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, 2007, reference should be made to the annual Form 10KSB filed during December 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, inhalable 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 license fees, 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 (iii) 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 from significant initiatives due to a number of factors including (i) the timing, extent, costs and efforts involved to conduct clinical trials directly or via a partner is not predictable, (ii) availability of financial resources required to market a new product via a partner, (iii) our lack of experience in bringing a new product to market successfully and gaining market share; (iv) competitors' products and the nature and timing of their marketing initiatives.

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

Our most promising drug candidate is Zysolin that uses an inhalable version of the drug Tobramycin (an antibiotic used to treat Gram-negative bacteria) to treat Gram-negative pneumonia. We have completed animal testing on Zysolin and are in the process of preparing protocols for Phase I/II human trials. We have completed safety and efficacy testing on Streptomycin (a drug used to treat tuberculosis) and are seeking collaborative partner(s) to initiate human trials on this product candidate. We continue to test formulations and conduct research on Vansolin (MRSA- pneumonia) and Streptomycin (tuberculosis). The delivery route for all of the above product candidates is Intravenous (I.V.) or Intratracheal (I.T.). Our objectives for the remainder of this fiscal year and fiscal year 2009 include:

•

Complete pre-clinical studies of Zysolin and prepare protocol for Phase I/II human trials;

•

Initiate Phase I human trials for Zysolin.

During March 2008 Cypress Bioscience, Inc. ("Cypress") completed the acquisition of our partner Proprius Pharmaceuticals Inc. ("Propius"). Proprius has development and commercialization rights for Indaflex - our topical cream for the treatment of osteoarthritis of the knee. Additional funding is now available through Cypress in order to further Phase II and III human trials for Indaflex and continue the FDA application process. Under the terms of our agreement, Proprius will undertake completion of clinical trials for Indaflex and will have exclusive global rights (except for Asia and Mexico) to sell and or sublicense Indaflex and any successor NSAID products developed by us. Should clinical trials for Indaflex be successful and sales commence, we will receive clinical trial completion milestone payments and sales milestone payments including a milestone payment of $3 million for the successful completion of the Phase II trials. In addition to the milestone payments, we will receive royalty payments on sales of Indaflex by Proprius, its affiliates and its sublicensees. There are no assurances or guarantees that Proprius and or Cypress will continue with human trials and commercialization of Indaflex.

We are in the process of applying to have the Company listed on the Toronto Stock Exchange -Venture market ("TSX-V"). In that regard we cancelled 7.66 million options with the agreement of the option holders during the nine months ended June 30, 2008 in order to comply with the TSX-V regulations regarding maximum number of options. We also cancelled 770,000 warrants during May 2008 pursuant to our application. We are in the process of raising additional funding for the Company - a precondition to being listed on the TSX-V. We expect to complete the listing process prior to the end of our fiscal year - September 30, 2008.

Our 85% owned subsidiary AlphaRx International Holdings Ltd. ("AIH"), through its wholly-owned subsidiary AlphaRx Life Sciences Ltd. has commenced several research initiatives in China and is responsible for the commercialization of Indaflex in China.

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. There are presently 10,000 shares of common stock issued and outstanding, of which we own 85%. In accordance with SAB No. 51, we have accounted for the issuance of our subsidiary's stock as a capital transaction.
Considering that AIH is a non-operating entity, and that the capital infusion was meant for commencement of research and development in Asia region, gain recognition was not appropriate.

Overview of Results of Operations



The following tables summarize the results of operations for the nine months
ended June 30, 2008 and the quarterly results of operations for the past two
years:



Nine Months Ended June 30        2008        2007
                                    $           $
Net Sales                      81,173      74,550
Net Loss                  (1,276,205) (1,522,653)
Net Loss Per Share             (0.01)      (0.03)

Three June 30 2008 Mar 31 2008 Dec 31 2007 Sep 30 2007 Jun 30 2007 Mar 31 2007 Dec 31 2006 Sep 30 2006

Months              $           $           $           $           $           $           $           $
Ended
Net            46,798      17,243      17,132      95,891      35,856      27,365      11,329       8,389
Sales
Net Loss    (293,761)   (397,255)   (585,189)   (227,583)   (462,236)   (469,640)   (590,777)   (575,257)
Net Loss       (0.01)      (0.01)      (0.01)      (0.01)      (0.01)      (0.01)      (0.01)      (0.01)
per
Share(1)

NOTE (1) Net Loss per share on a quarterly basis may not equal net Loss per
share for the six-month periods due to rounding.

