SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

OR

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

Commission File Number: 000-030813

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

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

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

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

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

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

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

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

1

ALPHARX, INC.

FORM 10-QSB

MARCH 31, 2005

TABLE OF CONTENTS

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

2

ALPHARx, INC.

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

		March 31,	September 30,
		2005		2004
CURRENT ASSETS
Cash and Cash Equivalents	$	1,569,236	$	2,856,042
Accounts Receivable, net		54,912		49,930
Prepaid Expenses		76,340		67,640
Inventory		213,572		180,272
TOTAL CURRENT ASSETS		1,914,060		3,153,884
PROPERTY, PLANT & EQUIPMENT, net		247,167		241,533
OTHER ASSETS
Licensing Right (Note 3)		1		1
TOTAL ASSETS		2,161,228		3,395,418
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities		400,378		279,071
Notes Payable (Note 4)		-		665,900
Litigation Liability (Note 5 )		25,000		25,000
TOTAL CURRENT LIABILITIES		425,378		969,971
CONTINGENCIES AND COMMITMENTS (Note 9)
SHAREHOLDERS' EQUITY
Common Stock: $ 0.0001 par value,
Authorized 250,000,000 shares; issued and
outstanding 57,508,112 shares (September 30, 2004 -		5,752		5,232
52,304,642)
Additional paid-in capital		10,145,696		9,580,035
Deficit		(8,415,598)		(7,159,820)
TOTAL SHAREHOLDERS' EQUITY		1,735,850		2,425,447
TOTAL LIABILITIES AND SHAREHOLDERS'	$	2,161,228	$	3,395,418
EQUITY

See condensed notes to consolidated financial statements

3

ALPHARx, INC.

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

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

See condensed notes to consolidated financial statements

4

ALPHARx, INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)

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

See condensed notes to consolidated financial statements

5

ALPHARx, INC.

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

	Common Stock		Additional	Retained	Total
	Number of		Paid-in	Earnings	Shareholders'
	Shares	Amount	Capital	(Deficit)	Equity(Deficit)
Balance at
September 30,
2003	16,920,082	1,692	4,024,039	(4,225,980)	(200,249)
Issuances of
Common Stock
for consulting,
legal services	100,000	11	29,990		30,001
Conversion of
Promissory
Notes	3,752,340	375	1,535,859		1,536,234
Commission on
Promissory Notes
and Common
Stock Issued	4,308,186	431	580,120		580,551
Issuances of
Common
Stock	27,224,034	2,723	3,410,027		3,412,750
Net Loss for the
Year ending
September 30,
2004				(2,933,840)	(2,933,840)
Balance at
September 30,
2004	52,304,642	$5,232	$9,580,035	$(7,159,820)	$2,425,447
Conversion of
Promissory
Notes	5,203,470	520	510,988		511,508
Issuance of
Stock Options
for consulting services			54,673		54,673
Net loss for
the period				(1,255,778)	(1,255,778)

6

	Common Stock		Additional	Retained	Total
	Number of		Paid-in	Earnings	Shareholders'
	Shares	Amount	Capital	(Deficit)	Equity(Deficit)
Balance at
March 31,
2005	57,508,112	$5,752	$10,145,696	$(8,415,598)	$1,735,850

See condensed notes to consolidated financial statements

7

ALPHARx, INC.

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

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

See condensed notes to consolidated financial statements

8

ALPHARX INC.

CONDENSED NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(UNAUDITED)

NOTE 1. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 2. NATURE OF BUSINESS AND GOING CONCERN

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

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

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

NOTE 3. LICENSING RIGHT

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

NOTE 4. NOTES PAYABLE

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

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

9

NOTE 5. LITIGATION LIABILITY

The Company is a defendant in a lawsuit filed by a prospective investor alleging breach of contract, which seeks damages totalling $25,000. The Company believes the suit is without merit, however, to remain conservative, the entire claim has been accrued in the financial statements.

NOTE 6. COMMON STOCK

The Company is authorized to issue 250,000,000 shares of common stock. As of March 31, 2005, there remains issued and outstanding 57,508,112 shares of such common stock which has a stated par value of $0.0001 per share.

During the three months ended December 31, 2004, $520,347 of convertible promissory notes were converted into 5,203,470 shares of common stock at $0.10 per share and 10,406,940 warrants to purchase shares of common stock at an exercise price of $0.30 per share.

During the three months ended March 31, 2005 the Company did not issue any common stock.

NOTE 7. STOCK OPTION PLANS

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

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

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

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

10

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

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

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

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

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

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

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

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

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

11

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

NOTE 8. WARRANTS

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

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

NOTE 9. COMMITMENTS

Leases

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

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

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

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

12

2008	$54,463
2009	$18,244

Services

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

NOTE 10. SUBSEQUENT EVENT

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

13

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

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

General

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

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

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

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

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

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

RESULTS OF OPERATIONS

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

14

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

Sales

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

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

Gross Margin

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

Selling and Administrative Expenses

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

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

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

Research and Development Expenses

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

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

15

Loss from Operations

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

Net Loss

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

We expect to continue to spend capital on:

1. research and development programs;
    

2. preclinical studies and clinical trials;
    

3. regulatory processes; and
    

4. third party manufacturers and marketing partners to manufacture and market our products for us.

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

1. the progress, timing and scope of our research and development programs;
    

2. the progress, timing and scope of our preclinical studies and clinical trials;
    

3. the time and cost necessary to obtain regulatory approvals;
    

4. the time and cost necessary to establish sales and marketing capabilities or to retain sales and marketing partners to market our products for us;
    
5. the time and cost necessary to respond to technological and market developments; and
    
6. new collaborative, licensing and other commercial relationships that we may establish.

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

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

Gross Revenue and Gross Margin

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

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

Net Loss, as restated

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

Selling and Administrative Expenses

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

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

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

Research and Development Expenses

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

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

Depreciation Expense

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

Other Income and Expenses

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

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

Net Loss, as restated

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

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

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

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PART II: OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

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

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

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

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

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

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

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

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

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

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

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

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ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS.

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

(b) REPORTS ON FORM 8-K

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

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

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

SIGNATURES:

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

DATED: May 19, 2005

ALPHARx, INC.

By:  /S/ Michael M. Lee                

Michael M. Lee, Chief Executive Officer

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

DATED: May 19, 2005

Directors:

/S/ Michael M. Lee               

Michael M. Lee, Director

/S/ David Milroy                 

David Milroy, Director

/S/ Ford Moore                         

Ford Moore, Director

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