..
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

 (Mark One)

|X|   Annual Report Pursuant to Section 13 or 15(d) of the Securities and
      Exchange Act of 1934 for the fiscal year ended: September 30, 2002

|_|   Transition Report Pursuant to Section 13 or 15(d) of the Securities and
      Exchange Act of 1934 for the transition period from __________ to
      __________

                        Commission File Number: 000-30813

                                  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)

                10-75 East Beaver Creek, Ontario L4B 1B8, Canada
                    (Address of principal executive offices)

                                 (905) 762-0745
              (Registrant's telephone number, including area code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:

           Title of Each Class              Name of Exchange On Which Registered
           -------------------              ------------------------------------
   Common Stock ($0.0001 par value)                         None

Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirement for the past 90 days.
YES |X| NO |_|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and that no disclosure will be contained,
to the best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

Issuer's revenues for its most recent fiscal year ended September 30, 2002 were
$282.

The aggregate market value of the registrant's common stock (the only class of
voting stock), held by non-affiliates was approximately $ 4,883,600 based on the
average closing bid and ask price for the common stock on February 5, 2003.

As of February 5, 2003 there were 16,317,341 shares outstanding of the
registrant's common stock.


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<PAGE>

                                  AlphaRx, Inc.

                                  FORM 10-KSB/A

                      For the Year Ended September 30, 2002

                                      INDEX

PART I
  Item 1.  Description of Business                                             3
  Item 2.  Description of Property                                            18
  Item 3.  Legal Proceedings                                                  18
  Item 4.  Submission of Matters to a Vote of Security Holders                18

PART II
  Item 5.  Market for Common Equity and Related Stockholder Matters           19
  Item 6.  Management Discussion and Analysis of Financial Condition          22
  Item 7.  Financial Statements                                               25
  Item 8.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure                                           25

PART III
  Item 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance with Section 16(a) of the Exchange Act.                 25
  Item 10. Executive Compensation                                             28
  Item 11. Security Ownership of Certain Beneficial Owners and Management     31
  Item 12. Certain Relationships and Related Transactions                     31
  Item 13. Exhibits and Reports on Form 8-K                                   31

SIGNATURES                                                                    33

EXHIBITS                                                                      35


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<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

COMPANY BACKGROUND

      In this annual report on Form 10-KSB, the "Company," "AlphaRx," "we,"
"us," and "our," refer to AlphaRx, Inc.

      AlphaRx, formerly known as Logic Tech International Inc., was incorporated
in Delaware on August 8, 1997 as an intellectual property holding company whose
mission was to identify, acquire and develop new technologies or products and
devise commercial applications to be taken to market through licensing or joint
venture partners. Logic Tech International Inc. was renamed to AlphaRx Inc. on
January 28, 2000 and our common stock commenced trading on the OTC Pink Sheets
under the symbol "AHRX" on July 25, 2000. On October 12, 2000, our common stock
ceased trading on the Pink Sheets L.L.C. and began trading on the Over The
Counter Bulletin Board ("OTCBB") under the same symbol. Subsequent to March 19,
2002, our symbol was changed to "ALRX" after a consolidation of our common stock
on a 1 for 5 basis. All references to our common stock have been retroactively
restated.

COMPANY OVERVIEW

      We are a development stage pharmaceutical company, engaged in the research
development and market of innovative therapeutic products using advanced drug
delivery technologies, which we believe, can be combined with a broad range of
therapeutic products. We have applied our proprietary drug delivery technologies
and formulation skills in three applications:

      Pain Management - developing topical NSAID pharmaceuticals;

      Nutraceuticals - developing bioavailable specialized supplements with
      therapeutic benefits; and

      Neuroprotection - developing heterocyclic cyclopentene derivatives with
      immunostimulating and anti-inflammatory activities.

      We believe pharmaceutical companies are increasingly using
controlled-release drug delivery technologies to improve drug therapy.
Controlled-release drug delivery technologies generally provide more consistent
and appropriate drug levels in the bloodstream than immediate-release dosage
forms and thereby may improve drug efficacy and reduce side effects. These
technologies also allow for the development of "patient-friendly" dosage
formulations by reducing the number of times a drug must be taken, thereby
improving patient compliance. Controlled-release pharmaceuticals can be
especially beneficial for certain patient populations, such as the elderly, who
often require several medications with differing dosing regimens.

                                       3
<PAGE>

      We believe the market for advanced drug delivery systems is large and
growing rapidly. Based on published data, the market for orally-administered
drugs that utilize sustained and controlled-release drug delivery systems is
expected to increase to approximately $50 billion in 2005 from approximately $10
billion in 1995. We also believe that pharmaceutical companies that do not
themselves have controlled-release drug delivery technology expertise will rely
upon third parties, such as AlphaRx, to apply such technologies to their product
candidates.

      We intend to use our proprietary drug delivery technologies in
collaborative arrangements with pharmaceutical companies to formulate
controlled-release versions of their existing commercialized drugs as well as
drugs under development by them. By improving drug efficacy and reducing side
effects, we believe our drug delivery technologies will provide pharmaceutical
companies with the opportunity to enhance the commercial value of their existing
products and new drug candidates. We also intend to develop either independently
or jointly certain off-patent and over-the-counter ("OTC") products utilizing
our proprietary drug delivery technologies.

PRINCIPAL PRODUCT AND SERVICES AND PRINCIPAL MARKETS

      We are engaged in developing novel formulations of existing drugs that are
insoluble or poorly soluble in water, utilizing our proprietary Bioadhesive
Colloidal Dispersion (BCD) drug delivery systems. Our strategy is to develop
patentable improved formulations of such drugs that are soluble in human
medicines. Our BCD drug delivery technology includes two different approaches to
improve the effectiveness of insoluble drugs and provide new methods of
delivery, namely, (i) CLD (Colloidal Lipid Dispersion System) and (ii) SECRET
(Self Emulsifying Controlled Release Tablet System).