RESULTS OF OPERATIONS FOR NINE MONTHS ENDED JUNE 30, 2008, AS COMPARED TO THE NINE MONTHS ENDED JUNE 30, 2007

The Company incurred a net loss before discontinued operations of $1,278,356 for the nine month period ended June 30, 2008 as compared to $1,525,999 incurred for the same period a year ago, a decrease of $247,643 or about 16%.

Revenues

Revenues represent royalties earned from Andromaco from the sales in Indaflex in Mexico. Royalty revenues for the nine month period ended June 30, 2008 were $81,173 as compared to $73,550 generated for the same period a year ago, an increase of $7,623 or about 11%.

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 investor relations and tax matters. General and Administrative expenses for the nine month period ended June 30, 2008 were $748,191 as compared to $891,498 incurred for the same period a year ago, a decrease of $143,307 or approximately 16%.

We spent $142,653 in investor relations, legal fees and professional fees, (this amount being net of $140,265 in recoveries) for the nine-month period ended June 30, 2008 as compared to $96,559 incurred for investor relations and legal fees during the same period a year ago, an increase of $46,094 or about 48%. Our expenses related to the application for Toronto Venture Exchange listing were the primary cause of this increase.

We reduced general and administrative payroll and consulting expenses to $191,632 for the nine months ended June 30, 2008 as compared to $260,798 a decrease of $69,166 or about 26%, primarily as a result of salary reductions and reduced consulting efforts. Head count has remained the same at 4 full time equivalents in this category during the nine months ended June 30, 2008 as compared to the same period a year ago.

Warrant amortization and stock based compensation expense totalled $197,795 for the nine months ended June 30, 2008 as compared to $302,655 incurred in the same period a year ago, a decrease of $104,860 or about 35%. There remain no further expenses to be amortized in this category at the present time.

We realized foreign exchange gains of $822 for the nine months ended June 30, 2008 as compared to foreign exchange losses of $69,923 for the same period a year ago, and improvement of $70,745. We incurred travel expenses of $56,967 for the nine months ended June 30, 2008 as compared to $27,579 an increase of $29,388 or about 106%. Increased travel to China in order to seek out potential business opportunities was the primary reason for the increased travel expenses.
Discontinued operations yielded a recovery of $17,240 of expenses in during the nine months ended June 30, 2007 with no comparable expense recovery in the current nine month period. This recovery served to reduce administrative expenses for the nine months ended June 30, 2007 as compared to the nine months ended June 30, 2008.

Research and Development Expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, and outsourced clinical and other research activities in Canada and People's Republic of China.

Research and development expenses for the nine months ended June 30, 2008 were $542,623 as compared to $582,400 incurred for the same period a year ago, a decrease of $39,777 or about 7%. Research and development is focusing primarily on less costly animal testing and fundamental product formulations until a promising product candidate is determined. At present we have isolated Zysolin as our most promising new product candidate. This drug is inhaled directly into the lungs to combat gram-negative pneumonia.

Sales and Marketing

We did not incur any sales and marketing expenses for the nine months ended June 30, 2008 as compared to $3,750 in the same period a year ago. Our sales and marketing efforts will increase in the future as our product candidates approach Phase I and II testing. Our future sales and marketing efforts will focus on sourcing a licensee, collaborative partner or other arrangements in order to complete clinical trials and commercialize our product candidates.

Depreciation

Depreciation totalled $60,006 for the nine months ended June 30, 2008 as compared to $70,342 incurred during the same period a year ago, a decrease of $10,336 or about 15%. The decrease stems from certain capital assets being fully depreciated during the nine six months ended June 30, 2007, thereby reducing this expense when compared to present year.

