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**UNITED STATES**SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934.For the quarterly period ended: June 30, 2010

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                        | 98-0416123                          
|------------------------------- | ------------------------------------
|(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 August 19, 2010 was 92,371,192.

Transitional Small Business Disclosure Format.

Yes [  ] No [X]

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ALPHARX, INC.

FORM 10-Q

JUNE 30, 2010

TABLE OF CONTENTS

|Interim Consolidated Balance Sheets as of
      June 30, 2010 (Unaudited) and September 30, 2009 (Audited)                                                     | 3     
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|Unaudited Interim Consolidated Statements of Operations and
      Comprehensive Loss for the three and nine months ended June 30, 2010 and
      June 30, 2009 | 4     
|Unaudited Interim Consolidated Statements
      of Changes in Stockholders Deficiency as of June 30, 2010 and September
      30, 2009                        | 5     
|Unaudited Interim Consolidated Statements of Cash Flow for
      the three and nine months ended June 30, 2010 and June 30, 2009                               | 6     
|Condensed Notes to Unaudited Interim
      Consolidated Financial Statements                                                                                   | 7 - 10
|Managements Discussion and Analysis of Financial Condition
      and Plan of Operation                                                                        | 11-17 
|Other Information                                                                                                                                              | 18    



2

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ALPHARx, INC.INTERIM CONSOLIDATED BALANCE
SHEETSAS AT JUNE 30, 2010 AND SEPTEMBER 30, 2009(UNAUDITED)(All amounts in US Dollars)

|                                                                                                                       |   | June 30     |   |   | September 30 |  
|---------------------------------------------------------------------------------------------------------------------- | - | ----------- | - | - | ------------ | -
|                                                                                                                       |   | 2010        |   |   | 2009         |  
|                                                                                                                       |   | Unaudited   |   |   | Audited      |  
|                                                                                                                       |   |             |   |   |              |  
|CURRENT ASSETS                                                                                                         |   |             |   |   |              |  
|Cash and Cash Equivalents                                                                                              | $ | 17,960      |   | $ | 14,006       |  
|Accounts Receivable, net                                                                                               |   | 5,778       |   |   | 42,330       |  
|TOTAL CURRENT ASSETS                                                                                                   |   | 23,738      |   |   | 56,336       |  
|                                                                                                                       |   |             |   |   |              |  
|PROPERTY, PLANT and EQUIPMENT, net                                                                                     |   | 52,992      |   |   | 78,237       |  
|                                                                                                                       |   |             |   |   |              |  
|TOTAL ASSETS                                                                                                           |   | 76,730      |   |   | 134,573      |  
|                                                                                                                       |   |             |   |   |              |  
|CURRENT LIABILITIES                                                                                                    |   |             |   |   |              |  
|Accounts Payable and Accrued
      Liabilities                                                                         |   | 464,096     |   |   | 414,872      |  
|Notes Payable (note 3)                                                                                                 |   | 706,598     |   |   | 585,284      |  
|Deferred Revenue                                                                                                       |   | -           |   |   | 35,000       |  
|TOTAL CURRENT LIABILITIES                                                                                              |   | 1,170,694   |   |   | 1,035,156    |  
|                                                                                                                       |   |             |   |   |              |  
|Going Concern (note 2)                                                                                                 |   |             |   |   |              |  
|                                                                                                                       |   |             |   |   |              |  
|STOCKHOLDERS DEFICIENCY                                                                                               |   |             |   |   |              |  
|Common Stock: $ 0.0001 par value,                                                                                      |   |             |   |   |              |  
|Authorized: 250,000,000 shares; Issued and
      outstanding June 30, 2010 and September 30, 2009: 92,371,192 (Note 5) |   | 9,238       |   |   | 9,238        |  
|Additional paid-in capital                                                                                             |   | 17,278,268  |   |   | 17,052,076   |  
|Deficit                                                                                                                |   | (18,547,782 | ) |   | (18,061,820  | )
|Accumulated Other
      Comprehensive Loss                                                                             |   | (7,837      | ) |   | (2,317       | )
|Total ALPHARx, INC. STOCKHOLDERS
      DEFICIENCY                                                                     |   | (1,268,113  | ) |   | (1,002,823   | )
|Non-controlling Interest (Note
      4)                                                                                |   | 174,149     |   |   | 102,240      |  
|                                                                                                                       |   |             |   |   |              |  
|TOTAL DEFICIENCY                                                                                                       |   | (1,093,964  | ) |   | (900,583     | )
|                                                                                                                       |   |             |   |   |              |  
|TOTAL LIABILITIES AND STOCKHOLDERS
      DEFICIENCY                                                                   | $ | 76,730      |   | $ | 134,573      |  

|                         |                    
|------------------------ | -------------------
|Signed: Dr. David Milroy | Signed: Michael Lee
|Director                 | Director           

See condensed notes to unaudited interim consolidated financial
statements

3

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSSFOR THE THREE MONTHS AND NINE
MONTHS ENDED JUNE 30, 2010 AND 2009 (All amounts in US Dollars)
(UNAUDITED)

