commission on           |              |            |            |             
|Promissory Notes        |              |            |            |             
|and Common              |              |            |            |             
|Stock Issued            | 4,308,186    | 431        | 580,120    |             
|                        |              |            |            |             
|Issuances of            |              |            |            |             
|Common                  |              |            |            |             
|Stock                   | 27,224,034   | 2,723      | 3,410,027  |             
|                        |              |            |            |             
|Net Loss for the        |              |            |            |             
|Year ending             |              |            |            |             
|September 30,           |              |            |            |             
|2004                    |              |            |            | (2,933,840) 
|                        |              |            |            |             
|Balance at              |              |            |            |             
|September 30,           |              |            |            |             
|2004                    | 52,304,642   | $5,232     | $9,580,035 | $(7,159,820)
|                        |              |            |            |             
|Conversion of           |              |            |            |             
|Promissory              |              |            |            |             
|Notes                   | 5,203,470    | 520        | 510,988    |             
|                        |              |            |            |             
|Issuance of             |              |            |            |             
|Stock Options           |              |            |            |             
|for consulting services |              | 54,673     |            | 54,673      
|                        |              |            |            |             
|Net loss for            |              |            |            |             
|the period              |              |            |            | (1,255,778) 

6

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|           | Common Stock | Additional | Retained    | Total       
|---------- | ------------ | ---------- | ----------- | ------------
|           | Number of    |            | Paid-in     | Earnings    
|           | Shares       | Amount     | Capital     | (Deficit)   
|           |              |            |             |             
|           |              |            |             |             
|           |              |            |             |             
|Balance at |              |            |             |             
|March 31,  |              |            |             |             
|2005       | 57,508,112   | $5,752     | $10,145,696 | $(8,415,598)

See condensed notes to consolidated financial statements

7

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ALPHARx, INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 
FOR THE SIX MONTHS ENDED MARCH 31, 2005 AND 2004 
(UNAUDITED)

|Six months ended March
    31,                                  |   | 2005        |   | 2004       
|--------------------------------------------------------------- | - | ----------- | - | -----------
|                                                                |   |             |   |            
|CASH FLOWS FROM
    OPERATING ACTIVITIES                        |   |             |   |            
|Net Loss                                                        | $ | (1,255,778) | $ | (1,532,368)
|Adjustments to reconcile net loss to net cash used in operating |   |             |   |            
|activities:                                                     |   |             |   |            
|Depreciation and amortization                                   |   | 25,018      |   | 19,562     
|Options
    issued for services rendered                        |   | 54,673      |   | -          
|Write
    down of licensing rights                              |   | -           |   | 229,999    
|Shares
    Issued For Services Rendered                         |   | -           |   | 30,000     
|Interest
    expense on convertible debt                        |   | -           |   | 861,000    
|Changes in assets and liabilities:                              |   |             |   |            
|(Increase) decrease in Inventory                                |   | (33,300)    |   | 57,306     
|(Increase) decrease in Accounts Receivable                      |   | (4,982)     |   | 14,925     
|Decrease in Prepaid Expenses                                    |   | (8,700)     |   | (3,528)    
|Increase in deferred financing costs                            |   | -           |   | (86,100)   
|Increase in Accounts Payable and Accrued Liabilities            |   | 121,307     |   | 248,135    
|                                                                |   |             |   |            
|NET CASH USED IN
    OPERATING ACTIVITIES                       |   | (1,101,762) |   | (161,069)  
|                                                                |   |             |   |            
|CASH FLOWS FROM
    INVESTING ACTIVITIES                        |   |             |   |            
|                                                                |   |             |   |            
|Purchase of Machinery & Equipment                               |   | (30,652)    |   | (38,147)   
|                                                                |   |             |   |            
|NET CASH USED IN
    INVESTING ACTIVITIES                       |   | (30,652)    |   | (38,147)   
|                                                                |   |             |   |            
|CASH FLOWS FROM
    FINANCING ACTIVITIES                        |   |             |   |            
|                                                                |   |             |   |            
|Issuance (repayment) of Notes Payable                           |   | (154,932)   |   | 644,714    
|                                                                |   |             |   |            
|NET CASH PROVIDED BY
    (USED IN) FINANCING ACTIVITIES         |   | (154,392)   |   | 644,174    
|                                                                |   |             |   |            
|NET (DECREASE)
    INCREASE IN CASH                             |   | (1,286,806) |   | 445,498    
|                                                                |   |             |   |            
|CASH, and cash
    equivalents, beginning of period             |   | 2,856,042   |   | 24,520     
|                                                                |   |             |   |            
|CASH, and cash
    equivalents, end of period                   | $ | 1,569,236   | $ | 470,018    

See condensed notes to consolidated financial statements

8

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ALPHARX INC.

CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 
(UNAUDITED)

NOTE 1. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial
statements have been prepared in accordance with the instructions to Form 10-QSB
and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals) considered
necessary for fair presentation have been included. Operating results for the
interim periods are not necessarily indicative of the results that may be
expected for the year ended September 30, 2005. Interim consolidated financial
statements should be read in conjunction with the Company's annual audited
consolidated financial statements.

NOTE 2. NATURE OF BUSINESS AND GOING CONCERN

ALPHARX, INC. (the Company) was incorporated under the laws
of the State of Delaware on August 7, 1997. The company is an emerging
pharmaceutical company specializing in the formulation of therapeutic products
using proprietary drug delivery technologies. The company was formally known as
LOGIC TECH INTERNATIONAL, INC., and had its corporate name changed during fiscal
year 2000.

Effective July 1, 2003 the Company acquired all of the shares
of AlphaRx Canada Limited for nominal value of $1. AlphaRx Canada Limited was
dormant until this time. AlphaRx Canada Limited was incorporated under the laws
of Ontario in order to streamline sales of the Company's products in the
Canadian market. Prior to this time AlphaRx Canada Limited had no material
assets or any liabilities and was wholly owned by the President & CEO of the
Company. The interim consolidated financial statements reflect the activities of
the Company and of AlphaRx Canada Limited - its wholly owned subsidiary. All
material inter-company accounts and transactions have been eliminated.

The accompanying unaudited interim consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. Accordingly, they do not include any adjustments relating to the
realization of the carrying value of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern. Continuance of the Company as a going concern is dependent on
its future profitability and on the on-going support of its shareholders,
affiliates and creditors.

NOTE 3. LICENSING RIGHT

The Company acquired world-wide exclusive commercialization rights for VT-1
from Select Therapeutics Inc. in January 2003 with the intention of
commercializing this drug. Subsequent to this acquisition the Company launched
Flexogan in Canada, and shifted focus on drug delivery products, and related
sales and marketing. Having unsuccessfully attempted to resell these
commercialization rights, they have been written down to a nominal value due
primarily to prohibitive development costs, and the fact that there is no market
for these rights.

NOTE 4. NOTES PAYABLE

During October, 2004, the Company converted $520,347 in convertible
promissory notes into 5,203,470 shares of common stock plus warrants to purchase
10,406,940 shares of common stock at an exercise price of $0.30 per share. These
warrants expire during September and October, 2007.

The remainder of the promissory notes totalling $154,932, which included
accrued interest, were repaid to officers and directors of the Company. As a
result of the repayments and conversions, the Company has no outstanding debt
other than trade and accrued accounts payable as of March 31, 2005.

9

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NOTE 5. LITIGATION LIABILITY
The Company is a defendant in a lawsuit filed by a prospective investor
alleging breach of contract, which seeks damages totalling $25,000. The Company
believes the suit is without merit, however, to remain conservative, the entire
claim has been accrued in the financial statements.
NOTE 6. COMMON STOCK
The Company is authorized to issue 250,000,000 shares of
common stock. As of March 31, 2005, there remains issued and outstanding
57,508,112 shares of such common stock which has a stated par value of $0.0001
per share.
During the three months ended December 31, 2004, $520,347 of convertible
promissory notes were converted into 5,203,470 shares of common stock at $0.10
per share and 10,406,940 warrants to purchase shares of common stock at an
exercise price of $0.30 per share.
During the three months ended March 31, 2005 the Company did not issue any
common stock.
NOTE 7. STOCK OPTION PLANS