Loss from Operations

Loss from operations were $1,269,647 for the nine months ended June 30, 2008 as compared to a loss of $1,473,440 incurred for the same period a year ago, a decrease of $203,793 or about 14%.

Interest Expense

Net interest expense for the nine months ended June 30, 2008 was $23,101 as compared to net interest expense of $91,223 incurred during the same period a year ago. The decrease in interest expense resulted primarily from the repayment of $1,169,793 in promissory notes during September 2007, and repayment of all remaining outstanding promissory notes in the amount of $167,804, prior to December 31, 2007. The Company continues to borrow funds via promissory notes until additional equity funding can be sourced. To this end we borrowed approximately $161,000 since December 31, 2007.

Minority Interest

We reflected a minority interest credit of $14,392 for the nine months ended June 30, 2008 as compared to a credit of $38,664 for the same period a year ago, a decrease of $24,272 or about 63%. Minority interest represents our minority shareholder's proportionate interest in our 85% owned subsidiary - AIH. The minority interest resulted from the investment in our subsidiary - AlphaRx International Holdings Ltd., by New Super Ltd. during June 2006. The president of New Super Ltd. is also a director of AIH and the managing director of AlphaRx Life Sciences Ltd., AIH's 100% owned subsidiary.

Gain from operations of Discontinued Component

We continue to sell small amounts of Flexogan and generated sales of $2,151 during the nine months ended June 30, 2008 as compared to $3,346 in sales for the same period a year ago. Sales have ceased entirely as at the present time.

Net Loss

As a result of the above revenues and expenses, we incurred a net loss of $1,276,205 for the nine months ended June 30, 2008 as compared to a net loss of $1,522,653 incurred in the same period a year ago.

Cumulative Translation Adjustment

This adjustment results from unrealized foreign exchange gain and losses stemming from translation of our foreign subsidiaries and our foreign currency monetary assets and liabilities into U.S. Dollars. We incurred a cumulative translation adjustment loss of $1,387 for nine months ended June 30, 2008 as compared to a cumulative translation loss of $7,156 for the same period a year ago.

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2008, AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2007

The Company incurred a loss before discontinued operations of $293,761 for the three month period ended June 30, 2008 as compared to $463,677 incurred for the same period a year ago, a decrease of $169,916 or about 37%.

Revenues

Revenues represent royalties earned from Andromaco based on sales of Indaflex in Mexico and guaranteed minimum royalties. Total revenues for the three month period ended June 30, 2008 were $46,798 as compared to $35,856 generated for the same period a year ago, an increase of $10,942 or about 30%. Volumes of Indaflex sales in Mexico have decreased as compared to the same period a year ago, however minimum royalty rates have increased, leading to increased revenues for the three months ended June 30, 2008 as compared to the same period a year ago.

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 investor relations and tax matters. General and Administrative expenses for the three month period ended June 30, 2008 were $176,523 as compared to $333,565 incurred for the same period a year ago, a decrease of $157,042 or approximately 47%.

We incurred $43,886 in fees and expenses for a Canadian stock exchange listing application during the three months ended June 30, 2008 with no comparable expense during the same period a year ago. We incurred no stock based compensation expense or warrant amortization during the three months ended June 30, 2008 as compared to $34,946 incurred in the same period a year ago. We realized a foreign exchange gain of $4,221 in the three months ended June 30, 2008 as compared to a foreign exchange loss of $107,240 during the same period a year ago, leading to a reduction in administration expense of $111,461 between periods. We incurred $44,068 in administrative staff costs during the three months ended June 30, 2008 as compared to $76,298 incurred in the same period a year ago, a decrease of $32,230. Staff count remained the same during the periods. Investor relations expenses incurred during the three months ended June 30, 2008 totalled $930 as compared to $8,360 during the same period a year ago, a decrease of $7,430. The only investor relations activities during the three months ended June 30, 2008 related to press release costs. Other savings in the general and administration expense category totalled about $14,800 during the three months ended June 30, 2008 when compared to the same period a year ago, with no particular significant variances in any one line item of administration expenses.