      Insoluble or poorly soluble drugs are a major problem for the
pharmaceutical industry, with over one-third of the drugs listed in the United
States' Pharmacopoeia being insoluble or poorly soluble in water. Further, most
approaches used to overcome insolubility result in clinical problems ranging
from poor and erratic bioavailability to serious side effects. The BCD drug
delivery technology is designed to develop drugs with major medical advantages,
such as lower dosing, fewer side effects and alternative dosage forms, as well
as commercial advantages, such as extended patent protection and broader use.

      We have a number of drugs under development, certain of which have been
successfully reformulated, utilizing our BCD technology. Our central strategy is
to seek alliances with pharmaceutical companies which will assist us in
completing the reformulation and development of the drugs and which will
initiate clinical trials and commercialize the products.

PRODUCT PIPLELINE

      The following is a list of some of our products in the development
pipeline:


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<PAGE>

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Brand Name                  Application              Delivery Technology   Stage            Market Size
---------------------------------------------------------------------------------------------------------
<S>                         <C>                      <C>                   <C>              <C>
Pain Management                                                                             US$ 3 Billion
---------------------------------------------------------------------------------------------------------
Flexigan cream              Arthritis                Topical/CLD           Pre-clinical
---------------------------------------------------------------------------------------------------------
Indoflex cream              Arthritis                Topical/CLD           Pre-clinical
---------------------------------------------------------------------------------------------------------
Flexogan cream (OTC)        Pain Relief              Topical/CLD           OTC
---------------------------------------------------------------------------------------------------------
Nutraceuticals                                                                              US$ 9 Billion
---------------------------------------------------------------------------------------------------------
CoQ10 ER                    Hearth Health            Oral/SECRET           OTC
---------------------------------------------------------------------------------------------------------
ARX100C                     Oral Health              Oral/SECRET           OTC
---------------------------------------------------------------------------------------------------------
LipoBloc                    Cholesterol Lowering     Oral/SECRET           OTC
---------------------------------------------------------------------------------------------------------
LipoLette                   Weight-loss              Oral/SECRET           OTC
---------------------------------------------------------------------------------------------------------
Neuroprotection                                                                             US$ 2 Billion
---------------------------------------------------------------------------------------------------------
ARX-2001                    Neuroprotection          Undetermined          Pre-clinical
---------------------------------------------------------------------------------------------------------
ARX-2002                    Neuro-inflammation       Undetermined          Pre-clinical
---------------------------------------------------------------------------------------------------------
</TABLE>

OVERVIEW OF THE DRUG DELIVERY INDUSTRY

      Drug delivery companies apply proprietary technologies to create new
pharmaceutical products utilizing drugs developed by others. These products are
generally novel, cost-effective dosage forms that may provide any of several
benefits, including better control of drug concentration in the blood, improved
safety and efficacy, and ease of use and improved patient compliance. We believe
drug delivery technologies can provide pharmaceutical companies with a means of
developing new products as well as extending existing patents.

      The increasing need to deliver medication to patients efficiently and with
fewer side effects has accelerated the development of new drug delivery systems.
Today, medication can be delivered to a patient through many different means of
delivery, including transdermal (through the skin), injection, implant and oral
methods. These delivery methods, however, continue to have certain limitations.
Transdermal patches are often inconvenient to apply, can be irritating to the
skin and the rate of release can be difficult to control. Injections are
uncomfortable for most patients. Implants generally are administered in a
hospital or physician's office and frequently are not suitable for home use.
Oral administration remains the preferred method of administering medication.
Conventional oral drug administration, however, also has limitations in that
capsules and tablets have limited effectiveness in providing controlled drug
delivery, resulting frequently in drug release that is too rapid (causing
incomplete absorption of the drug), irritation to the gastrointestinal (GI)
tract and other side effects. In addition capsules and tablets cannot provide
localized therapy.

      In recent years, drug delivery companies have been able to develop
innovative and efficient solutions to some of the limitations of conventional
oral drug administration. For example, the improved oral delivery system
developed by ALZA in the 1980's reduced the side effects and dosing frequency of
the hypertension drug, Procardia(R). The improved product, Procardia XL(R),
resulted in substantially increased sales and the new formulation extended the
patent life on Procardia(R). We believe our BCD Systems have the potential to
offer similar opportunities of improved therapy and extended patent life to
pharmaceutical and biotechnology companies.


                                       5
<PAGE>

BIOADHESIVE COLLODIAL DISPERSION (BCD) SYSTEMS

      Our proprietary Bioadhesive Colloidal Dispersion (BCD) oral and
transdermal drug delivery technologies permit formulations of drug-containing
polymeric units that allow controlled delivery of an incorporated hydrophobic
drug. Although our formulations are proprietary, the polymers utilized in our
BCD Systems are commonly used in the food and drug industries. By using
different formulations of the polymers, we believe our BCD Systems are able to
provide continuous, controlled delivery of drugs of varying molecular complexity
and solubility.

      The BCD Systems are designed to provide orally and transdermally
administered, conveniently dosed, cost-effective drug therapy in a continuous,
controlled delivery over a multihour period. We believe our BCD Systems may
provide one or more of the following therapeutic advantages over conventional
methods of drug administration:

      1. Enhanced Safety and Efficacy. We believe our BCD Systems may improve
the ratio of therapeutic effect to toxicity by decreasing the initial peak
concentrations of a drug, associated with toxicity, while maintaining levels of
the drug at therapeutic, subtoxic concentrations for an extended period of time.
Many drugs demonstrate optimal efficacy when concentrations are maintained at
therapeutic levels over an extended period of time. When a drug is administered
intermittently, the therapeutic concentration is often exceeded for some period
of time, and then rapidly drops below effective levels. Excessively high
concentrations are a major cause of side effects, while subtherapeutic
concentrations are ineffective.

      2. Greater Patient and Caregiver Convenience. We believe our BCD Systems
may permit once-daily dosing for certain drugs that are currently required to be
administered several times daily, thereby promoting compliance with dosing
regimens. Patient noncompliance with dosing regimens has been associated with
increased costs by prolonging treatment duration, increasing the likelihood of
secondary or tertiary disease manifestation and contributing to over-utilization
of medical personnel and facilities. By improving patient compliance, providers
and third-party payors may reduce unnecessary expenditures and improve
therapeutic outcomes.