The Company has a Stock Option Plan (Plan) under which officers, key
employees, certain independent contractors, and non-employee directors may be
granted options to purchase shares of the Company's authorized but unissued
common stock. Since the fiscal year of 2001, the option plan was terminated.
Under this Plan, the option exercise price is US$0.10. Outstanding stock options
granted under the Plan will remain in effect until the expiration date specified
in those options. Options currently expire no later than 10 years from the grant
date and generally vest within five years. Proceeds received by the Company from
exercises of stock options are credited to common stock and additional paid-in
capital. Additional information with respect to the Plan's stock option activity
is as follows:

|                                      | Number of | Weighted
|------------------------------------- | --------- | --------
|                                      | Shares    | Average 
|                                      |           | Exercise
|                                      |           | Price   
|Options exercisable at March 31, 2005 | 1,150,000 | $0.10   

The Company adopted a new option plan on February 10, 2003 under which
options to purchase 1,500,000 common shares will be granted to certain key
employees and directors. Under the Plan, the option exercise price and its fair
market value are determined to be US$0.50 -US$0.69. All options will expire on
February 10, 2008 and will vest, and become exercisable in three instalments.
Proceeds received by the Company from exercises of stock options are credited to
common stock and additional paid-in capital. Additional information with respect
to the Plan's stock option activity is as follows:

|                                                     | Number of | Weighted
|---------------------------------------------------- | --------- | --------
|                                                     | Shares    | Average 
|                                                     |           | Exercise
|                                                     |           | Price   
|Outstanding at February 10, 2003 (plan
    adoption) | 0         |         
|Granted during fiscal 2003                           | 645,000   | $0.63   

10

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|Exercised                                          | 0       | $0.00
|-------------------------------------------------- | ------- | -----
|Cancelled during fiscal 2003                       | 75,000  | $0.63
|Outstanding as of September 30, 2004
    and March | 570,000 | $0.63
|31, 2005                                           |         |      
|Options exercisable at March 31, 2005              | 570,000 | $0.63

The Company granted 645,000 options to consultants during fiscal 2003. The
fair value of each option granted during 2003 was recorded as consulting expense
using the Black-Scholes option pricing model. No further options will be granted
under the two plans mentioned above.

No stock options were granted during the year ended September 30, 2004.

The Company, via written consent from a majority of the holders of common
stock, approved the adoption of a new option plan during July, 2004. Under this
plan the Company can issue up to 24,000,000 options to purchase common stock. As
of September 30, 2004 no options under this plan had been formally allocated.
During the six months ended March 31, 2005 the Company granted 20,610,000
options under this new plan. Of these options, 500,000 were granted to
consultants causing a stock based compensation expense of $54,673 using the
Black-Sholes option pricing model. Additional information with respect to the
Plan's stock option activity is as follows:

|                                               | Number of  | Weighted
|---------------------------------------------- | ---------- | --------
|                                               | Shares     | Average 
|                                               |            | Exercise
|                                               |            | Price   
|Outstanding at July 24, 2004 (plan adoption)   | 0          |         
|Granted during fiscal 2004                     | 0          |         
|Granted during six months ended March 31, 2005 | 20,610,000 | $0.16   
|Exercised                                      | 0          | $0.00   
|Cancelled                                      | 0          | $0.00   
|Outstanding as of March 31, 2005               | 20,610,000 | $0.16   
|Options exercisable at March 31, 2005          | 500,000    | $0.44   

The following options were granted to employees during the six months ended
March 31, 2005:

|Date     | Quantity   | Price | Expiry   | Fair Value | Risk  | Expected | Expected   | Expected 
|-------- | ---------- | ----- | -------- | ---------- | ----- | -------- | ---------- | ---------
|         |            |       |          |            | Free  | Life in  | Volatility | Dividends
|         |            |       |          |            | Rate  | Years    |            |          
|Nov.15,  | 12,720,000 | $0.15 | Nov. 14, | 1,394,249  | 2.32% | 10       | 185%       | NIL      
|2004     |            |       | 2014     |            |       |          |            |          
|Jan. 10, | 7,000,000  | $0.16 | Jan. 9,  | 1,045,056  | 2.02% | 10       | 177%       | NIL      
|2005     |            |       | 2015     |            |       |          |            |          
|Feb. 8,  | 390,000    | $0.15 | Feb. 7,  | 53,894     | 1.93% | 10       | 156%       | NIL      
|2005     |            |       | 2015     |            |       |          |            |          
|         | 20,110,000 |       |          | $2,493,199 |       |          |            |          

All of the options issued to employees disclosed above vest over one year. No
compensation expense has been recorded for these options.