|                                                                                    |   | 3 months
      ended |   |   | 3 months
      ended |   |   | 9 months
      ended |   |   | 9 months
      ended |  
|----------------------------------------------------------------------------------- | - | -------------------- | - | - | -------------------- | - | - | -------------------- | - | - | -------------------- | -
|                                                                                    |   | June 30,
      2010  |   |   | June 30,
      2009  |   |   | June 30,
      2010  |   |   | June 30,
      2009  |  
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|License Fees and
      Royalties                                                    | $ | 15,623               |   | $ | 16,323               |   | $ | 85,913               |   | $ | 48,252               |  
|Consulting Revenues                                                                 |   | 30,000               |   |   | 4,659                |   |   | 60,000               |   |   | 240,413              |  
|TOTAL REVENUES                                                                      |   | 45,623               |   |   | 20,982               |   |   | 145,913              |   |   | 288,665              |  
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|General and
      Administrative Expenses                                           |   | 156,175              |   |   | 184,883              |   |   | 418,565              |   |   | 310,621              |  
|Research and Development
      Expenses                                             |   | 31,146               |   |   | 39,586               |   |   | 134,175              |   |   | 126,807              |  
|Depreciation                                                                        |   | 10,265               |   |   | 16,444               |   |   | 30,407               |   |   | 48,788               |  
|                                                                                    |   | 197,586              |   |   | 240,913              |   |   | 583,147              |   |   | 486,216              |  
|INCOME/(LOSS)                                                                       |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|FROM OPERATIONS                                                                     |   | (151,963             | ) |   | (219,913             | ) |   | (437,234             | ) |   | (197,551             | )
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|OTHER INCOME                                                                        |   | 23,483               |   |   |                      |   |   | 23,483               |   |   |                      |  
|OTHER EXPENSES                                                                      |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|Interest Expense,
      net                                                         |   | (24,933              | ) |   | (14,865              | ) |   | (67,652              | ) |   | (36,839              | )
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|INCOME/(LOSS) BEFORE                                                                |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|INCOME TAXES                                                                        |   | (153,413             | ) |   | (234,796             | ) |   | (481,403             | ) |   | (234,390             | )
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|Income Tax                                                                          |   | -                    |   |   | -                    |   |   | -                    |   |   | -                    |  
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|NET INCOME
      (LOSS)                                                             |   | (153,413             | ) |   | (234,796             | ) |   | (481,403             | ) |   | (234,390             | )
|Net Income/Loss attributable to
      Non-controlling
      interests               |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|                                                                                    |   | 3,953                |   |   | 899                  |   |   | 4,559                |   |   | (1,076               | )
|NET INCOME (LOSS) ATTRIBUTABLE TO ALPHARX, INC. STOCKHOLDERS                       | $ | (157,366             | ) | $ | (235,695             | ) | $ | (485,962             | ) | $ | (233,314             | )
|                                                                                    |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|COMPREHENSIVE INCOME/(LOSS)                                                         |   |                      |   |   |                      |   |   |                      |   |   |                      |  
|Net Income
      (Loss)                                                             |   | (153,413             | ) |   | (234,796             | ) |   | (481,403             | ) |   | (234,390             | )
|Translation Adjustment                                                              |   | (4,499               | ) |   | (3,718               | ) |   | (6,900               | ) |   | 3,894                |  
|Comprehensive
      Income (Loss)                                                   |   | (157,912             | ) |   | (238,514             | ) |   | (488,303             | ) |   | (230,496             | )
|Less: Comprehensive Income/
      (Loss) Attributable to Non-Controlling Interests  |   | (27,359              | ) |   | 1,417                |   |   | 27,605               |   |   | 584                  |  
|COMPREHENSIVE
      INCOME/(LOSS) ATTRIBUTABLE TO ALPHARX, INC. STOCKHOLDERS       | $ | (130,553             | ) | $ | (239,931             | ) | $ | (515,908             | ) | $ | (231,080             | )
|Net Income/(Loss) per Share,
      basic and diluted, attributable to AlphaRx, Inc. | $ | (0.00                | ) | $ | 0.00                 |   | $ | (0.01                | ) | $ | 0.00                 |  
|Weighted Average
      Number of Common Shares Outstanding                          |   | 92,371,192           |   |   | 92,371,192           |   |   | 92,371,192           |   |   | 92,371,192           |  

See condensed notes to unaudited interim consolidated financial
statements

4

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CHANGES IN SHAREHOLDERS DEFICITFOR THE PERIOD ENDED JUNE 30, 2010(UNAUDITED)(All amounts in US Dollars)

|                                       | Common
      Stock |        |             |             |               |               |                       
|-------------------------------------- | ------------------ | ------ | ----------- | ----------- | ------------- | ------------- | ----------------------
|                                       |                    |        |             | Accumulated |               | Total         |                       
|                                       |                    |        | Additional  | Other Com-  |               | AlphaRx Inc.  |                       
|                                       | Number of          |        | Paid in     | prehensive  |               | Stockholders | Non-
      controlling
|                                       | Shares             | Amount | Capital     | Loss        | Deficiency    | Deficiency    | Interest              
|                                       |                    |        |             |             |               |               |                       
|                                       |                    |        |             |             |               |               |                       
|Balance
      as of September 30, 2008 | 92,371,192         | $9,238 | $16,978,351 | (6,690)     | (17,619,944)  | (639,045)     | 101,624               
|Warrants issued for services           |                    |        | 73,725      |             |               | 73,725        |                       
|Foreign Currency Translation           |                    |        |             | 4,373       |               | 4,373         | 772                   
|Non- controlling interest              |                    |        |             |             |               |               | (156)                 
|Net Loss 2009                          |                    |        |             |             | (441,876)     | (441,876)     |                       
|Balance as of September 30, 2009       | 92,371,192         | $9,238 | $17,052,076 | $(2,317)    | (18,061,820)  | $(1,002,823)  | $102,240              
|Foreign Currency Translation           |                    |        | 30,786      | (5,520)     |               | 25,266        | (32,166)              
|Non- controlling interest              |                    |        |             |             |               |               | 4,559                 
|Debt Conversion                        |                    |        | 73,723      |             |               | 73,723        |                       
|Additional pick up of equity by NCI    |                    |        |             |             |               |               | 99,516                
|Warrants issued for services           |                    |        | 121,683     |             |               | 121,683       |                       
|Net Loss for the Period                |                    |        |             |             | (485,962)     | (485,962)     |                       
|Balance
      as of June 30, 2010      | 92,371,192         | $9,238 | $17,278,268 | $(7,837)    | $(18,547,782) | $(1,268,113)  | $174,149              