      3. Expanding the Types of Drugs Capable of Oral Delivery. Some drugs,
including certain proteins (complex organic compounds of high molecular weight
containing numerous amino acids) and peptides (low molecular weight compounds
consisting of two or more amino acids), because of their large molecular size
and susceptibility to degradation in the GI tract, must currently be
administered by injection or by continuous infusion, which is typically done in
a hospital or other clinical setting. We believe our BCD Systems may permit some
of these drugs to be delivered orally and/or transdermally.

      4. Proprietary Reformulation of Generic Products. We believe our BCD
Systems offer the potential to produce improved proprietary formulations of
off-patent drugs,


                                       6
<PAGE>

differentiated from the existing generic products by reduced dosing
requirements, improved efficacy, decreased toxicity or additional indications.

BACKGROUND

      To be effective, drugs must reach an intended site in the body, at an
effective concentration, for an appropriate length of time. Traditional methods
of drug administration, such as oral ingestion, intramuscular and intravenous
injections and inhalation, are effective for a wide variety of drugs. Depending
upon the drug, however, each method may have disadvantages. For example, in oral
administration, a drug must pass through the gastrointestinal system to be
absorbed and may be metabolized or broken down in the stomach, intestines or
liver, resulting in the therapeutic availability of a lower amount of effective
drug. As a result, higher dosages of the drug must be used to produce the
desired effect, which may cause irritation of the gastrointestinal tract and
systemic toxicity.

      Additionally, the rate at which an orally administered drug is absorbed
may vary depending on several factors, including the drug's chemical properties,
the length of time the drug remains in the gastrointestinal tract and the
patient's meal patterns. Although the pharmaceutical industry has investigated a
variety of alternative approaches for addressing drug adverse events and loss of
efficacy following oral dosing, by enteric coating of tablets, formulating with
various waxes and cellulosic materials, microencapsulation and compressing
tablets in various layers, the beneficial effects are not always reproducible
from patient to patient or effective in modifying metabolic effects produced in
the liver.

COLLOIDAL LIPID DISPERSION (CLD) SYSTEM

      Our CLD system is a topical drug delivery technology which permits
pharmaceutical formulations (creams, gels, solutions, etc.) that enhance the
transdermal delivery of drugs into the skin or into the bloodstream. CLD
compounds, combined with polymers and adhesives, can also be used with patch
formats to achieve the transdermal delivery of selected drugs. We believe that
CLD compounds enhance the diffusion of drugs into and through the skin by making
the outer layer of the skin (stratum corneum) more permeable to the drug
molecule. Transdermal delivery provides an alternative to other methods of drug
administration (injection, oral dosage forms, inhalation, etc.), and may allow
selected drugs to be administered more effectively, at lower doses, with fewer
adverse events and improved patient compliance.

      Our CLD system utilizes oil in water emulsions that are suitable for
incorporation of lipophilic drugs. Drugs are dissolved in the liquid oil core or
incorporated into the oil/water interface, according to the drug's
hydrophobicity. We believe our CLD system is unique compared with other drug
delivery systems because our utility is dependent on the physico-chemical
properties of the drug (i.e. insolubility and surface properties) rather than
the chemical structure and reactivity.


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<PAGE>

      We develop specific CLD formulations for use with non-proprietary and
proprietary drugs, which we plan to commercialize through partnerships,
strategic alliances and license agreements with the pharmaceutical companies
manufacturing these products.

SELF EMULSIFYING CONTROLLED RELEASE TABLET (SECRET) SYSTEMS

      Our SECRET system is a self-emulsifying, controlled release drug delivery
system for the systemic oral administration of hydrophobic (lipophilic) drugs.
Oral absorption improvement and bioavailability enhancement of hydrophobic drugs
are achieved using self-emulsifying oily preparations. In combination with a
biodegradable polymeric matrix, SECRET is capable of delivering these drugs to
the biological target in a sustained-release manner over prolonged periods of
time without the loss of bioavailability.

      SECRET presents a novel way to increase the oral bioavailability of a
lipophilic substance over a desired target site in a prolonged and sustained
manner. More particularly, SECRET consists of a solid dispersion comprising the
lipophilic substance, a surfactant system having a melting point close to human
body temperature and an oil component in a biocompatible, biodegradable
polymeric matrix that does not interact with the entrapped compositions.

      After the polymeric matrix erodes at the desired target site, it slowly
releases the entrapped compositions and, after mixing with body fluids, these
compositions undergo quick dissolution with resultant emulsification, thus an
oil-in-water emulsion is formed, the droplets of which have a diameter below
about 100 nm (0.1(mu)m). Emulsions having tiny droplets as those obtainable in
accordance with the SECRET formulations were hitherto obtainable only by
employing a complex homogenization procedure involving the use of intricate
equipment. Another feature of SECRET is the incorporation of a self-emulsifying
composition in a swellable polymeric matrix, which is suitable for tablet
formation, unlike conventional self emulsifying oily formulations that are
preferably encapsulated in a sealed soft or hard gelatin capsule.

      SECRET is unique compared to other drug delivery systems because our
utility is dependent on the physico-chemical properties of the drug (i.e.
insolubility and surface properties) rather than the chemical structure and
reactivity.

      Testing to date has demonstrated significant pharmaceutical and biological
advantages for our SECRET formulations as compared to standard Self Emulsifying
Drug Delivery System preparations.

      The principal excipients used in SECRET formulations are highly
biocompatible and acceptable to the FDA. SECRET formulated water-insoluble drugs
offer the following benefits: (i) lower toxicity formulations; (ii) controlled
absorption with resultant reduction in peak to trough ratios; (iii) targeted
release of the drug to specific areas within the gastrointestinal tract; (iv)
absorption irrespective of the feeding state; (v) minimal potential for dose
dumping; (vi) improved oral bioavailability; (vii) enhanced


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<PAGE>

stability; (viii) improved dissolution rate; (ix) less irritation; (x)
bioadhesive to mucous membranes for maximum penetration; (xi) high drug
payloads; and (xii) lower production cost.

DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES

      We intend to have the BCD Systems used with as many pharmaceutical
products as possible. Our primary strategy is to establish collaborative
relationships with pharmaceutical and biotechnology companies to develop
improved therapeutic products utilizing our BCD Systems technology. The products
will be jointly developed, with the collaborative partner having primary
responsibility to clinically test, manufacture, market and sell the product, and
we retaining ownership of our technologies. We believe that our partnering
strategy will enable it to reduce our cash requirements while developing a
larger potential product portfolio. By providing new formulations of existing
products using the BCD Systems, We believes it will not only be able to offer
our partners improved products but also may provide them with the ability to
extend the life of their patents on such products, especially attractive to
pharmaceutical companies whose patents on existing products are close to
expiration. Collaborations with pharmaceutical and biotechnology companies are
expected to provide near-term revenues from sponsored development activities and
future revenues from license fees and royalties relating to the sale of
products.

      We have identified as potential partners three top tier drug companies we
believe have drugs which can derive potential benefits utilizing the BCD Systems
and have initiated preliminary discussions with some of these companies. There
can be no assurance that any of these discussions will lead to our entering into
a development agreement with a collaborative partner or, if such agreement is
entered into, that such collaboration will lead to the successful development of
a product.

      We also intend to develop over-the-counter (OTC) and/or off-patent drug
products utilizing our BCD Systems, either independently or jointly by entering
into collaborative partnerships with pharmaceutical, biotechnology or other
healthcare companies. To reduce costs and time-to-market, we intend to select
those products that treat indications with clear-cut clinical end-points and
that are reformulations of existing compounds already approved by the FDA. We
believe that products utilizing the BCD Systems will provide favorable product
differentiation in the highly competitive generic and OTC drug product markets
at costs below those of other drug delivery systems, thereby enabling We and our
collaborative partners to compete more effectively in marketing improved
off-patent and OTC drug products. We are also seeking to establish alliances
with overseas sales and marketing partners for the initial sale of our future
generic products. We believe that due to the more favorable regulatory
environments in some foreign countries, it may be able to generate revenues from
these markets while awaiting FDA approval in the United States.

PAIN MANAGEMENT

Arthritis Overview


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<PAGE>

      Arthritis is a condition in which one or more joints become inflamed. It
is the most common chronic condition in North America. Some forms of arthritis
(such as tendinitis and bursitis) can be cured completely but most forms are
chronic. Current treatment and therapy can only alleviate pain, relieve
stiffness and prevent the disease from progressing and deformities from
occurring. Each of these diseases has a different cause and may require
different medications and treatments.

      Arthritis afflicts an estimated 10% of the world's population. With over
40 million people afflicted by the disease in North America, arthritis costs the
U.S. economy between $54.6 and $64.8 billion per year in medical, care and lost
wages .

      Osteoarthritis (OA) is a degenerative joint disease in which the cartilage
that covers the ends of bones in the joint deteriorates, causing pain and loss
of movement as the bones begin to rub against each other. OA is the most common
form of arthritis. The motion of the joint becomes more limited as the disease
progresses. The joints most commonly hit by osteoarthritis are the fingers,
hips, and knees. Rheumatoid arthritis (RA) is a systemic autoimmune disorder,
characterized by inflammation of the synovial lining of the joints leading not
only to joint damage but also to systemic symptoms such as fever, anemia, lack
of energy, and loss of appetite.

      NSAIDs are drugs employed for their anti-inflammatory properties. They are
heterogeneous in chemical structure and diverse in mechanisms of action, but
they share the important property of inhibiting prostaglandin (PG) biosynthesis.
Although these drugs effectively inhibit inflammation, there is no evidence that
they alter the course of an arthritic disorder.

Products under Development

      We have several topical NSAID products under development:

           -----------------------------------------------------
           Brand Name     Active Ingredient         Status
           -----------------------------------------------------
           Flexigan       1.5% Diclofenac           Pre-clinical
           -----------------------------------------------------
           Indoflex       2.5% Indomethacin         Pre-clinical
           -----------------------------------------------------
           Flexogan       Menthol, Camphor, Methyl  OTC
                          Salicylate
           -----------------------------------------------------

      Flexigan - Flexigan is a clear topical formulation of CLD, which
transports and delivers one of the most effective and widely prescribed NSAIDs,
diclofenac, through the skin eliminating the problems typically associated with
oral NSAIDs.

      Flexigan does not irritate the skin when the cream is applied topically
causing Indomethaic to penetrate rapidly and deeply into the affected parts of
the body due to the CLD formulation. CLD are oil-in-water emulsions composed of
lipid phase, emulsified in aqueous medium with the aid of natural emulsifiers.
CLD do not contain unsafe ingredients and are therefore highly acceptable and of
low irritancy.


                                       10
<PAGE>

      Indoflex - Like Flexigan, Indoflex is a topical NSAID formulation of
indomethacin in CLD.

      Flexogan - A series of over-the-counter pain relieving CLD products. These
are deep-penetrating emulsions, scientifically formulated to provide fast,
effective and long lasting relief from arthritis, joint and muscle pain.
Flexogan comes with 4 formulations - Muscle Pain Formula, Arthritis Formula,
Sport Formula and Sport Ultra Formula.

NUTRACEUTICALS

      The total United States retail market for nutritional supplements is
highly fragmented and historically has grown rapidly, generating $12 billion in
1998 sales, as compared to $5.0 billion in 1994. AlphaRx believes that this
growth was due to a number of factors, including: (i) increased interest in
healthier lifestyles; (ii) the publication of research findings supporting the
positive health effects of certain nutritional supplements; and (iii) the aging
of the "Baby Boomer" generation combined with the tendency of consumers to
purchase more nutritional supplements as they age.

