SECURITIES AND EXCHANGE COMMISSION

FORM 10-QSB

[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934. 
For the quarterly period ended: June 30, 2007

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.

|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 15, 2007
was 57,808,112.

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

---

ALPHARX, INC.FORM 10-QSB

JUNE30, 2007

TABLE OF CONTENTS



|                                                                                   |   
|---------------------------------------------------------------------------------- | --
|                                                                                   |   
|Unaudited Interim
    Consolidated Balance Sheets as of June 30,                   |   
|2007 and September 30, 2006                                                        | 3 
|                                                                                   |   
|Unaudited Interim
    Consolidated Statements of Operations for the three and nine |   
|months ended June 30, 2007 and 2006                                                | 4 
|                                                                                   |   
|Unaudited Interim
    Consolidated Statements of Changes in Shareholders Deficit  | 5 
|                                                                                   |   
|Unaudited Interim
    Consolidated Statements of Cash Flow for the nine months     |   
|ended June 30, 2007 and 2006                                                       | 6 
|                                                                                   |   
|Condensed Notes to
    Unaudited Interim Consolidated Financial Statements         | 7 
|                                                                                   |   
|Managements
    Discussion and Analysis of Financial Condition and Plan           |   
|of Operation                                                                       | 12
|                                                                                   |   
|Other Information                                                                  | 18
|                                                                                   |   
|Exhibits
    31.2, 31.2, 32.1, 32.2                                                | 20



---

ALPHARX, INC. INTERIM CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2007 AND SEPTEMBER 30,2006 
(UNAUDITED) 
(All amounts in US Dollars)

|                                                                     |   |              |  |   |              
|-------------------------------------------------------------------- | - | ------------ |  | - | -------------
|                                                                     |   | June 30,     |  |   | September 30,
|                                                                     |   | 2007         |  |   | 2006         
|CURRENT ASSETS                                                       |   |              |  |   |              
|                                                                     |   |              |  |   |              
|Cash and Cash Equivalents                                            | $ | 526,083      |  | $ | 987,753      
|Marketable Securities                                                |   | 6,643        |  |   | 176,418      
|Accounts Receivable, net                                             |   | 8,218        |  |   | 10,770       
|Prepaid Expenses and Other Assets                                    |   | 4,660        |  |   | 9,506        
|Discontinued Operations (Note 3)                                     |   | -            |  |   | 4,474        
|TOTAL CURRENT ASSETS                                                 |   | 545,604      |  |   | 1,188,921    
|                                                                     |   |              |  |   |              
|PROPERTY, PLANT & EQUIPMENT, net                                     |   | 228,174      |  |   | 282,679      
|OTHER
    ASSETS                                                     |   |              |  |   |              
|Licensing Right                                                      |   | 1            |  |   | 1            
|TOTAL
    ASSETS                                                     |   | 773,779      |  |   | 1,471,601    
|                                                                     |   |              |  |   |              
|CURRENT LIABILITIES                                                  |   |              |  |   |              
|Accounts Payable and Accrued Liabilities                             |   | 547,166      |  |   | 532,509      
|Notes Payable (note 4)                                               |   | 1,444,895    |  |   | 780,323      
|Discontinued Operations (note 3)                                     |   | 18,065       |  |   | 52,218       
|Deferred Revenue                                                     |   | 75,000       |  |   | -            
|TOTAL CURRENT LIABILITIES                                            |   | 2,085,126    |  |   | 1,365,050    
|                                                                     |   |              |  |   |              
|MINORITY INTEREST (note 5)                                           |   | 122,619      |  |   | 161,283      
|                                                                     |   |              |  |   |              
|SHAREHOLDERS EQUITY/(DEFICIT)                                       |   |              |  |   |              
|Common
    Stock: $ 0.0001 par value,                                |   |              |  |   |              
|Authorized: 250,000,000 shares; Issued and outstanding June          |   |              |  |   |              
|30,
    2007- 57,808,112 (September 30, 2006-57,508,112) (Notes 6-8) |   | 5,782        |  |   | 5,752        
|Additional paid-in capital                                           |   | 14,629,627   |  |   | 14,479,082   
|Accumulated Other Comprehensive Loss                                 |   | (12,485)     |  |   | (5,329)      
|Deficit                                                              |   | (16,056,890) |  |   | (14,534,237) 
|                                                                     |   |              |  |   |              
|TOTAL
    SHAREHOLDERS EQUITY/(DEFICIT)                             |   | (1,433,966)  |  |   | (54,732)     
|                                                                     |   |              |  |   |              
|TOTAL
    LIABILITIES AND SHAREHOLDERS                              |   |              |  |   |              
|EQUITY/(DEFICIT)                                                     | $ | 773,779      |  | $ | 1,471,601    