Pro-forma information regarding net loss and loss per share is required by
SFAS 123 (Amended by SFAS 148). The Company's pro-forma information for the six
months ended March 31, 2005 is as follows:

11

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|                                 | As Reported  | Pro-Forma   
|-------------------------------- | ------------ | ------------
|                                 |              |             
|Stock based compensation:        | $54,673      | $814,578    
|                                 |              |             
|Net Loss                         | $(1,255,778) | $(2,015,683)
|                                 |              |             
|Basic and Diluted loss per share | $ (0.02)     | $(0.04)     

NOTE 8. WARRANTS

The Company has the following warrants outstanding to purchase common stock
at March 31, 2005:

|Warrants issued in conjunction with
    financing costs whereby one   |           
|--------------------------------------------------------------------- | ----------
|warrant entitles the holder to
    purchase one share of common stock |           
|at an exercise price of $1.10,
    expiring December 19, 2005.        | 670,275   
|Warrants issued in conjunction with
    financing costs whereby one   |           
|warrant entitles the holder to
    purchase one share of common stock |           
|at an exercise price of $0.65 expiring
    June 17, 2006.             | 75,524    
|Warrants issued in return for
    financial advisory services whereby |           
|one warrant entitles the holder to
    purchase one share of common   |           
|stock at an exercise price of $0.05,
    expiring September 1, 2007.  | 3,000,000 
|Warrants issued in conjunction with
    financing costs whereby one   |           
|warrant entitles the holder to
    purchase one share of common stock |           
|at an exercise price of $0.15,
    expiring September 1, 2007.        | 2,994,642 
|Warrants issued in conjunction with
    financing costs whereby one   |           
|warrant entitles the holder to
    purchase one share of common stock |           
|at an exercise price of $0.30,
    expiring September 1, 2007.        | 2,287,669 
|Warrants issued in conjunction with
    conversion of promissory      |           
|notes and in conjunction with the
    private placement completed     |           
|during July and September, 2004. One
    warrant entitles the holder  |           
|to purchase one share of common stock
    at an exercise price of     |           
|$0.30. Expiry dates: July 21, 2007 -
    27,505,378; September 1,     |           
|2007 - 12,426,114; October 13, 2007 -
    5,204,160.                  | 45,135,652
|                                                                      | 54,163,762

NOTE 9. COMMITMENTS

Leases

Effective December 1, 2004 the Company entered into an operating lease for
research equipment. Minimum annual lease payments total $10,932 commencing
December 1, 2004 and ending November 1, 2009.

Effective April 1, 2005 the Company entered into two operating leases for
research equipment. Minimum annual lease payments total $27,797 commencing on
April 1, 2005 and ending March 1, 2008.

The Company leases its premises, automobile, and computer equipment. The
aggregate minimum annual payments due under these leases, including the new ones
entered into as described above, is as follows:

|Fiscal Year | Amount 
|----------- | -------
|            |        
|2005        | $56,795
|2006        | $72,507
|2007        | $68,707

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|2008 | $54,463
|---- | -------
|2009 | $18,244

Services

The Company has entered into an agreement with a third party for the
provision of financial advisory services in exchange for 800,000 shares of
common stock, to be issued and delivered upon completion of the services, in
February, 2006. The common stock was valued at $0.15 per share for the purposes
of this agreement. The Company accrues $10,000 per month in connection with
these services. As at March 31, 2005, $20,000 has been accrued.

NOTE 10. SUBSEQUENT EVENT

Subsequent to March 31, 2005 our wholly-owned subsidiary - AlphaRx International Holdings Limited ("AIH") which was previously inactive,
entered into a Manufacturing and Distribution License agreement with Basin
Industrial Limited, a Hong Kong based corporation, to manufacture and sell our
Flexogan line of products in the areas of Hong Kong, the Peoples' Republic of
China, the Republic of Korea and Japan. The Manufacturing and Distribution
License agreement will be executed through a 50:50 joint venture - AlphaAP Inc.,
a company to be established.

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATION

The following discussion and analysis should be read in conjunction with the
Financial Statements, including the Notes thereto, appearing in this Form
10-QSB. Except for the historical information contained herein the foregoing
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those projected
in the forward-looking statements discussed herein.