      Various publicly traded nutritional supplement companies have recently
announced, however, that there appears to be a slow-down in sales of nutritional
supplements. We believe that this slow-down may be the result of, among other
things, the lack of any recent industry-wide "hit" products such as St. John's
Wort. Our controlled-release drug delivery technologies can provide patent
protection for a nutritional product that has not been patented or for which the
patent is expiring or has expired. Patented methods of controlled drug delivery
may extend product life and provide a nutritional supplement manufacturer with a
competitive advantage over regular products delivered by conventional means. The
controlled delivery of certain nutritional products can also result in the
approval of new therapeutic indications, thereby expanding the utility of and
the market for those products.

      Our enabling technology offers the following benefits:

      1. Broad Application to Health Maintenance Regiments. We believe that our
enabling technology is applicable to a broad range of specialized health
maintenance products designed to address popular health issues such as elevated
LDL cholesterol, obesity, menopause and anti-aging.

      2. Low Risk of Adverse Side Effects. Our nutraceutical products are
designed to be highly bioavailable, non-toxic and well tolerated.

      3. Convenient Oral Dosage Form. Our nutraceutical products are designed to
be potent at low dosage levels, thereby permitting oral administration either in
a convenient capsule or tablet form or transdermal administration in a lotion or
cream form.

Core Product Descriptions


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<PAGE>

      LipoLette is a dual weight loss system, controlled release natural
supplement that promotes weight control through: (i) suppressing appetite; (ii)
blocking the fat absorption; and (iii) stimulating thermogenesis. LipoLette
contains certain hydrophobic active ingredients which are clinically proven to
be safe and non-toxic. We believe that our BCD drug delivery technologies may
enhance the bioavailability of these active ingredients significantly.

      LipoBloc is a controlled release formulation of hydrophobic phytosterols.
Phytosterols have been clinically proven to inhibit cholesterol absorption in
the GI Tract and lower LDL in serum levels. The therapeutic usage of
phytosterols has been limited because of its poor solubility in water as well as
in oil. The suggested therapeutic dosages are 2.5-5.0 grams per day for a 15-20%
reduction in serum cholesterol levels. The latest clinical studies have
indicated that the same or even significantly better reduction could be achieved
with smaller dosages such as 100 - 300 mg per day using oil solubilized form of
phytosterols. In one clinical study 300 mg phytosterols formulation with 29%
maximum water solubility within 180 minutes demonstrated 38% reduction in serum
cholesterol levels. In vitro, LipoBloc with 100 mg phyosterols demonstrated 100%
solubility in water in 60 minutes using USP 24 <711> dissolution methodology.

      We believe that LipoBloc is the most bioavailable phytosterol formulation
in the market, we also believe that LipoBloc may have a positive effect in
atherosclerotic plaque regression.

      Q10 ER is a controlled release formulation of CoEnzyme Q10 and Vitamin E
which are clinically proven to promote cardiovascular health. We believe that
our Q10 ER has better bioavailability than other commercially available CoEnzyme
Q10 products because of its superior water solubility.

NEUROPROTECTION

      We discovered a new group of synthetic compounds with pronounced
immunostimulating and anti-inflammatory activity. More than 20 novel compounds
were prepared and tested in vivo for their antiflogistic and immunoaugmenting
properties. They showed unprecedented activity in conjunction with remarkably
low toxicity.

      ARX2001/ARX2002 Heterocyclic Cyclopentene Derivatives, our new chemical
additives are currently being tested at the Toronto Western Hospital, Toronto,
Canada. These compounds exhibited strong anti-inflammatory and neuroprotection
activity and demonstrated an 80% suppression of inflammation by oral
administration after 3 hours (in dose 1 mg/kg).

      Preliminary data suggests high protection of neuronal cells from damage
induced by oxygen-glucose deprivation (OGD) model. Brain tissue, treated with
ARX 2001 were much less sensitive to ischemia and showed faster and complete
recovery.

      These compounds may be used for the clinical treatment of stroke, head
trauma, Alzheimer disease, multiple sclerosis and neuro-inflammatory disease.


                                       12
<PAGE>

COMPETITION

      There are other companies that have oral drug delivery technologies that
compete with the BCD Systems. The competitors have oral tablet products designed
to release the incorporated drugs over time. Each of these companies has a
patented technology with attributes different from those of ours, and in some
cases with different sites of delivery to the GI tract. We believe that we are
the only drug delivery company that is currently using polymeric based colloidal
dispersion controlled release technologies to develop products for oral and
transdermal drug delivery systems for enhanced solubility and bioavailability of
poorly water soluble drugs. We believe that this combination of oral and
transdermal drug delivery technologies differentiates us from other oral drug
delivery companies and will enable us to attract pharmaceutical companies to
incorporate their proprietary drugs into the BCD Systems and also to
differentiate any OTC and/or off-patent drugs that utilize the BCD Systems from
those of other drug delivery companies.

      Competition in the areas of pharmaceutical products and drug delivery
systems is intense and is expected to become more intense in the future.
Competing technologies may prove superior, either generally or in particular
market segments, in terms of factors such as cost, consumer satisfaction or drug
delivery profile. Our principal competitors in the business of developing and
applying drug delivery systems all have substantially greater financial,
technological, marketing, personnel and research and development resources than
us. In addition, we may face competition from pharmaceutical and biotechnology
companies that may develop or acquire drug delivery technologies. Many of our
potential collaborative partners have devoted and are continuing to devote
significant resources in the development of their own drug delivery systems and
technologies. Products incorporating our technologies will compete both with
products employing advanced drug delivery systems and with products in
conventional dosage forms. New drugs or future developments in alternate drug
delivery technologies may provide therapeutic or cost advantages over any
potential products which utilize the BCD Systems. There can be no assurance that
developments by others will not render any potential products utilizing the BCD
Systems noncompetitive or obsolete. In addition, our competitive success will
depend heavily on entering into collaborative relationships on reasonable
commercial terms, commercial development of products incorporating the BCD
Systems, regulatory approvals, protection of intellectual property and market
acceptance of such products.

PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS

      It is our policy to file patent applications in the United States and
foreign jurisdictions. We currently have one issued United States patent and
three United States patent pending applications and have applied for patents in
two foreign countries which are still pending. No assurance can be given that
our patent applications will be approved or that any issued patents will provide
competitive advantages for the BCD Drug Delivery Systems or our technologies or
will not be challenged or circumvented by competitors. With respect to any
patents which may issue from our applications, there


                                       13
<PAGE>

can be no assurance that claims allowed will be sufficient to protect our
technologies. Patent applications in the United States are maintained in secrecy
until a patent issues, and we cannot be certain that others have not filed
patent applications for technology covered by our pending applications or that
we were the first to file patent applications for such technology. Competitors
may have filed applications for, or may have received patents and may obtain
additional patents and proprietary rights relating to, compounds or processes
that may block our patent rights or compete without infringing our patent
rights. In addition, there can be no assurance that any patents issued to us
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide proprietary protection or commercial advantage to us.

      We also rely on trade secrets and proprietary know-how which it seeks to
protect, in part, through confidentiality agreements with employees,
consultants, collaborative partners and others. There can be no assurance that
these agreements will not be breached, that we will have adequate remedies for
any such breach or that our trade secrets will not otherwise become known or be
independently developed by competitors. Although potential collaborative
partners, research partners and consultants are not given access to our
proprietary trade secrets and know-how until they have executed confidentiality
agreements, these agreements may be breached by the other party thereto or may
otherwise be of limited effectiveness or enforceability.

Trademarks

      We have filed applications in the United States and China Patent and
Trademark Office to register the word mark "ChlorSM" and "Oralife" for oral care
products, such as medicated mouth rinse, professional dental gels and varnish.
We also registered the following trademarks, "BCD", "Flexogan", "AlphaRx",
"PhytoScience" and "LipoLette" in Canada and "Flexogan", "LipoBloc" and
"PhytoScience" in the United States. In connection with our Internet web site,
we have registered with Network Solutions, Inc., the internet domain name
"AlphaRx.com" for our corporate website.

Proprietary Information

      Much of our technology is dependent upon the knowledge, experience and
skills of key scientific and technical personnel. To protect the rights to our
proprietary technology, our policy requires all employees and consultants to
execute confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside AlphaRx. These agreements also require disclosure
and assignment to AlphaRx of discoveries and inventions made by such persons
while devoted to Company activities.

MANUFACTURING, MARKETING AND SALES

      We do not have and do not intend to establish in the foreseeable future
internal manufacturing capabilities. Rather, we intend to use the facilities of
our collaborative partners or those of contract manufacturers to manufacture
products using the BCD Systems. Our dependence on third parties for the
manufacture of products using the BCD


                                       14
<PAGE>

Systems may adversely affect our ability to develop and deliver such products on
a timely and competitive basis. There may not be sufficient manufacturing
capacity available to us when, if ever, it is ready to seek commercial sales of
products using the BCD Systems. In addition, we expect to rely on our
collaborative partners or to develop distributor arrangements to market and sell
products using the BCD Systems. We may not be able to enter into manufacturing,
marketing or sales agreements on reasonable commercial terms, or at all, with
third parties. Failure to do so would have a material adverse effect on us.

      Applicable GMP requirements and other rules and regulations prescribed by
foreign regulatory authorities will apply to the manufacture of products using
the BCD Systems. We will depend on the manufacturers of products using the BCD
Systems to comply with cGMP and applicable foreign standards. Any failure by a
manufacturer of products using the BCD Systems to maintain cGMP or comply with
applicable foreign standards could delay or prevent their commercial sale. This
could have a material adverse effect on us.

GOVERNMENT REGULATION

      We are subject to regulation under various federal laws regarding
pharmaceutical products and also various federal and provincial laws regarding,
among other things, occupational safety, environmental protection, hazardous
substance control and product advertising and promotion. In connection with our
research and development activities, AlphaRx is subject to federal, provincial
and local laws, rules, regulations and policies governing the use, generation,
manufacture, storage, air emission, effluent discharge, handling and disposal of
certain materials and wastes. We believe that we have complied with these laws
and regulations in all material respects and we have not been required to take
any action to correct any material noncompliance.

      FDA Approval Process. In the United States, pharmaceutical products,
including any drugs utilizing the BCD Drug Delivery Systems, are subject to
rigorous regulation by the FDA. If a company fails to comply with applicable
requirements, it may be subject to administrative or judicially imposed
sanctions such as civil penalties, criminal prosecution of We or our officers
and employees, injunctions, product seizure or detention, product recalls, total
or partial suspension of production, FDA withdrawal of approved applications or
FDA refusal to approve pending new drug applications, premarket approval
applications, or supplements to approved applications.

      Prior to commencement of clinical studies involving human beings,
preclinical testing of new pharmaceutical products is generally conducted on
animals in the laboratory to evaluate the potential efficacy and the safety of
the product. The results of these studies are submitted to the FDA as a part of
an IND application, which must become effective before clinical testing in
humans can begin. Typically, clinical evaluation involves a time consuming and
costly three-phase process. In Phase I, clinical trials are conducted with a
small number of subjects to determine the early safety profile and the
pharmacokinetic pattern of a drug. In Phase II, clinical trials are conducted
with groups of patients afflicted with a specific disease in order to determine
preliminary


                                       15
<PAGE>

efficacy, optimal dosages and expanded evidence of safety. In Phase III,
large-scale, multi-center, comparative trials are conducted with patients
afflicted with a target disease in order to provide enough data to demonstrate
the efficacy and safety required by the FDA. The FDA closely monitors the
progress of each of the three phases of clinical testing and may, at our
discretion, re-evaluate, alter, suspend or terminate the testing based upon the
data which have been accumulated to that point and our assessment of the
risk/benefit ratio to the patient.

      The results of the preclinical and clinical testing on drugs are submitted
to the FDA in the form of an NDA for approval prior to commencement of
commercial sales. In responding to an NDA, the FDA may grant marketing approval,
request additional information or deny the application if the FDA determines
that the application does not satisfy our regulatory approval criteria. There
can be no assurance that approvals will be granted on a timely basis, if at all.
Failure to receive approval for any products utilizing the BCD Drug Delivery
Systems could have a material adverse effect on us.