See condensed notes to unaudited interim consolidated financial
statements

5

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ALPHARx, INC.INTERIM CONSOLIDATED STATEMENTS OF
CASH FLOWSFOR THE THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 2010
AND 2009(UNAUDITED)(All amounts in US Dollars)

|                                                                 |   | 3 months |   |   | 3 months |   |   | 9 months |   |   | 9 months |  
|---------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | - | - | -------- | -
|                                                                 |   | June 30, |   |   | June 30, |   |   | June 30, |   |   | June 30, |  
|                                                                 |   | 2010     |   |   | 2009     |   |   | 2010     |   |   | 2009     |  
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|CASH FLOWS FROM
      OPERATING ACTIVITIES                       |   |          |   |   |          |   |   |          |   |   |          |  
|Net Income/(Loss)
      attributable to AlphaRx, Incshareholders | $ | (157,366 | ) | $ | (235,695 | ) | $ | (485,962 | ) | $ | (233,314 | )
|Adjustments to reconcile net income (loss) to net cash           |   |          |   |   |          |   |   |          |   |   |          |  
|used in operating
      activities:                              |   |          |   |   |          |   |   |          |   |   |          |  
|Depreciation and amortization                                    |   | 10,265   |   |   | 16,444   |   |   | 30,407   |   |   | 48,788   |  
|Issue of Warrants
      for services rendered                    |   | 121,683  |   |   | 36,862   |   |   | 121,683  |   |   | 36,862   |  
|Changes in assets and liabilities:                               |   |          |   |   |          |   |   |          |   |   |          |  
|Decrease (Increase) in accounts receivable                       |   | 3,537    |   |   | 63,474   |   |   | 36,552   |   |   | 1,473    |  
|Increase in prepaid expenses and other assets                    |   | -        |   |   | -        |   |   | -        |   |   | (65,900  | )
|Decrease in accounts payable and accrued liabilities             |   | (67,004  | ) |   | 49,728   |   |   | 49,224   |   |   | 56,487   |  
|Accrued interest on notes payable                                |   | (70,946  | ) |   | 8,787    |   |   | (32,929  | ) |   | 27,920   |  
|Decrease (Increase) in other assets                              |   | -        |   |   | 62,641   |   |   | -        |   |   | (3,259   | )
|Increase (decrease) in deferred revenue                          |   | -        |   |   | (2,721   | ) |   | (35,000  | ) |   | 34,910   |  
|Non-Controlling interest                                         |   | 2,933    |   |   | (899     | ) |   | 3,179    |   |   | (1,076   | )
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|NET CASH (USED IN) PROVIDEDBY OPERATING ACTIVITIES               |   | (156,898 | ) |   | (1,379   | ) |   | (312,846 | ) |   | (31,209  | )
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|CASH FLOWS FROM INVESTING
      ACTIVITIES                       |   |          |   |   |          |   |   |          |   |   |          |  
|Purchase of
      Machinery and Equipment                        |   | -        |   |   | -        |   |   | (5,691   | ) |   | -        |  
|NET CASH USED IN INVESTING
      ACTIVITIES                      |   | -        |   |   | -        |   |   | (5,691   | ) |   | -        |  
|                                                                 |   |          |   |   |          |   |   | -        |   |   |          |  
|CASH FLOWS FROM FINANCING
      ACTIVITIES                       |   |          |   |   |          |   |   |          |   |   |          |  
|Issuance of Notes Payable, net of
      repayments               |   | 11,757   |   |   | 44,553   |   |   | 154,243  |   |   | 111,765  |  
|Additional capital infusion                                      |   | 173,237  |   |   | -        |   |   | 173,237  |   |   | -        |  
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|NET CASH PROVIDED BY FINANCINGACTIVITIES                         |   | 184,994  |   |   | 44,553   |   |   | 327,480  |   |   | 111,765  |  
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|Effect of exchange rate changes                                  |   |          |   |   |          |   |   |          |   |   |          |  
|on cash and cash
      equivalents                               |   | ( 27,006 | ) |   | 17,463   |   |   | (4,989   | ) |   | (10,609  | )
|NET INCREASE/(DECREASE) IN CASH                                  |   | 1,090    |   |   | 60,637   |   |   | 3,954    |   |   | 69,947   |  
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|CASH, and cash equivalents,
      beginning of period            |   | 16,870   |   |   | 33,933   |   |   | 14,006   |   |   | 24,623   |  
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|CASH, and cash equivalents, end
      of period                  | $ | 17,960   |   | $ | 94,570   |   | $ | 17,960   |   | $ | 94,570   |  
|                                                                 |   |          |   |   |          |   |   |          |   |   |          |  
|Taxes Paid                                                       |   | -        |   |   | -        |   |   | -        |   |   | -        |  
|Interest Paid                                                    |   | -        |   |   | 6,227    |   |   | -        |   |   | 6,227    |  

See condensed notes to unaudited interim consolidated financial
statements

6

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ALPHARX INC.CONDENSED NOTES TO UNADUDTED
INTERIMCONSOLIDATED FINANCIAL STATEMENTSJUNE 30,
2010(UNAUDITED)

NOTE 1. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS

The accompanying interim unaudited consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q
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, 2010. Interim unaudited consolidated
financial statements should be read in conjunction with the Companys annual
audited 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 human therapeutic
products using proprietary drug delivery technologies.

The interim unaudited consolidated financial statements reflect
the activities of AlphaRx Inc., 100% of AlphaRx Canada Limited and 80% of
AlphaRx International Holdings Limited and AlphaRx Life Sciences Ltd. (AIHs
wholly owned subsidiary) collectively the Company. All material inter-company
accounts and transactions have been eliminated.

The accompanying interim unaudited 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. Factors relating to going concern issues include
working capital deficiencies, operating losses, shareholders deficits, and
continued reliance on external funding sources. In order to mitigate the going
concern issues, the Company is constantly pursuing new business arrangements and
striving to achieve profitability, and seeking capital funding on an ongoing
basis via the issuance of promissory notes, and private placements.

NOTE 3. NOTES PAYABLE

The Company issued $154,243 in promissory notes (Net of Amount
Repaid)during the nine months ended June 30, 2010. (During the nine months ended
June 30, 2009 the Company issued $210,975 in promissory notes). These notes bear
interest at 12% per annum and are repayable on the first anniversary date of
issuance. Previously issued promissory notes bear interest at rates of 8% - 12%
per annum. Prepayment of these notes prior to the first anniversary date is
permitted.

See also note 8  Related Party Transactions.