See condensed notes to consolidated financial statements

3

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ALPHARX, INC. CONSOLIDATED STATEMENTS OF OPERATIONS 
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006 (All amounts in US Dollars)

|                                                                       | Three months ended June 30 |  | Nine months ended June 30
|---------------------------------------------------------------------- | -------------------------- |  | -------------------------
|                                                                       | 2007                       |  | 2006                     
|LICENSE
    FEES AND ROYALTIES                                         | 35,856                     |  | 909,201                  
|OTHER
    REVENUES                                                     | -                          |  | -                        
|TOTAL
    REVENUES                                                     | 35,856                     |  | 909,201                  
|                                                                       |                            |  |                          
|GENERAL
    AND ADMINISTRATIVE EXPENSES                                | 298,049                    |  | 383,244                  
|STOCK
    BASED COMPENSATION                                           |                            |  |                          
|EXPENSE
    AND WARRANT                                                |                            |  |                          
|AMORTIZATION                                                           | 34,946                     |  | 178,025                  
|RESEARCH
    AND DEVELOPMENT EXPENSES                                  | 115,176                    |  | 452,051                  
|SALES AND
    MARKETING EXPENSES                                       | -                          |  | 52,569                   
|DEPRECIATION                                                           | 25,660                     |  | 20,961                   
|LOSS FROM
    OPERATIONS                                               | (437,975)                  |  | (177,649)                
|                                                                       |                            |  |                          
|OTHER
    INCOME AND EXPENSES                                          |                            |  |                          
|                                                                       |                            |  |                          
|INTEREST (EXPENSE)/INCOME, NET                                         | (36,480)                   |  | (36,547)                 
|                                                                       |                            |  |                          
|LOSS
    BEFORE INCOME TAXES                                           | (474,455)                  |  | (214,196)                
|                                                                       |                            |  |                          
|INCOME TAX                                                             | -                          |  | -                        
|                                                                       |                            |  |                          
|LOSS
    BEFORE MINORITY INTEREST                                      | (474,455)                  |  | (214,196)                
|MINORITY
    INTEREST                                                  | 8,348                      |  | 29,084                   
|LOSS
    BEFORE DISCONTINUED OPERATIONS                                | (466,107)                  |  | (185,112)                
|(LOSS)
    GAIN FROM OPERATIONS OF
    DISCONTINUED COMPONENT (note 4) | 3,871                      |  | (20,897)                 
|NET LOSS                                                               | (462,236)                  |  | (206,009)                
|CUMULATIVE
    TRANSLATION ADJUSTMENT                                  | (3,338)                    |  | -                        
|COMPREHENSIVE LOSS                                                     | $(465,574)                 |  | $ (206,009)              
|                                                                       |                            |  |                          
|NET LOSS
    PER COMMON SHARE, BASIC &
    DILUTED                     | $(0.01)                    |  | $(0.01)                  
|WEIGHTED
    AVERAGE NUMBER OF COMMON
    SHARES OUTSTANDING           | 57,808,112                 |  | 57,508,112               

See condensed notes to consolidated financial statements

4

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ALPHARX, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY 
FOR THE PERIOD ENDED JUNE 30, 2007 
(All amounts in US Dollars)

|                      | Common Stock  |        |             |                |              
|--------------------- | ------------- | ------ | ----------- | -------------- | -------------
|                      |               |        |             | Accumulated    |              
|                      |               |        | Additional  | Other
    Com- |              
|                      | Number
    of |        | Paid in     | prehensive     |              
|                      | Shares        | Amount | Capital     | Loss           | (Deficit)    
|                      |               |        |             |                |              
|Balance, as of        |               |        |             |                |              
|September 30, 2005    | 57,508,112    | $5,752 | $12,163,243 | -              | $(12,011,944)
|Issuance of stock     |               |        |             |                |              
|options for           |               |        |             |                |              
|consulting services   |               |        | 233,838     |                |              
|Stock based           |               |        |             |                |              
|compensation          |               |        | 483,279     |                |              
|Unamortized           |               |        |             |                |              
|warrant discount      |               |        | 504,495     |                |              
|                      |               |        |             |                |              
|Net Loss for the year |               |        |             |                | (2,522,293)  
|Subsidiary common     |               |        |             |                |              
|stock issuance        |               |        | 1,094,227   |                |              
|Foreign currency      |               |        |             |                |              
|translation           |               |        |             | (5,329)        |              
|Balance, as of        |               |        |             |                |              
|September 30, 2006    | 57,508,112    | $5,752 | $14,479,082 | $(5,329)       | $(14,534,237)
|Issuance of stock for |               |        |             |                |              
|consulting services   | 300,000       | 30     | 29,970      |                |              
|Unamortized           |               |        |             |                |              
|warrant discount      |               |        | 104,823     |                |              
|Stock based           |               |        |             |                |              
|compensation          |               |        | 15,752      |                |              
|Net Loss for the      |               |        |             |                |              
|period                |               |        |             |                | (1,522,653)  
|Foreign currency      |               |        |             |                |              
|translation           |               |        |             | (7,156)        |              
|Balance as of         |               |        |             |                |              
|June 30, 2007         | 57,808,112    | $5,782 | $14,629,627 | $(12,485)      | $(16,056,890)