General

AlphaRx is a drug delivery company specializing in the development of
innovative therapeutic products for the pharmaceutical and consumer health care
market. Our core competence is in the development of novel drug formulations for
therapeutic molecules or compounds that have exhibited poor gastro intestinal
absorption due to poor solubility or have yet be administerable to the human
body with an acceptable delivery method. Our drug delivery system is versatile
and offers significant flexibility in the development of suitable dosage
formulations (i.e. oral, topical or parenteral) to meet the requirements of
specific drug molecules. Our primary activities since inception have included
research and development, establishing our offices and research facilities,
recruiting personnel, filing patent applications, developing a business strategy
and raising capital.

We launched Flexogan, a series of over-the-counter topical analgesics, in
Canada during August, 2003. We have incurred and expect to continue to incur
significant marketing expenditures in 2005 in order to promote national sales of
Flexogan and gain market share in Canada.

We signed a licensing agreement with Andromaco Inc. in August, 2003 for the
commercialization of our lead pharmaceutical products "Indaflex" in Mexico. The
Company will receive royalties from product sales. Marketing approval from the
Mexican health authority was obtained during the first quarter of 2005. In order
to market and sell Indaflex products in the US and Canada, we will require
successful completion of human and clinical trials as well as FDA approval.
These trials commenced during our second fiscal quarter ended March 31, 2005.

Subsequent to March 31, 2005 we established a wholly-owned
foreign subsidiary - AlphaRx International Holdings Limited ("AIH")- in order to
pursue sales activities in the far east. AIH has entered into a Manufacturing
and Distribution License agreement with AlphaAP Inc. We will receive royalties
from future product sales. AIH also entered into a joint venture agreement with
Basin Industrial Limited (a Hong Kong based corporation) whereby AIH and Basin
Industrial Limited will be equal holders of AlphaAP Inc. the company to be
established in order to manufacture and sell our existing and certain future
products.

We intend to continue investing in the further development of our drug
delivery technologies and to actively seek collaborators and licensees to
accelerate the development and commercialization of products incorporating our
drug delivery systems. Depending upon a variety of factors, including
collaborative arrangements, available personnel and financial resources, we will
conduct or fund clinical trials on such products and will undertake the
associated regulatory activities.

SIX MONTHS ENDED MARCH 31, 2005, AS COMPARED TO THE SIX MONTHS ENDED MARCH
31, 2004

RESULTS OF OPERATIONS

The Company incurred a net loss of $1,255,778 for the six month period ended
March 31, 2005 as compared to a loss of $1,532,368 incurred for the same period
a year ago, a decrease of $276,590 or 18%.

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Loss from operations totaled $1,273,865 for the six month period ended March
31, 2005 as compared to a loss of $441,369 for the same period a year ago, an
increase of $832,496 or 189%. The increased loss from operations relates
primarily to the initiation of Phase 1 trials for Indaflex during the most
recent quarter, with no similar activity during the same period a year ago.
Also, a reduction in gross sales to $25,146 for the six month period ended March
31, 2005 from $362,610 generated for the same period a year ago, a decrease of
$337,464 or 93%, led to a reduced gross margin and hence an increase in loss
from operations.

Sales

Sales for the six months ended March 31, 2005 were $25,146 as compared to
sales of $362,610 generated for the same period a year ago, a decrease of
$337,464 or 93%. During the first six months of fiscal 2004 we experienced
initial stocking orders from two national chains, causing a significant uplift
in sales. Although both customers have reordered, the reorders are less than the
initial orders.

We are continuing with marketing initiatives via radio advertising and talk
shows, magazine and newspaper media and target mailing and distribution of
samples.

Gross Margin

Cost of Sales for six months ended March 31, 2005 was $11,079 as compared to
$146,185 incurred for the same period a year ago. Resulting Gross Margin
decreased to $14,067 or approximately 56% of sales as compared to Gross Margin
of $216,425 or approximately 60% of sales for the same period a year ago. Price
reductions to customers have translated into lower gross margins.

Selling and Administrative Expenses

Selling and administrative expenses consist primarily of sales and marketing
expenditures, personnel costs related to general management functions, finance,
inventory logistics, office overheads, as well as insurance costs and
professional fees related to legal, audit and tax matters. Selling and
administrative expenses for the six months ended March 31, 2005 were $781,526 as
compared to $597,987 incurred for the same period a year ago, an increase of
$183,539 or approximately 31%.