NOTE 4. NON-CONTROLLING INTEREST

Effective June 22, 2006, AlphaRx International Holdings Ltd.
(AIH) issued 1,500 shares of its common stock to New Super Limited (NSL) at
a price of approximately $HK 6,667 per share or $HK 10 million in cash (USD
$1,288,826). There were 10,000 common shares outstanding of which 8,500 or 85%
belong to the Company. With the consolidation of only 85% of AIH, a
non-controlling interest was established, representing net amounts owing to the
non-controlling shareholder. The capital infusion into AIH is accounted for as
additional paid in capital on the interim consolidated financial statements of
the Company.

7

---

On May 18, 2010, AlphaRx International Holdings Ltd. (AIH)
issued 625 shares of its common stock to New Super Limited (NSL) at a price of
approximately $HK 2,166 per share, or $HK1,353,750 in cash (USD$173,292),
representing a further 5% non-controlling interest and increasing the total of
the non-controlling interest to 20% after the infusion.

NOTE 5. COMMON STOCK

The Company is authorized to issue 250,000,000 shares of common
stock. As of June 30, 2010 and September 30, 2009 there were 92,371,192 shares
of Common Stock issued and outstanding with a stated par value of $0.0001 per
share. The Company did not issue any shares of Common Stock during the nine
months ended June 30, 2010 and 2009.

NOTE 6. STOCK OPTION PLANS

The Company has one Stock Option Plan (the 2008 Stock Option
Plan) under which officers, key employees, certain independent contractors, and
independent directors may be granted options to purchase shares of the Companys
authorized but unissued Common Stock. All outstanding options currently expire
no later than June 30, 2012. Proceeds received by the Company from exercises of
stock options are credited to Common Stock and additional paid-in capital.

At the Companys Annual General Meeting held November 26, 2008
a majority of stockholders approved amendments to the existing Stock Option
Plans including, among others: (i) combining the 2004 and 2006 Plans into the
2008 Stock Option Plan for ease of administration; (ii) providing a cap for the
number of options to be issued at 22,000,000; (iii) providing guidelines for
exercise prices such that the exercise price of any newly granted option is
never less than the market value or in the case of a 10%+ holder, never less
than 110% of the market value on the date of grant; (iv) providing for a maximum
term of 5 years for any option granted; (v) provide for a vesting schedule
whereby vesting must occur over at least 18 months with no more than
1/6th of the options granted vesting in any 3 month period; (vi)
providing for the maximum number of options to be granted to any one individual
in any 12 month period to be no more than 5% of the issued and outstanding
common stock, and (vii) providing for a maximum number of options to be granted
to any Investor Relations party to be no more than 2% of the issued and
outstanding common stock.

As a result of the new terms governing the Companys 2008 Stock
Option Plan, the maximum number of options that can still be issued totals
4,310,000, regardless of whether existing options are exercised or cancelled.

During the nine months ended June 30, 2010 and 2009 no options
were granted and no options were exercised. Additional details of the 2008 Plan,
as at June 30, 2010 are as follows:

8

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|                                                                                   | Number
      Granted, |                                    |             | Share    |           |                   
|---------------------------------------------------------------------------------- | --------------------- | ---------------------------------- | ----------- | -------- | --------- | ------------------
|                                                                                   | Exercised,            |                                    |             | Price on |           | Remaining         
|2008 Stock                                                                         | Expired or            |                                    | Exercise    | Grant    | Expiry    | Contractual       
|Option Plan                                                                        | Cancelled             | Issue Date                         | Price $     | Date $   | Date      | Life
      (Years)
|                                                                                   |                       |                                    |             |          |           |                   
|Inception                                                                          | 0                     |                                    |             |          |           |                   
|Granted                                                                            | 12,720,000            | 15/11/2004                         | 0.15        | 0.11     | 6/30/2012 | 2.0               
|Cancelled                                                                          | (6,000,000)           | 12/28/2007                         | -           | -        | -         | -                 
|Granted                                                                            | 500,000               | 15/11/2004                         | 0.40  0.50 | 0.11     | 6/30/2012 | 2.0               
|Cancelled                                                                          | (40,000)              | 12/28/2007                         | -           | -        | -         | -                 
|Expired                                                                            | (460,000)             | 2/10/2008                          | -           | -        | -         | -                 
|Granted                                                                            | 7,000,000             | 10/1/2005                          | 0.16        | 0.14     | 6/30/2012 | 2.0               
|Granted                                                                            | 390,000               | 8/2/2005                           | 0.15        | 0.14     | 6/30/2012 | 2.0               
|Cancelled                                                                          | (40,000)              | 12/28/2007                         | -           | -        | -         | -                 
|Granted                                                                            | 100,000               | 5/25/2005                          | 0.13        | 0.13     | 5/25/2010 | -                 
|Expired                                                                            | (100,000)             | 5/25/2010                          | -           | -        | -         | -                 
|Granted                                                                            | 3,290,000             | 10/17/2005                         | 0.075       | 0.08     | 6/30/2012 | 2.0               
|Cancelled                                                                          | (560,000)             | 12/28/2007                         | -           | -        | -         | -                 
|Granted                                                                            | 90,000                | 1/3/2007                           | 0.10        | 0.10     | 1/3/2012  | 1.51              
|Exercised                                                                          | (2,730,000)           | 12/27/2007                         | 0.075       | -        | -         | -                 
|Remaining                                                                          | 14,260,000            | As at
      June 30, 2010 and 2009
|Weighted Average Exercise Price and Contractual Life of Options Remaining in Years | $0.15                 |                                    |             | 1.98    

The Company has adopted the fair value accounting for employee
stock options. The Company did not record any stock based compensation expense
during the nine months ended June 30, 2010 and 2009. The Black-Scholes
option-pricing model is used to calculate this expense. There are no further
stock based compensation expenses to be recorded based on options granted to
date and their existing terms and conditions. Multiplying the options by their
exercise price and dividing the total obtained by the total outstanding options
calculated the weighted average exercise price.