See condensed notes to consolidated financial statements

5

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ALPHARX, INC. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS 
FOR THE NINE MONTHS ENDED JUNE 30, 2007 AND 2006 
(UNAUDITED) 
(All amounts in US Dollars)

|Taxes Paid                                                          | $    | 0           |      | $ | 0          
|------------------------------------------------------------------- | ---- | ----------- | ---- | - | -----------
|Nine
    months ended June 30,                                      | 2007 |             | 2006
|                                                                    |      |             |      |   |            
|CASH FLOWS
    FROM OPERATING ACTIVITIES                            |      |             |      |   |            
|Net Loss                                                            | $    | (1,522,653) |      | $ | (1,947,036)
|Adjustments to reconcile net loss to net cash
    used in operating |      |             |      |   |            
|activities:                                                         |      |             |      |   |            
|Depreciation and amortization                                       |      | 70,342      |      |   | 54,040     
|Warrant amortization                                                |      | 286,903     |      |   | 130,214    
|Stock based compensation expense                                    |      | 15,752      |      |   | 483,279    
|Options issued for services rendered                                |      | -           |      |   | 172,196    
|Issuance of common stock for services rendered                      |      | 30,000      |      |   | -          
|Changes in assets and liabilities:                                  |      |             |      |   |            
|Decrease in marketable securities                                   |      | 169,775     |      |   | -          
|Decrease (Increase) in accounts receivable                          |      | 2,552       |      |   | (10,161)   
|Decrease in prepaid expenses                                        |      | 4,846       |      |   | 3,054      
|Increase (Decrease) in accounts payable and
    accrued liabilities |      | 14,657      |      |   | 188,480    
|Accrued interest on notes payable                                   |      | 87,971      |      |   | -          
|Increase in deferred revenue                                        |      | 75,000      |      |   | -          
|Discontinued operations (Note 3)                                    |      | (29,679)    |      |   | 80,400     
|                                                                    |      |             |      |   |            
|NET CASH
    USED IN OPERATING ACTIVITIES                           |      | (794,534)   |      |   | (845,534)  
|                                                                    |      |             |      |   |            
|CASH FLOWS
    FROM INVESTING ACTIVITIES                            |      |             |      |   |            
|                                                                    |      |             |      |   |            
|Purchase of Machinery & Equipment, net of
    disposals             |      | (6,289)     |      |   | (124,220)  
|                                                                    |      |             |      |   |            
|NET CASH
    USED IN INVESTING ACTIVITIES                           |      | (6,289)     |      |   | (124,220)  
|                                                                    |      |             |      |   |            
|CASH FLOWS
    FROM FINANCING ACTIVITIES                            |      |             |      |   |            
|Minority Interest                                                   |      | (38,664)    |      |   | 165,515    
|Issuance of 15% equity in subsidiary common stock                   |      | -           |      |   | 1,094,227  
|Discount on issuance of Notes Payable                               |      | 104,823     |      |   | 482,062    
|Issuance (repayment) of Notes Payable, net                          |      | 289,698     |      |   | 307,248    
|                                                                    |      |             |      |   |            
|NET CASH
    PROVIDED BY FINANCING ACTIVITIES                       |      | 355,857     |      |   | 2,049,052  
|                                                                    |      |             |      |   |            
|Effect of
    exchange rate changes on cash and cash equivalents    |      | (16,704)    |      |   | -          
|                                                                    |      |             |      |   |            
|NET
    (DECREASE)/ INCREASE IN CASH                                |      | (461,670)   |      |   | 1,079,298  
|                                                                    |      |             |      |   |            
|Cash, and cash equivalents, beginning of period                     |      | 987,753     |      |   | 193,458    
|                                                                    |      |             |      |   |            
|Cash, and cash equivalents, end of period                           | $    | 526,083     |      | $ | 1,272,756  
|                                                                    |      |             |      |   |            
|Interest
    Paid                                                   | $    | 17,115      |      | $ | 0          

See condensed notes to consolidated financial statements

6

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ALPHARX INC. CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 
JUNE 30, 2007 
(UNAUDITED)

NOTE 1. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited 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, 2007. Interim 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.

Effective June 30, 2006, AlphaRx International Holdings
Limited. ("AIH") acquired 100% of AlphaRx Life Sciences Ltd. ("ALS") for a
nominal amount and the assumption of approximately $63,000 of related party
liabilities. ALS is involved in obtaining necessary regulatory approvals for the
manufacture and distribution of the Companys products in the Asian market and
in China based research and development.

Effective June 22, 2006, New Super Limited, an independent
Hong Kong based corporation, subscribed for 1,500 shares of common stock of
AlphaRx International Holdings Ltd.("AIH"), previously a wholly-owned subsidiary
of the Company.

The consolidated financial statements reflect the activities
of the Company, 100% of AlphaRx Canada Limited and 85% of AlphaRx International
Holdings Limited and AlphaRx Life Sciences Ltd. (AIHs wholly owned subsidiary).
All material inter-company accounts and transactions have been eliminated.