Research and Development Expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, and outsourced clinical and other research activities in Canada and People's Republic of China.

Research and development expenses for the three months ended June 30, 2008 were $137,189 as compared to $115,176 incurred for the same period a year ago, an increase of $22,013 or about 19%. Research and development efforts will increase in the future depending on the timing and availability of additional funds and the potential for commercialization of any product candidates.

Depreciation

Depreciation totalled $18,775 for the three months ended June 30, 2008 as compared to $25,660 incurred during the same period a year ago, a decrease of $6,885 or about 27%. The decrease stems from certain capital assets being fully depreciated during the past three months, thereby reducing this expense when compared to the previous period where these assets were still being depreciated.

Loss from Operations

Loss from operations before interest and taxes was $285,689 for the three months ended June 30, 2008 as compared to a loss of $435,545 incurred for the same period a year ago, a decrease of $149,856 or about 34%.

Interest Expense

Net interest expense for the three months ended June 30, 2008 was $9,792 as compared to net interest expense of $36,480 incurred during the same period a year ago. The decrease in interest expense resulted primarily from the repayment of $1,169,793 in promissory notes during September 2007, and repayment of all remaining outstanding promissory notes in the amount of $167,804, prior to December 31, 2007. Additional promissory notes of about $382,000 were issued in the six months ended June 30, 2008. The Company continues to borrow funds via promissory notes until additional equity funding can be sourced.

Minority Interest

We reflected a minority interest credit of $1,720 for the three months ended June 30, 2008 as compared to a credit of $8,348 for the same period a year ago, a decrease of $6,628 or about 79%. Minority interest represents our minority shareholder's proportionate interest in our 85% owned subsidiary - AIH. The minority interest resulted from the investment in our subsidiary - AlphaRx International Holdings Ltd., by New Super Ltd. during June 2006. The president of New Super Ltd. is also a director of AIH and the managing director of AlphaRx Life Sciences Ltd.

Gain from operations of Discontinued Component

Sales of Flexogan ceased entirely during the three months ended June 30, 2008 as compared to $1,441 in sales for the same period a year ago. No direct sales of Flexogan are anticipated in the future.

Net Loss

As a result of the above revenues and expenses, we incurred a net loss of $293,761 for the three months ended June 30, 2008 as compared to a net loss of $462,236 incurred in the same period a year ago.

Cumulative Translation Adjustment

This adjustment results from unrealized foreign exchange gain and losses stemming from translation of our foreign subsidiaries and our foreign currency monetary assets and liabilities into U.S. Dollars. We incurred a cumulative translation adjustment loss of $6,060 for three months ended June 30, 2008 as compared to a cumulative translation loss of $3,338 for the same period a year ago.

LIQUIDITY AND CAPITAL RESOURCES

As at June 30, 2008 the Company had a working capital deficiency of $644,387 as compared to a working capital deficiency of $559,438 as at September 30, 2007. The Company also has a shareholders' deficiency of $581,085 as at June 30, 2008 as compared to a shareholders' deficiency of $458,798 as at September 30, 2007.
We issued 11,167,228 shares of Common Stock during the nine months ended June 30, 2008. We used the resulting funds to repay outstanding promissory notes as at December 31, 2007 and to provide working capital. We are presently in process of raising additional funding pursuant to an application for listing on the Toronto Stock Exchange - Venture market. ("TSX-V"). Additional equity funding of approximately $1.845 million is being sought. There is no assurance that we will be able to raise the funding necessary for listing on the TSX-V.

We have a licensing arrangement with Andromaco, which provides us with a small royalty stream. 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:

1. research and development programs;

2. preclinical studies and clinical trials;

3. regulatory processes; and

4. sourcing third party licensees and distribution partners to commercialize our products in return for license fees, royalties and milestone payments.

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

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

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

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

4. the time and cost necessary to establish or to retain sales and marketing partners to market our products;

5. the time and cost necessary to respond to technological and market developments; and

6. new collaborative, licensing and other commercial relationships that we may establish.

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

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

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