Approximately $403,000 of these expenses incurred for the six months ended
March 31, 2005 related to sales and marketing of Flexogan in Canada as compared
to approximately $287,000 incurred for the same period a year ago. In addition
we incurred approximately $16,000 for marketing in the U.S. and other parts of
the world. We will continue to incur sales and marketing expenditures in order
to establish brand awareness, and increase sales.

Approximately $363,000 of selling and administrative expenses incurred for
the six month period ended March 31, 2005 related to administrative expenses as
compared to approximately $311,000 incurred for the same period a year ago, an
increase of about $52,000 or approximately 17%. Stock based compensation expense
totaled $54,673 for the six months ended March 31, 2005 with no comparable
expense during the same period a year ago.

Research and Development Expenses

Research and development expenses include costs for scientific personnel,
supplies, equipment, outsourced clinical and other research activities.

Research and development expenses for the six months ended March 31, 2005
were $481,388 as compared to $40,245 incurred for the same period a year ago, an
increase of $441,143 or 1,096%. The increase relates primarily to the initiation
of Phase 1 Indaflex clinical trials, and ongoing research and development of
other products. We expect to increase research and development expenses over the
remainder of 2005 as we complete Phase 1 and initiate Phase 2 testing of
Indaflex.

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Loss from Operations

Loss from operations were $1,273,865 for the six months ended March 31, 2005
as compared to a loss of $441,369 incurred for the same period a year ago, an
increase of $832,496 or 189%. The increase in research and development expenses
of $441,143 was primarily the cause of the increased loss from operations.
Reductions in gross margins of $202,358, and an increase in selling and
administrative expenses of $183,539 account for virtually all of the remainder
of the increased loss when compared to the same period a year ago.

Net Loss

For the six months ended March 31, 2005, our net loss was $1,255,778 as
compared to a net loss of $1,532,368 incurred during the same period a year ago.

LIQUIDITY AND CAPITAL RESOURCES

As at March 31, 2005 the Company had working capital of $1,488,682 compared
to working capital of $2,183,913 as at September 30, 2004. The reduction of
working capital relates primarily to losses incurred during the six month period
ended March 31, 2005.

During the six months ended March 31, 2005 we repaid or converted all
remaining term debt such that we have no debt other than normal trade payables
and accruals related to ongoing business activities. We anticipate that our
working capital will be sufficient to fund ongoing activities beyond our fiscal
year ending September 30, 2005.

Since our inception, we have financed operations principally from the sale of
our common stock and the issuance of promissory notes. We expect to continue
this practice to fund our ongoing activities. The exercise of certain of our
warrants will also provide a potential additional source of funding.

We currently do not have sufficient resources to complete the
commercialization of any of our proposed products or to carry out our entire
business strategy. Therefore, we will likely need to raise substantial
additional capital to fund our operations in the future. We cannot be certain
that any financing will be available when needed on acceptable terms or at all.
Any additional equity financings will be dilutive to our existing shareholders,
and debt financing, if available, may involve restrictive covenants on our
business.

We expect to continue to spend capital on:

1. research and development programs;
2. preclinical studies and clinical trials;
3. regulatory processes; and
4. third party manufacturers and marketing partners to manufacture and market
  our products for us.

The amount of capital we may need will depend on many factors, including:

1. the progress, timing and scope of our research and
  development programs;
2. the progress, timing and scope of our preclinical studies
  and clinical trials;
3. the time and cost necessary to obtain regulatory approvals;
4. the time and cost necessary to establish sales and marketing capabilities
  or to retain sales and marketing partners to market our products for us;
5. the time and cost necessary to respond to technological and market
  developments; and
6. new collaborative, licensing and other commercial relationships that we
  may establish.

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The inability to raise capital would have a material adverse effect on the
Company. We currently have no capital commitments other than the payment of rent
on our facilities lease, and for certain research and other equipment leases.

YEAR ENDED SEPTEMBER 30, 2004, AS RESTATED, COMPARED TO YEAR
ENDED SEPTEMBER 30, 2003

Gross Revenue and Gross Margin

Gross revenue for the year ended September 30, 2004 increased to $383,824
from $52,925 for the year ended September 30, 2003, an increase of 625%. The
increase is attributable to our first full year of commercial sales of Flexogan
products in Canada coupled with marketing programs which started to increase
consumer awareness and acceptance of Flexogan. .