The accompanying 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. DISCONTINUED OPERATIONS

The Company terminated direct sales and marketing program for
Flexogan during the year ended September 30, 2006. Substantially more funding
for sales and marketing would be required than was available in order to grow
sales. Accordingly direct sales and marketing activity ceased. The statements of
income and loss and balance sheet items related to the discontinued operations
are as follows:

7

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|INCOME STATEMENTS
    FOR THREE AND NINE MONTHS ENDED JUNE 30, 2007 AND 2006
|----------------------------------------------------------------------------
|                                                                            
|June 30                                                                     
|                                                                            
|                                                                            
|Sales                                                                       
|Cost of Sales                                                               
|Gross Margin                                                                
|                                                                            
|General and Administrative                                                  
|Sales and Marketing                                                         
|                                                                            
|Profit(Loss) on discontinued
    operations                                 
|                                                                            
|BALANCE SHEETS AS AT                                                        
|                                                                            
|                                                                            
|Other assets                                                                
|Total Current Assets                                                        
|                                                                            
|Accounts Payable and Accrued                                                
|Liabilities                                                                 
|Total Current Liabilities                                                   
|                                                                            
|Net Assets (Liabilities)                                                    

NOTE 4. NOTES PAYABLE

The Company issued $394,521 in promissory notes with attached
warrants during the nine months ended June 30, 2007. These notes bear interest
at 12% per annum and are repayable on the first anniversary of the date of
issuance. Prepayment of these notes prior to the first anniversary date is
permitted. The attached warrants required a discount to be established in the
amount of $104,823. This discount is being amortized over the term of the
promissory notes.

AlphaRx Life Sciences Ltd. (an indirect 85% subsidiary of the
Company) also repaid promissory notes owing in the amount of $52,928 (including
$17,115 in accrued interest) from funds available in that subsidiary.

|Promissory Notes
    Issued:      | $1,362,285
|--------------------------------- | ----------
|Discount on Promissory
    Notes: | (609,318) 
|Interest Accrued                  | 153,305   
|Discount Amortized:               | 538,623   
|                                  |           
|Promissory Notes
    Payable      |           
|June 30, 2007:                    | $1,444,895

There remains $70,695 in discount to be amortized over the
life of the promissory notes.

We have extended the repayment of approximately $808,000 of
promissory notes including accrued interest for an indeterminate amount of time.
Interest continues to accrue on the principal amount at 12% per annum. See also
note 9  Related Party Transactions.

NOTE 5. MINORITY 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 are now 10,000 common shares outstanding of which 8,500 or
85% belong to the Company. Prior to the transaction the Company owned 100% of
AIH. With the consolidation of only 85% of AIH, a minority interest was
established, representing net amounts owing to the minority shareholder. The
capital infusion into AIH is accounted for as additional paid in capital on the
consolidated financial statements of the Company.

8

---

NOTE 6. COMMON STOCK
The Company is authorized to issue 250,000,000 shares of
common stock. As of June 30, 2007, there remains issued and outstanding
57,808,112 shares of such common stock which has a stated par value of $0.0001
per share.
There were 300,000 shares issued of restricted common stock
during the three months ended December 31, 2006 in exchange for financial
consulting services rendered in the amount of $30,000. There were no shares
issued in the six months ended June 30, 2007. (No shares were issued during nine
months ended June 30, 2006).
NOTE 7. STOCK OPTION PLANS

The Company has a Stock Option Plan (the "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. A majority of shareholders approved the 2006 Option
Plan at the Annual General Meeting held March 29, 2006. Under this Plan up to
5,000,000 options may be granted. As of June 30, 2007 we have granted 90,000
options under the 2006 Option Plan. As each Plan exhausted the options available
for granting, a successor Plan was established. Outstanding stock options
granted under the old Plans 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 various
Plans stock option activity is as follows:

|2001
    Plan (succeeded by 2003 Plan)                   | Number
    of |  | Weighted
|-------------------------------------------------------- | ------------- |  | --------
|                                                         | Shares        |  | Average 
|                                                         |               |  | Exercise
|                                                         |               |  | Price   
|Options outstanding and exercisable at June 30, 2007     | 1,150,000     |  | $0.10   
|                                                         |               |  |         
|                                                         |               |  |         
|2003
    Plan (succeeded by 2004 Plan)                   | Number
    of |  | Weighted
|                                                         | Shares        |  | Average 
|                                                         |               |  | Exercise
|                                                         |               |  | Price   
|Outstanding at February 10, 2003                         | 0             |  |         
|Granted during fiscal 2003                               | 645,000       |  | $0.63   
|Exercised                                                | 0             |  | $0.00   
|Cancelled                                                | 75,000        |  | $0.63   
|Options outstanding and exercisable at June 30, 2007     | 570,000       |  | $0.63   
|                                                         |               |  |         
|                                                         |               |  |         
|2004
    Plan (succeeded by 2006 Plan)                   | Number
    of |  | Weighted
|                                                         | Shares        |  | Average 
|                                                         |               |  | Exercise
|                                                         |               |  | Price   
|Outstanding at July 24, 2004                             | 0             |  |         
|Granted during fiscal
    2004                           | 0             |  |         
|Granted during fiscal
    2005                           | 20,710,000    |  | $0.16   
|Granted during fiscal
    2006                           | 3,290,000     |  | $0.075  
|Granted during fiscal
    2007                           | 0             |  |         
|Exercised/Cancelled                                      | 0             |  |         
|Options outstanding
    and exercisable at June 30, 2007 | 24,000,000    |  | $0.157  