      OTC products that comply with monographs issued by the FDA are subject to
various FDA regulations such as cGMP requirements, general and specific OTC
labelling requirements (including warning statements), the restriction against
advertising for conditions other than those stated in product labelling, and the
requirement that in addition to approved active ingredients OTC drugs contain
only safe and suitable inactive ingredients. OTC products and manufacturing
facilities are subject to FDA inspection, and failure to comply with applicable
regulatory requirements may lead to administrative or judicially imposed
penalties. If an OTC product differs from the terms of a monograph, it will, in
most cases, require FDA approval of an NDA for the product to be marketed.

      Other Regulations. Even if required FDA approval has been obtained with
respect to a product, foreign regulatory approval of a product must also be
obtained prior to marketing the product internationally. Foreign approval
procedures vary from country to country and the time required for approval may
delay or prevent marketing. In certain instances we or our collaborative
partners may seek approval to market and sell certain of our products outside of
the U.S. before submitting an application for U.S. approval to the FDA. The
regulatory procedures for approval of new pharmaceutical products vary
significantly among foreign countries. The clinical testing requirements and the
time required to obtain foreign regulatory approvals may differ from that
required for FDA approval. Although there is now a centralized EU approval
mechanism in place, each EU country may nonetheless impose our own procedures
and requirements, many of which are time consuming and expensive, and some EU
countries require price approval as part of the regulatory process. Thus, there
can be substantial delays in obtaining required approval from both the FDA and
foreign regulatory authorities after the relevant applications are filed, and
approval in any single country may not be a meaningful indication that the
product will thereafter be approved in another country.


                                       16
<PAGE>

RESEARCH AND DEVELOPMENT

      We conduct our research and development activities through collaborative
arrangements with universities, contract research organizations and independent
consultants. We are also dependent upon third parties to conduct clinical
studies, obtain FDA and other regulatory approvals and manufacture and market a
finished product.

      We anticipate incurring significant development expenditures in the future
as we continue our efforts to develop our present technologies and new
formulations and as we begin to research other technologies and to expand
clinical studies of certain products. We plan to establish laboratory facilities
to conduct research and development and manufacture of batch forms for clinical
evaluations.

PRODUCT LIABILITY

      Our business involves exposure to potential product liability risks that
are inherent in the production and manufacture of pharmaceutical products. Any
such claims could have a material adverse effect on us. We do not currently have
any product liability insurance. Although we will apply for product liability
insurance when it deems it appropriate, there can be no assurance that:

      o     we will be able to obtain or maintain product liability insurance on
            acceptable terms;

      o     we will be able to secure increased coverage as the
            commercialization of the BCD Systems proceeds; or

      o     any insurance will provide adequate protection against potential
            liabilities.

EMPLOYEES

      We employ five people on a full-time basis and two persons on a part-time
basis. None of our employees is represented by a collective bargaining
agreement, nor have we experienced any work stoppage. We believe that our
relations with our employees are excellent.

REPORTS TO SECURITY HOLDERS

      AlphaRx is not required to deliver an annual report to security holders
and will not voluntarily deliver a copy of the annual report to the security
holders. Should the Company choose to create an annual report, it will contain
audited financial statements. The Company files all of its required information
with the Securities and Exchange Commission ("Commission").


                                       17
<PAGE>

      The public may read and copy any materials that are filed by the Company
with the Commission at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The statements and forms filed by the Company with the
Commission have been filed electronically and are available for viewing or copy
on the Commission maintained Internet site that contains reports, proxy, and
information statements, and other information regarding issuers that file
electronically with the Commission. The Internet address for this site can be
found at: http://www.sec.gov.

ITEM 2. DESCRIPTION OF PROPERTY

      We lease approximately 1,100 square feet in Richmond Hill, Ontario, under
a lease which expires on April 30, 2003 for approximately $600 a month. We
believe that our existing properties are sufficient for our administrative,
research and development needs for the foreseeable future.

ITEM 3. 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
contingent liability.

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

On March 19, 2002, the majority shareholder of the Company voted 6,894,000
common shares, constituting approximately 59.45 % of AlphaRx's issued and
outstanding securities, to authorize, by Written Consent in Lieu of Meeting of
the Stockholders of AlphaRx, Inc., management to effect a one for five (1-5)
reverse split of the Company's common stock with no change to the authorized
capital structure or par value of the shares. The reverse split was effected on
March 19, 2002. On March 21, 2002 the Company's trading symbol on the OTCBB was
changed to "ALRX".


                                       18
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

      Our common stock is traded over-the-counter and its quotations are carried
in the Electronic Bulletin Board of the National Association of Securities
Dealers, Inc.

      The following table sets forth the range of high and low bid quotations
for our common stock for the periods indicated from sources we deem reliable.

                                                             High          Low
      --------------------------------------------------------------------------
      Fourth Quarter      (Ended September 30, 2002)         0.81          0.43
      Third Quarter       (Ended June 30, 2002)              0.80          0.12
      Second Quarter      (Ended March 31, 2002)             0.45          0.05
      First Quarter       (Ended December 31, 2001)          1.20          0.05

      The foregoing quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions. The reported bid prices reflect the 5 for 1 reverse stock split
that occurred on March 21, 2002.

      Records of our stock transfer agent indicate that as of September 30,
2002, there were approximately 58 record holders of our common stock. This does
not include an indeterminate number of shareholders who may hold their shares in
"street name".

DIVIDENDS

      We have never declared any cash dividends and do not anticipate paying
such dividends in the near future. We anticipate all earnings, if any, over the
next twelve (12) to twenty (20) months will be retained for future investments
in business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our results of
operations, financial conditions, contractual restrictions, and other factors
deemed relevant by the Board of Directors. We are under no contractual
restrictions in declaring or paying dividends to our common shareholders.

      The future sale of presently outstanding "unregistered" and "restricted"
common stock of the company by present members of management and persons who own
more than five percent of the outstanding voting securities of the Company may
have an adverse effect on the public market for our common stock.