The gross margins on sales of Flexogan products was $ 230,501 or 60% of gross
sales for the year ended September 30, 2004 as compared to $ 33,415 or 63% of
gross sales for the year ended September 30, 2003. Gross margins as a percentage
of sales have decreased due to increased competition in the pain relief segment.
The increased competition placed pricing pressure on our products which, in
turn, required price reductions to remain competitive. We anticipate further
competitive pressures to continue.

Net Loss, as restated

Net loss, as restated, for the year ended September 30, 2004 increased to
$2,933,840 from $1,414,597 for the comparable period ended September 30, 2003,
an increase of $1,519,243 or 107%. This increase in net loss, as restated, is
attributable to an increase in Flexogan marketing activities when compared to
prior year and an increase in an interest expense in the amount of $1,161,000
related to the issuance of convertible debt with no comparable expense for the
same period a year ago.

Selling and Administrative Expenses

Selling and administrative expenses consist primarily of sales and marketing
expenditures, personnel costs related to management functions, finance, office
overheads, insurance, and professional fees related to legal, and audit, and tax
matters. Selling and administrative expenses for the year ended September 30,
2004 increased to $1,383,557 from $ 1,225,140 for the year ended September 30,
2003, an increase of $158,417 or approximately 13%. The increase is primarily
due to the increase in sales and marketing expenses, related to the Canadian
roll-out of Flexogan.

For the year ended September 30, 2004 we incurred approximately $786,243 in
sales and marketing expenditures as compared to $322,603 incurred for the same
period a year ago, an increase of $463,640 or 144%. The increase is primarily
due to a full year of marketing Flexogan in Canada as compared to less than six
months of marketing initiatives during the same period a year ago. We also
commenced marketing research activities in the U.S., and sales activities in
Asia with no comparable activities in the prior year.

Administration expenses totalled $597,314 for the year ended September 30,
2004 as compared to $902,537 incurred in the same period a year ago, a decrease
of approximately $305,223 or 34%. We did not incur any expenses related to stock
option granting during the year ended September 30, 2004 as compared to $280,594
incurred in stock option expenses for the year ended September 30, 2003.

Research and Development Expenses

Research and development expenses include costs for scientific personnel,
supplies, equipment, outsourced clinical and other research activities,
consultants, patent filings, depreciation of research and development equipment,
and office overheads directly related to research and development.

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Research and development expenses for the year ended
September 30, 2004 totaled $360,467 as compared to $186,241 incurred for the
same period a year ago, an increase of $174,226 or approximately 94%. In
preparation for clinical trials of our topical cream - Indaflex, we incurred
approximately $192,000 for the year ended September 30, 2004. Research and
development for our other topical creams continued during fiscal 2004 at a pace
similar to 2003.

Depreciation Expense

We incurred $36,447 in depreciation expense for the year
ended September 30, 2004 as compared to $26,764 for the same period a year ago,
an increase of $9,683 or approximately 36%. We purchased approximately $139,000
of research and development machinery and equipment during fiscal 2004 as well
as about $12,500 in other capital assets for a total capital asset purchase of
$151,445 as compared to $36,197 in capital asset purchases for the same period a
year ago. This, in turn, generated substantially all of the incremental
depreciation expense.

Other Income and Expenses

Other income and expenses totaled $1,383,870 net expense for
the year ended September 30, 2004 as compared to $ 9,867 net expense for the
same period a year ago, an increase of $1,374,003. During fiscal 2004 we wrote
off previously acquired VT-1 commercialization rights in the amount of $229,999.
Commercialization of VT-1 was prohibitive from a cost perspective, and attempts
to resell these rights have not been successful. There was no comparable expense
in the previous year.

Also included in other income and expenses was an interest
expense of $1,161,000 related to the issuance of convertible debt, which was
convertible into common stock and warrants to purchase common stock. At the time
of issuance the quoted value of our stock exceeded the conversion price of
$0.10, requiring this interest expense to be reflected in accordance with EITF
98-5 and EITF 00-27. There was no comparable expense in the previous year.