9

---



Additional information
with respect to the 2004 Plans stock option activity is as follows:

|Grant Date | Quantity   | Option | Expiry  | Fair Value | Risk   | Expected | Expected   | Expected
|---------- | ---------- | ------ | ------- | ---------- | ------ | -------- | ---------- | --------
|           | Granted    | Price  |         |            | Free   | Life     | Volatility | Dividend
|           |            |        |         |            | Rate   |          |            |         
|Nov 15,    | 13,220,000 | $0.15  | Nov 15, | $1,448,922 | 2.32%  | 10       | 185%       | NIL     
|2004       |            | to     | 2014    |            |        | years    |            |         
|           |            | $0.50  |         |            |        |          |            |         
|Jan 10,    | 7,000,000  | $0.15  | Feb 8,  | $1,045,056 | 2.02%  | 10       | 177%       | NIL     
|2005       |            |        | 2015    |            |        | years    |            |         
|Feb 8,     | 390,000    | $0.15  | Feb 8,  | $53,894    | 1.93%  | 10       | 156%       | NIL     
|2005       |            |        | 2015    |            |        | years    |            |         
|May 25,    | 100,000    | $0.13  | May 25, | $7,627     | 2.00%  | 10       | 70%        | NIL     
|2005       |            |        | 2015    |            |        | years    |            |         
|Oct 17,    | 3,290,000  | $0.075 | Oct 17, | $244,559   | 4.50 % | 10       | 75%        | NIL     
|2005       |            |        | 2015    |            |        | years    |            |         
|           | 24,000,000 |        |         | $2,800,058 |        |          |            |         



|2006
    Plan                        | Number
    of |  | Weighted
|------------------------------------ | ------------- |  | --------
|                                     | Shares        |  | Average 
|                                     |               |  | Exercise
|                                     |               |  | Price   
|Outstanding at September 30, 2006    | 0             |  |         
|Granted during fiscal
    2007       | 90,000        |  | $0.10   
|Exercised/Cancelled                  | 0             |  | $0.00   
|Options outstanding at June 30, 2007 | 90,000        |  | $0.10   
|Options exercisable at June 30, 2007 | 0             |  |         

The Company has adopted the fair value accounting for
employee stock options as per SFAS 123(R) using the modified retrospective
application method, effective April 1, 2005. The Company recorded $15,752 in
stock based compensation expense during the nine months ended June 30, 2007
($496,440 for the nine months ended June 30, 2006). The Black-Scholes option
pricing model was used to calculate this expense. There are no further stock
based compensation expenses to be recorded under the completed Option Plans.

NOTE 8. WARRANTS

The Company has the following warrants outstanding to
purchase common stock at June 30, 2007:

10

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Warrants issued in
      conjunction with financing costs whereby onewarrant entitles the
      holder to purchase one share of common stockat an exercise price
      of $1.10, expiring December 19, 2007.
      670,275Warrants issued in
      return for financial advisory services wherebyone warrant entitles
      the holder to purchase one share of commonstock at an exercise
      price of $0.05, expiring September 1, 2007.This warrant can
      only be exercised after January 29, 2005.
      3,000,000Warrants issued in
      conjunction with financing costs whereby onewarrant entitles the
      holder to purchase one share of common stockat an exercise price
      of $0.15, expiring September 1, 2007.
      2,994,642Warrants issued in
      conjunction with financing costs whereby onewarrant entitles the
      holder to purchase one share of common stockat an exercise price
      of $0.30, expiring September 1, 2007.
      2,287,669Warrants issued in
      conjunction with conversion of promissorynotes and in
      conjunction with the private placement completedduring July and
      September 2004. One warrant entitles the holderto 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.
      45,135,652Warrants issued in
      conjunction with the issuance of PromissoryNotes during fiscal
      2006. One warrant entitles the holder topurchase one share
      of common stock at an exercise price of $0.10,expiring February 13
      and September 30, 2008.
      5,524,453Warrants issued in
      conjunction with the issuance of PromissoryNotes during
      December 2006. One warrant entitles the holder topurchase one share
      of common stock at an exercise price of $0.10,expiring December
      31, 2008
      1,500,000Warrants issued in
      conjunction with the issuance of PromissoryNotes during March
      2007. One warrant entitles the holder topurchase one share
      of common stock at an exercise price of $0.10,expiring March 31,
      2009
      807,775Total Warrants
      Outstanding
      61,920,466


NOTE 9: RELATED PARTY TRANSACTIONS

The Company sources some of its funding in the form of
promissory notes from directors. The directors loaned the Company approximately
$19,500 during the nine months ended June 30, 2007 ($281,107 during the nine
months ended June 30, 2006). Total loans outstanding to directors as of June 30,
2007 were approximately $376,016 including accrued interest of approximately
$47,989. These loans bear interest at 12% per annum and are unsecured.

NOTE 10: RECLASSIFICATIONS

Certain amounts in prior years financial statements have
been reclassified to conform to current year presentation. In particular amounts
related to discontinued operations have been reclassified for comparison
purposes.