NOTE 7. WARRANTS

On April 12, 2010, the Company issued 3,740,150 warrants to
purchase 3,740,150 shares of Common Stock at $0.085 per share, expiring on April
11, 2015. The warrants were issued in exchange for financial advisory services
to be provided from the period from April 11, 2010 until September 30, 2010. The
total fair value of the warrants has been estimated to be $262,090 using the
Black-Scholes option pricing model based on the following assumptions: dividend
yield of 0%, expected volatility of 103.86%, risk-free interest rate of 3%, and
an expected life of 5 years. For the nine month period ended June 30, 2010, a
total of $121,683 was recorded as a financial advisory expense in the general
and administrative expenses and the remaining balance of $140,407 will be
expensed by September 30, 2010. There were no warrants exercised during the
reporting period. The Company has the following warrants outstanding to purchase
shares of Common Stock as of June 30, 2010:

9

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|**Outstanding** |                |                   | **Share** **Price**    |            | **Remaining**          |                                                          
|--------------- | -------------- | ----------------- | ---------------------- | ---------- | ---------------------- | ---------------------------------------------------------
|**as at June**  |                | **Exercise**      | on                     | **Expiry** | **Contractual**        |                                                          
|**30, 2010**    | **Issue Date** | **Price
      $** | Grant
      **Date $** | **Date**   | **Life
      (Years)** | **Reason for Issuance**                                  
|3,000,000       | 4/1/2009       | 0.03              | 0.03                   | 3/31/2014  | 3.83                   | Issued in exchange for financial advisory services.      
|3,740,150       | 4/12/2010      | 0.085             | 0.085                  | 4/11/2015  | 4.83                   | Issued
      in exchange for financial advisory services.

NOTE 8: RELATED PARTY TRANSACTIONS

The Company sources some of its funding in the form of
promissory notes from Michael Lee  President and CEO. The Company is indebted
to Mr. Lee in the amount of $52,336 including accrued interest of $10,536 as of
June 30, 2010. The directors did not loan any funds to the Company during the
nine months ended June 30, 2009. These promissory notes bear interest at 12% per
annum and are unsecured.

NOTE 9: RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB updated FASB ASC Subtopic 810-10,
Consolidation(formerly SFAS No. 160). This guidance establishes
accounting and reporting standards for non-controlling interests in
subsidiaries. The guidance clarifies that a non-controlling interest in a
subsidiary be accounted for as a component of equity, but separate from the
parents equity. Furthermore, the amount of consolidated net income attributable
to the parent and the non-controlling interest must be clearly identified and
presented on the face of the Consolidated Statements of Operations. The Company
adopted the provisions of the guidance effective October 1, 2009 and the
provisions are being applied prospectively, except for the presentation and
disclosure requirements, which have been applied retrospectively. The adoption
did not have a material impact on our consolidated financial statements.

NOTE 10: PROPOSED RESTRUCTURING

On April 9, 2010 AlphaRx Canada Limited (ACL), a wholly-owned
subsidiary of the Company signed a non-binding letter of intent with Pacific
Orient Capital Inc. (POC), a Capital Pool Company listed on the Toronto
Venture Exchange, whereby POC will effect a Qualifying Transaction (the
Transaction), as such term is defined under the policies of the Toronto
Venture Exchange (the Exchange), by acquiring all of the shares of ACL that
are issued and outstanding at the time of closing of the transaction. The letter
of intent was subsequently amended on June 9, 2010. The transaction is to be
completed by a) the acquisition of ACL by way of a share exchange through the
issuance of one common share of POC for every common share of ACL at a deemed
price of CAD$0.40 per share; and b) the acquisition by AlphaRX Internation
Holdings Ltd. (AIH), the Companys 80% owned subsidiary, of an exclusive,
royalty free licence from the Company, to commercialize the prescription drug
Indaflex in Mexico and Asia for a period of 15 years; and c) the acquisition of
a sub-licence by POC from AIH to commericialize the prescription drug Indaflex
in Mexico and Asia for 8,250,000 Common shares of POC at a deemed price of
CAD$0.40 per share. The transaction, among other conditions, shall be
conditional upon the completion of a concurrent public offering or private
placement of CAD $1.5 million of shares of common stock at a value of no less
than CAD $0.60 per share. In relation thereto the Company has received a
non-refundable deposit during April, 2010 of CAD $25,000 to assist in the
restructuring. Completion of the proposed Transaction is conditional on the
execution of a definitive agreement to be negotiated by the parties, acceptance
and approval by the Exchange and the satisfaction of the minimum listing
requirements of the Exchange. As of August 19, 2010 (review completion date),
the Company has not yet received approval and acceptance by the Exchange and as
a result, the interim consolidated financial statements do not purport to give
effect to any adjustments that will be required should the Transaction be
accepted and completed.

10

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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 Item 1 of Part I of this quarterly report and in our 2009 annual
report on Form 10-K.

This report includes forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. When used in
this report, the words anticipate, believe, estimate, may, intend,
expect, and similar expressions identify certain of such forward-looking
statements. Although we believe that our plans, intentions and expectations
reflected in such forward-looking statements are reasonable, we can give no
assurance that such plans, intentions or expectations will be achieved. Actual
result, performance or achievements could differ materially from historical
results or those contemplated, expressed or implied by the forward-looking
statements contained in this report.

Important factors that could cause actual results to differ
materially from our forward-looking statements are set forth in this report in
Item 1A of Part II, and are detailed from time to time in our periodic reports
filed with the SEC. We undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events or otherwise.

General

AlphaRx is a specialty pharmaceutical company dedicated to
developing proven therapies by reformulating FDA approved and marketed drugs
which through the application of its proprietary site-specific nano drug
delivery technology, offers improved medical benefits and a potential for
significant commercial product development. 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 nano 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.