Net Loss, as restated

The above mentioned income and expenses resulted in a net loss, as restated,
of $2,933,840 for the year ended September 30, 2004 as compared to a net loss of
$1,414,597 incurred in the same period a year ago.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Certain of the information contained in this document constitutes
"forward-looking statements", including but not limited to those with respect to
the future revenues, our development strategy, involve known and unknown risks,
uncertainties, and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the risks and uncertainties associated with a
drug delivery company which has not successfully commercialized our first
product, including a history of net losses, unproven technology, lack of
manufacturing experience, current and potential competitors with significant
technical and marketing resources, need for future capital and dependence on
collaborative partners and on key personnel. Additionally, we are subject to the
risks and uncertainties associated with all drug delivery companies, including
compliance with government regulations and the possibility of patent
infringement litigation, as well as those factors disclosed in our documents
filed from time to time with the United States Securities and Exchange
Commission.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

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The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer has evaluated the effectiveness of
the Company's disclosure controls and procedures as of March 31, 2005. Based on
this evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective for gathering, analyzing and disclosing the information the Company is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC's rules and forms.

19

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

Farhad Walji vs. AlphaRx, Inc. and AlphaRx Canada Limited filed in the
Supreme Court of British Columbia on August 23, 2002. Farhad Walji has filed a
claim asking for $25,000 plus interest for allegedly providing $20,000 pursuant
to a subscription agreement to purchase common shares of AlphaRx's stock and
damages resulting from lost opportunity. The Company has denied any liability in
this case and is currently defending this action vigorously. Nonetheless, the
value of the entire claim has been accrued in our financial statements as a
current liability.

ITEM 2 - CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES

There were no issuances of stock during the three month period ended March
31, 2005.

During the three months ended December 31, 2004 we issued 5,203,470 shares of
common stock pursuant to the conversion of $520,347 in convertible debt. We also
issued warrants to purchase 10,406,940 shares of common stock at $0.30 per share
in connection with the conversion of debt.

As a result of the above transactions the Company had 57,508,112 shares of
Common Stock outstanding as at March 31, 2005. Additionally, there are warrants
outstanding to purchase 54,163,762 shares of Common Stock, ranging in price from
$0.05 to $1.10 and expiring between the period December 19, 2005 and October 13,
2007.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

At the Company's Annual Meeting of Stockholders held on March 29, 2005 the
stockholders of the

Company elected the following persons as directors of the Company to serve
until the next annual meeting of stockholders and until their successors are
duly elected and qualified: Michael Lee, Dr. David Milroy, and Dr. Ford Moore.
The results of the voting were as follows:

|                 | Votes For  | Votes Withheld
|---------------- | ---------- | --------------
|                 |            |               
|Michael Lee      | 30,543,190 | NIL           
|Dr. David Milroy | 30,543,190 | NIL           
|Dr. Ford Moore   | 30,537,190 | 6,000         

Also, at the Annual Meeting of Stockholders, the stockholders ratified the
Board's selection of Schwartz Levitsky Feldman llp as the Company's independent
auditors for the fiscal year ending September 30, 2005 with 30,543,190 votes in favor, and NIL against.

There were holders of 30,543,190 shares of common stock (53.11% of all common
stock issued and outstanding) represented at the meeting.

20

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ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

31.1 Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002. 
31.2 Certification of C.F.O. Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. 
32.1 Certification of Michael Lee pursuant to Section 1350 of Chapter 63 of
Title 18 United States Code. 
32.2 Certification of Marcel Urbanc pursuant to Section 1350 of Chapter 63 of
Title 18 United States Code.

(b) REPORTS ON FORM 8-K

On December 16, 2004 we issued a press release regarding the manufacture of
clinical materials for Indaflex clinical trials, which are expected to commence
in early 2005.

On May 13, 2005 we informed the SEC of the necessity to
restate certain prior periods based on the beneficial conversion feature related
to the issuance of senior convertible debt during the period February to April,
2004

On May 16, 2005 we filed an amended 8K regarding the original 8K filed May
13, 2005.

SIGNATURES:

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

DATED: May 19, 2005

ALPHARx, INC.By:  /S/ Michael M. LeeMichael M. Lee, Chief Executive
      Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant, in
the capacities, and on the dates, indicated.

DATED: May 19, 2005

Directors:/S/ Michael M. LeeMichael M. Lee, Director/S/ David MilroyDavid Milroy, Director/S/ Ford MooreFord Moore, Director


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