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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 condensed Notes
thereto, appearing in this Form 10-QSB. For additional information and complete
financial statement note disclosure as of September 30, 2006, reference should
be made to the annual Form 10KSB filed during December, 2006 and the amended
Form 10KSB/A filed during March, 2007. 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 human 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. We are no longer pursuing
direct marketing and sales of our market ready products, nor do we intend to
pursue direct marketing and commercialization of any newly developed products.
The absence of marketing expertise, and significant ongoing funding required to
introduce and promote a product successfully into the market are the principal
factors limiting our ability to directly market our proprietary products. We are
and will continue to seek out established collaborative partners, distributors
and licensees to commercialize and market our products in exchange for milestone
payments and royalties.

The costs incurred for individual research and development
initiatives to date cannot be readily determined because (i) there is no clear
distinction between initiatives in order to be able to differentiate between
them; (ii) all initiatives have a common goal and that is to adopt our
Bioadhesive Colloidal Dispersion drug delivery system to the specific drug in
order to improve that drugs effectiveness; and (iii) we do not maintain a time
control system to separately classify research and development activities
between similar initiatives.

The nature, timing and estimated costs to complete a research
and development initiative and anticipated completion dates cannot be estimated
because: (i) the nature of research is experimental and we could encounter
unforeseen situations which could significantly delay project completion or
require us to abandon the project; (ii) timing to complete a research initiative
depends, to a certain extent, on financial resources and we cannot predict with
any degree of certainty that financial resources will be available when needed
to complete any specific initiative; (iii) we cannot significantly influence our
partners and licensees as to timing and completion of collaborative efforts, and
(iv) cost estimates cannot be predicted with any acceptable degree of accuracy
due to unforeseen issues arising during the clinical stages or the approval
stages of any specific initiative.

If we cannot complete our research and development
initiatives on a timely basis consequences to our operations could be
significant to the point where the initiative would be delayed or even
abandoned. We could also face the risk of competitors developing the same or
similar products and being first to market. Finally, our failure to develop
products on a timely basis could substantially impair our ability to generate
revenues and materially harm our financial position.

We cannot predict the timing of material net cash inflows
(royalty and milestone payments) from our collaborative partners due to a number
of factors including (i) lack of control over the commercialization and
marketing process; (ii) our lack of historical experience with our partners; and
(iii) competitors products and the nature and timing of their marketing
initiatives. As we no longer market and sell our products directly we do not
anticipate any cash inflows from direct sales.

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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.
Recent Developments

Together with our licensee Proprius Pharmaceuticals Inc. ("Proprius"),
we completed Phase II clinical trials for Indaflex in March, 2007. The
randomized double-blind placebo and vehicle controlled trial, which included a
six week treatment period, was conducted on 233 patients with osteoarthritis of
the knee. While the trial did not meet its primary endpoints, subgroup analyses
of patients with moderate to severe pain and more impaired physical function at
baseline showed positive trends in patients treated with Indaflex as compared to
patients treated with either placebo or vehicle. Indaflex was demonstrated to be
safe and well tolerated. Under the terms of the Licensing Agreement with
Proprius we may not receive any milestone payments for this trial. Proprius
retained the rights to clinical development and commercialization of Indaflex in
April 2006 in exchange for an initial license fee and future milestone and
royalty payments. Future milestone and royalty payments are based on successful
completion of trials and commercialization of Indaflex. Proprius is solely
responsible for the global commercialization (with the exception of Asia and
Mexico) of Indaflex.
Our 85% owned subsidiary AlphaRx International Holdings
Ltd.("AIH"), through its wholly-owned subsidiary AlphaRx Life Sciences Ltd. has
commenced several research initiatives in Beijing, and in Moscow. Research
initiatives have commenced with Streptomycin for Tuberculosis, Levoflaxicin for
infection and we are continuing our research with Doxorubicin to address hepatic
cancer. Reduced costs and labour rates in China as compared to North America
allows us to expand research and development activities more efficiently even
when taking increased travel into account.
Preclinical research continues in Canada on Vansolin 
sepsis, Zysolin  pneumonia and sepsis, and Ocusolin  ocular infection. We have
concluded our formulation activities on three products for a global
pharmaceutical company based in the U.S. The adoption or rejection of our
formulations will not be determined until after our fiscal year end in
September, 2007.
In June, 2006 AIH issued 1,500 shares of its common stock to
New Super Limited ("NSL") in accordance with an agreement concluded during
April, 2006. The shares were issued for total cash consideration of $HK 10
million (USD $1,288,826). These funds are being utilized for research and
development initiatives in China and in Russia and also, to a certain extent in
Canada. There are presently 10,000 shares of common stock issued and
outstanding, of which 85% are owned by us. In accordance with SAB No. 51, we
have accounted for the issuance of our subsidiarys stock as a capital
transaction.
On May 1, 2006 we announced that AIH has entered into an
agreement with China Lianyungang City Golden Enterprises Limited ("China Party")
to establish a Joint Venture in mainland China. The Joint Venture intends to
establish a manufacturing facility in Lianyungang City, Jiangsu Province and a
distribution network in order to manufacture and market pharmaceutical products
licensed by AIH. In addition AIH will help to develop branded generic products
in lieu of capital payment into the Joint Venture. China Party has agreed to
inject working capital of RMB 250 million (approximately $USD 31 million) into
the Joint Venture in the form of equity. AIH will own 30% of the Joint Venture
common stock and China Party will own 70%. AIH is also to receive a 5% royalty
on all AIH licensed product sales generated by the Joint Venture. Delays are
being experienced in obtaining the appropriate operating licenses, and permits
from the government in order to commence building construction.
We signed a licensing agreement with Industria Farmaceutica
Andromaco, S.A. de C.V. ("Andromaco") in August 2003 for the commercialization
of our lead pharmaceutical product "Indaflex" in Mexico. Mexican health
authorities gave approval to Andromaco to start sales of Indaflex in Mexico. We
collected our first royalties from Indaflex sales in the year ended September
30, 2005. Royalties continue to flow into the Company based on sales generated
in Mexico by Andromaco.