Since 2000, substantial efforts and resources have been devoted
to understanding our nano drug delivery technology and establishing a product
development pipeline that incorporated this technology with selected molecules.
Since 2008, AlphaRx has undergone many positive changes. New corporate
initiatives for China and a corresponding strategic growth plan, led by Ruby
Hui, were implemented; our corporate strategy was refocused on commercializing
our nano drug delivery technology as quickly as possible, building high-value
partnerships and reprioritizing the product pipeline. Spending was redirected
and aggressive cost control initiatives were implemented. We continue to
investing in the further development of our nano drug delivery technology and to
actively seek collaborators and licensees to accelerate the development and
commercialization of products incorporating our nano drug delivery system in
exchange for milestone payments and royalties. Further development, exploration
and commercialization of the technology entail risk and operational expenses.
However, we have made significant progress on refocusing our efforts on
strategic development initiatives and cost control and continue to aggressively
seek to reduce non-strategic spending.

Although our product development program address various
pharmaceutical markets, including inflammation, stroke and pneumonia, we
constantly evaluate and reassess our development program, resulting in new
product candidates and discontinuing or delaying lower priority development
program. This development optimization process is essential for assembling a
portfolio of short and long-term drug candidates, in order to build a stable and
sustainable revenue and profits for our Company.

Recent Developments

On April 9, 2010, we entered into a non-binding letter of
intent with Pacific Orient Capital Inc. (Pacific), a Capital Pool Company
listed on the TSX Venture Exchange, concerning the proposed acquisition of AlphaRx Canada Limited ("ACL"), a wholly owned subsidiary of
the Company. The letter of intent was subsequently amended on June 9, 2010. The
proposed acquisition, if completed, will constitute Pacific's qualifying
transaction pursuant to the policies of the TSX Venture Exchange Inc. (the
"Exchange").The qualifying transaction is to be completed by (a) the
acquisition of ACL by way of share exchange through the issuance of one common
share of Pacific for every one common share of ACL at a deemed price of C$0.40
per share; and (b) the acquisition by Pacific of a licence from AIH to
commercialize the prescription drug Indaflex in Mexico and Asia for 8,250,000
common shares of Pacific at a deemed price of C$0.40 per share (the
"Transaction"). Pacific has advanced $25,000 to the Company on a non-refundable
basis. Completion of the proposed Transaction is conditional on the execution of
a definitive agreement to be negotiated among the parties, the satisfactory
completion of due diligence, Exchange acceptance and the satisfaction of the
minimum listing requirements of the Exchange.

11

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On June 28, 2010, we terminated our licensing agreement with
Cypress Biosciences (Cypress), our worldwide (except Mexico and Asia)
development partner for Indaflex. Despite the termination of Indaflex
development program with Cypress, we continue to develop Indaflex for the
Chinese market. We are currently working with our regulatory consultants,
pending availability of stability data, in preparation for submission of a
clinical trial application with the China State Food and Drug Association
(SFDA) in order to begin human trials in China. These preparations are
proceeding on schedule.

We established a feasibility and option agreement in October
2008 with Gaia BioPharma Limited, a privately held early stage biopharmaceutical
company. We concluded formulation development on GAI-122 during August 2009.
GAI-122 is an investigational, injectable nanoemulsion of a
Mitochondria-targeted neuroprotective agent formulated with our nanoemulsion
drug delivery technology. GAI-122 has been shown to provide significant
neuro-protection in multiple in vitro and in vivo animal studies, suggesting
that this injectable nanoemulsion formulation has the potential to treat
patients with acute ischemic stroke or to prevent postoperative delirium.
GAI-122 is proceeding to the clinical trial materials manufacturing stage and is
expected to enter clinical trials in 2011. GAI-122 is protected by 4 United
States patent applications and 2 Chinese patent applications.

Our other product candidates in development are in earlier or
preclinical research phases, and we continue to assess them for their
compatibility with our technology and market need. Our intent is to seek
partnerships with pharmaceutical and biotechnology companies for certain of
these products. We plan to expand our pipeline with product candidates that
demonstrate significant opportunities for growth.

Overview of Results of Operations

|Three                           | June 30   | Mar 31    | Dec 31    | Sep 30    | June 30   | Mar 31    | Dec 31     
|------------------------------- | --------- | --------- | --------- | --------- | --------- | --------- | -----------
|Months                          | 2010      | 2010      | 2009      | 2009      | 2009      | 2009      | 2008       
|Ended                           | $         | $         | $         | $         | $         | $         | $          
|Net Sales                       | 45,623    | 48,720    | 51,570    | 88,815    | 20,982    | 164,109   | 103,574    
|Net Income (Loss)               | (157,366) | (206,078) | (122,518) | (208,562) | (235,695) | 20,951(2) | (18,570)(2)
|Net Income (Loss) per Share (1) | (0.00)    | (0.01)    | (0.01)    | (0.01)    | (0.01)    | 0.00      | (0.00)     

NOTE (1) Net Loss per share on a quarterly basis does not equal
net Loss per share for the annual periods due to rounding. NOTE (2) These
amounts have been reclassified to conform to current presentation for the nine
months ended June 30, 2010 and June 30, 2009. Each subsequent quarter will also
be restated accordingly at the end of each subsequent quarterly period as
required.

12

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RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30,
2010, AS COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2009

The Company incurred a net loss of $485,962 for the nine month
period ended June 30, 2010 as compared to a net loss of $233,314 incurred for
the same period a year ago, an increase of $252,648. Revenues during the nine
months ended June 30, 2010 were about $143,000 less than in the previous period
and general and administrative expenses were about $262,360 (includes warrants
expense of $121,683) less than in previous period. These two items were the
primary cause for the increase in net loss between periods.

Revenues

Total revenues for the nine-month period ended June 30, 2010
were $145,913 as compared to $288,665 generated for the same period a year ago,
a decrease of $142,752 or about 49%. Royalty revenues were comparable year over
year at $33,319 for the nine months ended June 30, 2010 as compared to $31,929
for the same period a year ago. The Company also generated licensing revenues in
the amount of $36,971 for the nine months ended June 30, 2010 with no comparable
revenues for the same period a year ago. We also generated $30,000 in consulting
revenues for the nine months ended June 30, 2010 as compared to $235,754 in
consulting revenues generated for the same period a year ago. We continue to
pursue revenue opportunities in all forms (consulting, royalties and license
fees).