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We established a wholly-owned subsidiary  AlphaRx
International Holdings Limited ("AIH") in April, 2005 and entered into a Joint
Venture Agreement with Basin Industrial Limited (a wholly-owned subsidiary of
Advance Pharmaceutical Co. Ltd.). The joint venture  AlphaAP Inc., is involved
in the manufacture and marketing of certain of the Companys existing products
in the Asia region. We received our initial royalties from AlphaAP Inc. in the
amout of HKD $100,000 in the three months ended June 30, 2007.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30,
2007, AS COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2006

We incurred a net loss before discontinued operations of
$1,543,239 for the nine month period ended June 30, 2007 as compared to a net
loss before discontinued operations of $1,791,658 incurred for the same period a
year ago, a decrease of $284,419 or approximately 14%. The decrease stems
primarily from a revenue decline of about $942,000, research and development
expenses have decreased by about $677,000 and a decrease in stock based
compensation expense and warrant amortization of about $483,000 when compared to
the same period a year ago.
Revenues

Revenues represent royalties earned from Andromaco based on
sales of Indaflex in Mexico and royalties paid by AlphaAP Inc. our Joint Venture
in China. Total revenues for the nine month period ended June 30, 2007 were
$74,550 as compared to $1,016,385 generated for the same period a year ago, a
decrease of $941,835 or about 93%. Excluding the $1,000,000 in license fees
collected during the nine month period ended June 30, 2006, we have increased
our royalty revenues from $16,385 for the nine month period ended June 30, 2006
to $73,550 in the nine month period ended June 30, 2007.
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 for the nine month
period ended June 30, 2007 were $606,083 as compared to $637,837 incurred for
the same period a year ago, a decrease of $31,754 or approximately 5%.
Stock Based Compensation Expense and Warrant Amortization

Based on the magnitude of this expense we have disclosed
these items separately from other general and administrative expenses. We
expensed $15,752 in stock based compensation and $286,903 in warrant
amortization during the nine month period ended June 30, 2007 for a total of
$302,655 in this expense category. This compares to $655,475 in stock based
compensation expense and $130,214 in warrant amortization during the same period
a year ago. Stock based compensation expense has decreased as all options issued
previously are now fully vested and all related stock based compensation expense
has been recognized. Any new options issued will attract further stock based
compensation expense.
We also issued warrants during the nine month period ended
June 30, 2007 in conjunction with the issuance of promissory notes. This, in
turn, required a discount to be established and to be amortized over the life of
the promissory notes. We amortized $286,903 of the discount during the nine
month period ended June 30, 2007 as compared to $130,214 during the same period
a year ago. The increase stems from the increased issuance of promissory notes
and the cumulative effect of warrant discount amortization over the life of the
promissory notes. There remains $70,695 in unamortized discount to be expensed
as at June 30, 2007.

14

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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 nine month period
ended June 30, 2007 were $582,400 as compared to $1,259,466 incurred for the
same period a year ago, a decrease of $677,066 or about 54%. Proprius
Pharmaceuticals Inc., in accordance with our agreement, absorbed all Phase II
Indaflex clinical trial expenses effective April 2006. Partially offsetting the
reduction of research and development expenses in North America, was the
commencement of research and development initiatives in China and Russia via our
indirect 85% owned subsidiary  AlphaRx Life Sciences Ltd. ("ALS"). We incurred
about $170,000 in research and development in ALS for the nine month period
ended June 30, 2007 with no comparable expense in the same period a year ago.
Sales and Marketing

Sales and marketing expenses for the nine month period ended
June 30, 2007 totalled $3,750 as compared to $52,569 incurred in the same period
a year ago. We paid out a $50,000 commission in relation to a one time licensing
arrangement in the nine months ended June30, 2006 with no comparable expense in
the same period this year. We have one part time marketing consultant based in
the U.S. responsible for sourcing marketing partners and distributors for our
market ready products.
Depreciation

Depreciation totalled $70,342 for the nine month period ended
June 30, 2007 as compared to $54,040 incurred during the same period a year ago,
an increase of $16,302 or about 30%. The increase stems from additional capital
expenditures incurred during 2006, which are now being depreciated at maximum
depreciation rates as compared to one half of the maximum depreciation rate in
the year of acquisition.
Loss from Operations

Loss from operations were $1,490,680 for the nine month
period ended June 30, 2007 as compared to a loss of $1,773,216 incurred for the
same period a year ago, a decrease of $282,536 or approximately 16%. Reduced
stock based compensation and warrant amortization expense accounts for
approximately $483,000 reduction; a reduction in research and development
expenses accounts for about $677,000 in reduced expenses, and total revenues
were about $942,000 less than the same period a year ago. These three items
combined account for about a $218,000 overall reduction in the Loss from
Operations.
Interest Expense