General and Administrative Expenses

General and Administrative expenses consist primarily of
personnel costs related to general management functions, finance, office
overheads, as well as insurance costs and professional fees related to legal,
audit and tax matters.

General and Administrative expenses were $418,565 for the nine
month period ended June 30, 2010 as compared to $310,621 incurred for the same
period a year ago, an increase of $107,944 or about 34%. We realized a foreign
exchange gain of $14,747 during the nine months ended June 30, 2010 as compared
to a foreign exchange loss of $81,801 incurred in the same period a year ago, an
increase in this expense of $96,548 between periods. We incurred travel expenses
of $24,690 during the nine months ended June 30, 2010 as compared to $23,840
incurred during the same period a year ago. We incurred $104,683 in total
administrative staff costs for the nine months ended June 30, 2010 as compared
to $83,472 incurred in the same period a year ago, an increase of $21,211 or
about 25%. These staff costs cover President of China Operations, President and
CEO, CFO and office administrator for the Company and its subsidiaries.
Compensation expense of $121,683 was recorded during the nine months ended June
30, 2010 as the company issued warrants to purchase common stock in exchange for
services rendered by advisors.

Research and Development Expenses

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

Research and development expenses for the nine months ended
June 30, 2010 were $134,175 as compared to $126,807 incurred for the same period
a year ago, an increase of $7,368 or about 5%. Staff costs including consultants
were $101,686 as compared to $99,896 incurred during the same period a year ago,
an increase of $1,790 or about 1%. The continuing strength of the Canadian
dollar continues keep out US Dollar costs high when translated. We currently
have 3 full time staff. Research efforts will again increase in the future
depending on the timing and availability of additional funds. We also seek
collaborative partners in order to obtain third party funding for certain drug
candidates that show commercial promise in exchange for commercialization
rights.

13

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Depreciation

Depreciation totalled $30,407 for the nine months ended June
30, 2010 as compared to $48,788 incurred during the same period a year ago, a
decrease of $18,381 or about 37%. Our capital asset purchases were minimized
during the last two fiscal years totalling less than $17,000. Certain assets are
now fully depreciated resulting in decreasing depreciation expense. Should any
assets become permanently impaired they are written off to income as
determined.

Loss from Operations

Loss from operations were $437,234 for the nine months ended
June 30, 2010 as compared to a net loss of $197,551 incurred for the same period
a year ago, an increase of $239,683.

Interest Expense

Interest expense for the nine months ended June 30, 2010 was
$67,652 as compared to interest expense of $36,839 generated during the same
period a year ago. There were approximately $706,000 in promissory notes and
accrued interest outstanding as of June 30, 2010 as compared to approximately
$526,408 as of June 30, 2009 leading to an increase in interest expense.

Non-Controlling interest in gain/(loss) of Consolidated
Subsidiaries

We reflected a non-controlling interest income of $4,559 for
the nine months ended June 30, 2010 as compared to a non-controlling interest
loss of $1,076 for the same period a year ago. Non-Controlling interest
represents our minority shareholders proportionate interest in our 20% owned
subsidiary  AIH.

The non-controlling interest resulted in the investment in our
subsidiary AlphaRx International Holdings Ltd. by an independent third party 
New Super Ltd. during June 2006. On 5/18/2010, New Super Ltd had infused an
additional $173,237 in exchange of an additional 5% ownership of our subsidiary
AlphaRx International Holdings Ltd.

Net Loss

As a result of the above mentioned revenue and expense items,
we incurred a net loss of $485,962 for the nine months ended June 30, 2010 as
compared to a net loss of $233,314 generated in the same period a year ago.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2010 the Company had a working capital
deficiency of $1,146,956 as compared to a working capital deficiency of $829,326
as at June 30, 2009. The Company has also increased its stockholders deficiency
to $1,093,964 as at June 30, 2010 compared to a stockholders deficiency of
$900,583 as at June 30, 2009. We did not issue any stock during the nine months
ended June 30, 2010.

We have a licensing arrangement with Andromaco, which provides
us with a small royalty stream. We also have licensing arrangements with Gaia
BioPharma Limited which may provide us with milestone payments and/or royalty
streams in the future. There is no assurance that such payments or royalty
streams will materialize.

Since inception, we have financed operations principally from
the sale of Common Stock and issuance of promissory notes and expect to continue
this practice to fund our ongoing activities.

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 stockholders, and debt financing, if available, may
require additional stock to be issued and/or involve restrictive covenants on
our business.

14

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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 licensees and distribution 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 or to retain
      sales and marketing partners to market our products;
|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.                    

The inability to raise capital would have a material adverse
effect on the Company. We currently have no capital commitments other than one
leased auto and for certain research equipment.

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

Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer
and Principle Accounting Officer, we have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures, as such term
is defined in Rules 13a-15e promulgated under the Exchange Act as of the date of
this report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer and Principal Accounting Officer have concluded that our
disclosure controls and procedures were ineffective as of the end of the period
covered by this report to provide reasonable assurance that material information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms.

Management is aware that there is a lack of segregation of
certain duties at the Company due to the small number of employees with
responsibility for general administrative and financial matters. This
constitutes a deficiency in financial reporting. However, at this time,
management has decided that considering the employees involved and the control
procedures in place, the risks associated with such lack of segregation of
duties are insignificant and the potential benefits of adding additional
employees to clearly segregate duties do not justify the additional expenses associated with such
increases. Management will periodically reevaluate this situation. If the volume
of business increases and sufficient capital is secured, it is the Companys
intention to further increase staffing to mitigate the current lack of
segregation of duties within the general, administrative and financial
functions.

15

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Managements Report on Internal Control over Financial
Reporting

Management assessed our internal control over financial
reporting as of June 30, 2010. Management based its assessment on criteria
established in Internal Control  Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Managements
assessment included an evaluation of the design of our internal control over
financial reporting and testing of the operational effectiveness of those
controls.