Interest expense for the nine month period ended June 30,
2007 was $91,223 as compared to net interest expense of $47,526 generated during
the same period a year ago. The increase in promissory notes from about $469,000
(before discount) as at June 30, 2006 to approximately $1,445,000 as at June 30,
2007 has caused the increase in interest expense.
Minority Interest

We reflected minority interest of $38,664 for the nine month
period ended June 30, 2007, representing our minority shareholders
proportionate interest in our 85% owned subsidiary  AIH. The minority interest
resulted based on the investment in our subsidiary AlphaRx International
Holdings Ltd. by an independent third party  New Super Ltd. during June 2006.
Previous to this investment we owned 100% of AIH.
LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2007 the Company had working capital
deficiency of $(1,539,522) as compared to a working capital deficiency of
$(176,129) as at September 30, 2006. The Company also has a shareholders
deficiency of $(1,433,966) as at June 30, 2007 as compared to a shareholders
deficiency of $(54,732) as at September 30, 2006. We issued approximately
$395,000 in promissory notes with attached warrants during the nine months ended
June 30, 2007 before discount of about $105,000. We intend to continue to issue
such promissory notes until we can source more permanent funding or until cash
flows improve. These notes are repayable within one year and bear interest at
12% per annum. To maintain our cash position, we have extended the repayment of
promissory notes due in the amount of about $391,000 for an indeterminate period
of time.

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We have a licensing arrangement with Andromaco and AlphaAP
Inc. which provides us with small but growing royalty streams. We have received
a non-refundable deposit of $75,000 from a U.S. based pharmaceutical company to
formulate new products which may or may not be accepted for commercialization.
We also have licensing arrangements with Proprius Pharmaceuticals Inc. 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 shareholders,
and debt financing, if available, may require additional stock to be issued
and/or involve restrictive covenants on our business.
We expect to continue to spend capital on:
research and development programs;
  preclinical studies and clinical
  trials;
  regulatory processes; and
  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:
the progress, timing and scope of
  our research and development programs;
  the progress, timing and scope of
  our preclinical studies and clinical trials;
  the time and cost necessary to
  obtain regulatory approvals;
  the time and cost necessary to
  establish or to retain sales and marketing partners to market our products;
  the time and cost necessary to
  respond to technological and market developments; and
  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 the
payment of rent on our facilities lease, 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

16

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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.
The Company's management, with the participation of the
Company's Chief Executive Officer and Chief Financial Officer and Principal
Accounting Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures as of December 31, 2006. The Company's Chief Executive
Officer and Chief Financial Officer and Principal 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.





17

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

We issued 300,000 shares of common stock in lieu of cash
payments of $30,000 for financial consulting services during the nine months
ending June 30, 2007. (Nil for the nine months ended June 30, 2006). We also
issued 2,307,775 warrants in conjunction with the promissory notes issued during
the nine months ended June 30, 2007. (5,059,453 during the nine months ended
June 30, 2006). These warrants entitle the holder to purchase common stock at
$0.10 per share and expire two years from the date of issuance.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

N/A
ITEM 4 - OTHER INFORMATION

None.
ITEM 5 - 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.
    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.(ii)
REPORTS
ON FORM 8-K
(a)
On November 6,
2006, we filed an 8K reporting on a Feasibility and Option Agreement with a
global pharmaceutical company based in U.S.
Under the agreement, we granted them
an exclusive option to acquire an exclusive worldwide license to our
nanoparticle delivery systems for the development, manufacture and
commercialization of certain products in certain indications. In return, they
agreed to pay us an upfront fee, as well as additional payments upon the
achievement of specified milestones and royalty payments from future product
sales that utilize our delivery systems. They will have the sole responsibility
for obtaining all regulatory approvals necessary for commercialization of these
products at their own expense.
(b)
On December 27,
2006 we filed an 8K summarizing our fiscal 2006 year end results. This was filed
in conjunction with the filing of our annual Form 10KSB.

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(c)
On May 14, 2007 we
filed an 8K regarding the top line results from the Indaflex 2.5% Topical
Indomethacin Cream exploratory Phase II clinical trial in osteoarthritis (OA) of
the knee (INDF-200).

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: August 14, 2007

| | ALPHARx,
    INC.                           |                       
| | ------------------------------------------- | ----------------------
| |                                             |                       
| | By:                                         | /S/ Michael
    M. Lee
| | Michael M.
    Lee, Chief Executive Officer |                       
| |                                             |                       
| |                                             |                       
| |                                             |                       
| | Directors:                                  |                       
| |                                             |                       
| | By:                                         | /S/ Michael
    M. Lee
| | Michael M.
    Lee, Director                |                       
| |                                             |                       
| |                                             |                       
| | By:                                         | /S/ David
    Milroy  
| | David
    Milroy, Director                  |                       
| |                                             |                       
| |                                             |                       
| | By:                                         | /S/ Ford
    Moore    
| | Ford
    Moore, Director                    |                       



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