Based on this assessment, management has concluded that as of
June 30, 2010, our internal control over financial reporting was ineffective to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with U.S. generally accepted accounting principles. We noted that there is a
lack of segregation of certain duties at the Company due to the small number of
employees with responsibility for general administrative and financial matters.
This constitutes a deficiency in financial reporting. We therefore conclude that
our disclosure controls over financial reporting were ineffective as of and for
the nine months ended June 30, 2010. At this time, management has decided that
considering the employees involved and the control procedures in place, the
risks associated with such lack of segregation of duties are insignificant and
the potential benefits of adding additional employees to clearly segregate
duties do not justify the additional expenses associated with such increases.
Management will periodically re-evaluate this situation. If the volume of
business increases and sufficient capital is secured, it is the Companys
intention to further increase staffing to mitigate the current lack of
segregation of duties within the general, administrative and financial
functions.

Changes in Internal Controls

Management has evaluated the effectiveness of the disclosure
controls and procedures as of June 30, 2010. Based on such evaluation,
management has concluded that the disclosure controls and procedures were
ineffective for their intended purpose described above. There were no changes to
the internal controls during the nine months ended June 30, 2010 that have
materially affected or that are reasonably likely to affect the internal
controls.

Limitation on the Effectiveness of Controls

A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control weaknesses or shortfalls, if any, within a company have been detected.
Such limitations include the fact that human judgment in decision-making can be
faulty and that breakdowns in internal control can occur because of human
failures, such as simple errors or mistakes or intentional circumvention of the
established process.

Evaluation of Disclosure Controls and Procedures.

The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer and Principle
Accounting Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures as of June 30, 2010. The Company's Chief Executive
Officer and Chief Financial Officer and Principle Accounting 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.

16

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|PART II: | OTHER INFORMATION
|-------- | -----------------

ITEM 1 - LEGAL PROCEEDINGS

There are currently no legal proceedings against the Company or
any of its subsidiaries.

ITEM 1A  RISK FACTORS

The following risk factors should be read carefully in
connection with evaluating our business and the forward-looking statements that
we make in this Report and elsewhere (including oral statements) from time to
time. Any of the following risks could materially and adversely affect our
business, our operating results, our financial condition and the actual outcome
of matters as to which forward-looking statements are made in this Report.

Financial Risks

- We have a history of operating losses and we may never achieve
  profitability. If we continue to incur losses or we fail to raise additional
  capital or receive substantial cash inflows from our major shareholders, we
  may be forced to cease operations.
- We may not be able to make the payments we owe to our creditor.
- The audit opinion issued by our independent registered public accounting
  firm relating to our financial statements for the year ended September 30,
  2009 contained a going concern explanatory paragraph.

Risks Related to our Business

- We are highly dependent on the clinical success of our product candidates.
- We are highly dependent upon collaborative partners to develop and
  commercialize compounds using our delivery agents.
- Our collaborative partners control the clinical development of certain of
  our drug candidates and may terminate their efforts at will.
- Our product candidates are in various stages of development, and we cannot
  be certain that any will be suitable for commercial purposes.
- Our collaborative partners are free to develop competing products.
- Our business will suffer if we cannot adequately protect our patent and
  proprietary rights.
- We may be at risk of having to obtain a license from third parties making
  proprietary improvements to our technology.
- We are dependent on third parties to manufacture and, in some cases, test
  our products.
- We are dependent on our key personnel and if we cannot recruit and retain
  leaders in our research, development, manufacturing, and commercial
  organizations, our business will be harmed.

Risks Related to our Industry

- Our future business success depends heavily upon regulatory approvals,
  which can be difficult to obtain for a variety of reasons, including
  cost.

17

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- We may face product liability claims related to participation in clinical
  trials for future products.
- We are subject to environmental, health and safety laws and regulations
  for which we incur costs to comply.
- We face rapid technological change and intense competition.

Other Risks

- Our disclosure controls & procedures and internal control over
  financial reporting were ineffective. In connection with managements
  assessment of the Companys disclosure controls & procedures and internal
  control over financial reporting, we identified the following material
  weakness in our disclosure controls & procedures and internal control over
  financial reporting as of June 30, 2010: Segregation of Duties:We did
  not maintain adequate segregation of duties related to job responsibilities
  for initiating, authorizing, and recording of certain transactions. Due to
  this material weakness, there is a risk that a material misstatement in the
  financial statements would not be prevented or detected on a timely basis. A
  deficiency in disclosure and internal controls may result in a loss of public
  confidence in the Company, which could have an adverse effect on our stock
  price.

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

We did not issue nor purchase any equity securities during the
nine months ended June 30, 2010 and 2009. Warrants to purchase 5,000,000 shares
of Common Stock expired on December 31, 2009. There were 92,371,192 shares of
Common Stock issued and outstanding as of March 31, 2010 and 2009 and there
would be 113,371,342 shares of Common Stock issued and outstanding if all
warrants and assigned options were exercised as of June 30, 2010. There remains
4,310,000 unassigned options as of June 30, 2010 which have been previously
approved for issuance.

We issued warrants to purchase 3,740,150 shares of common stock
at $0.085 per share as of April 12, 2010. These warrants were issued in exchange
for financial advisory services to be provided until September 30, 2010. These
warrants expire on April 11, 2015.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4 - (REMOVED AND RESERVED

ITEM 5 - OTHER INFORMATION

Not Applicable

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

|(i) | 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. and Principle Accounting Officer
      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 Michael Lee pursuant to Section 1350 of
      Chapter 63 of Title 18 United States Code.                 

(ii) REPORTS ON FORM 8-K.During the fiscal quarter
ended June 30, 2010, the Company filed the following Current Reports on Form
8-K:

On May 18, 2010, the Company filed a Current Report on Form
8-K, as amended by a Current Report filed on Form 8-K/A on May 19, 2010,
announcing the resignation of Marcel Urbanc as Chief Financial Officer of the
Company and appointed Michael Lee as the interim Chief Financial Officer of the
Company.

---

SIGNATURES:

Pursuant to the requirements of Section 13 or 15(d) 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: August 19, 2010

ALPHARx INC.

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

Directors:

By: /S/ Michael M. LeeMichael M. Lee, Director

By: /S/ David MilroyDavid Milroy, Director

By: /S/ Ford MooreFord Moore, Director

19

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