RECENT SALES OF UNREGISTERED SECURITIES

      The following is a list of all unregistered securities issued by AlphaRx
during the last quarter of our fiscal year ended September 30, 2002 including
where applicable, the


                                       19
<PAGE>

identity of the person who purchased the securities, title of the securities,
the exemption relied upon for the issuance and the date issued are outlined
below.

      On September 30, 2002, AlphaRx issued 360,000 restricted shares of its
common stock to Michael Lee for services rendered as an officer and director
valued at $0.50 a share in lieu of cash obligations due under the terms of his
employment agreement in reliance on Rule 506 of Regulation D and/or Section 4(2)
of the Securities Act and to persons outside the United States within the
meaning of Regulation S of the Securities Act in a private transaction that did
not involve a public offering. The Company made this offering based on the
following factors: (1) the issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there was only one offeree
who is the president and a director of the Company; (3) the offeree did not
resell the stock but continued to hold it; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations made in connection with the
issuance of the stock took place directly between the offeree and the Company.

      On September 30, 2002, AlphaRx issued 240,000 restricted shares of its
common stock to Dr. Joseph Schwarz for services rendered as the Company's chief
scientist and a director valued at $0.50 a share in lieu of cash obligations due
under the terms of his employment agreement in reliance on Rule 506 of
Regulation D and/or Section 4(2) of the Securities Act and to persons outside
the United States within the meaning of Regulation S of the Securities Act in a
private transaction that did not involve a public offering. The Company made
this offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there was only one offeree who is director of the Company; (3) the offeree did
not resell the stock but continued to hold it; (4) there were no subsequent or
contemporaneous public offerings of the stock; (5) the stock was not broken down
into smaller denominations; and (6) the negotiations made in connection with the
issuance of the stock took place directly between the offeree and the Company.

      On September 30, 2002, AlphaRx issued 180,000 restricted shares of its
common stock to Dr. Michael Weissipapir for services rendered as an officer
valued at $0.50 a share in lieu of cash obligations due under the terms of his
employment agreement in reliance on Rule 506 of Regulation D and/or Section 4(2)
of the Securities Act and to persons outside the United States within the
meaning of Regulation S of the Securities Act in a private transaction that did
not involve a public offering. The Company made this offering based on the
following factors: (1) the issuance was an isolated private transaction by the
Company which did not involve a public offering; (2) there was only one offeree
who is an officer of the Company; (3) the offeree did not resell the stock but
continued to hold it; (4) there were no subsequent or contemporaneous public
offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations made in connection with the issuance of
the stock took place directly between the offeree and the Company.

      On September 30, 2002, AlphaRx issued 144,000 restricted shares of its
common stock to Dr. Sai Ming Wong for services rendered as an officer and
director valued at


                                       20
<PAGE>

$0.50 a share in lieu of cash obligations due under the terms of his employment
agreement in reliance on Rule 506 of Regulation D and/or Section 4(2) of the
Securities Act and to persons outside the United States within the meaning of
Regulation S of the Securities Act in a private transaction that did not involve
a public offering. The Company made this offering based on the following
factors: (1) the issuance was an isolated private transaction by the Company
which did not involve a public offering; (2) there was only one offeree who is
an officer and director of the Company; (3) the offeree did not resell the stock
but continued to hold it; (4) there were no subsequent or contemporaneous public
offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations made in connection with the issuance of
the stock took place directly between the offeree and the Company.

      On September 30, 2002, AlphaRx issued 102,316 restricted shares of its
common stock to Michael Lee for the settlement of loans made to the Company
valued at $0.40 a share to settle an amount due of $40,926 in reliance on Rule
506 of Regulation D and/or Section 4(2) of the Securities Act and to persons
outside the United States within the meaning of Regulation S of the Securities
Act in a private transaction that did not involve a public offering. The Company
made this offering based on the following factors: (1) the issuance was an
isolated private transaction by the Company which did not involve a public
offering; (2) there was only one offeree who is an officer and director of the
Company; (3) the offeree did not resell the stock but continues to hold it; (4)
there were no subsequent or contemporaneous public offerings of the stock; (5)
the stock was not broken down into smaller denominations; and (6) the
negotiations for the sale of the stock took place directly between the offeree
and the Company.

      On September 30, 2002, AlphaRx issued 800,558 restricted shares of its
common stock to Lai Chun Tse for the settlement of loans made to the Company
valued at $0.40 a share to settle an amount due of $320,223 in reliance on Rule
506 of Regulation D and/or Section 4(2) of the Securities Act and to persons
outside the United States within the meaning of Regulation S of the Securities
Act in a private transaction that did not involve a public offering. The Company
made this offering based on the following factors: (1) the issuance was an
isolated private transaction by the Company which did not involve a public
offering; (2) there was only one offeree; (3) the offeree did not resell the
stock but continues to hold it; (4) there were no subsequent or contemporaneous
public offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.

      On September 30, 2002, AlphaRx issued 97,764 restricted shares of its
common stock to Joyce Li for the settlement of loans made to the Company valued
at $0.40 a share to settle an amount due of $39,105 in reliance on Rule 506 of
Regulation D and/or Section 4(2) of the Securities Act and to persons outside
the United States within the meaning of Regulation S of the Securities Act in a
private transaction that did not involve a public offering. The Company made
this offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there was only one offeree; (3) the offeree did not resell the stock but
continues to hold it; (4) there were no subsequent or contemporaneous public
offerings of


                                       21
<PAGE>

the stock; (5) the stock was not broken down into smaller denominations; and (6)
the negotiations for the sale of the stock took place directly between the
offeree and the Company.

      On September 30, 2002, AlphaRx issued 256,640 restricted shares of its
common stock to Rita Sung for the settlement of loans made to the Company valued
at $0.40 a share to settle an amount due of $102,656 in reliance on Rule 506 of
Regulation D and/or Section 4(2) of the Securities Act and to persons outside
the United States within the meaning of Regulation S of the Securities Act in a
private transaction that did not involve a public offering. The Company made
this offering based on the following factors: (1) the issuance was an isolated
private transaction by the Company which did not involve a public offering; (2)
there was only one offeree; (3) the offeree did not resell the stock but
continues to hold it; (4) there were no subsequent or contemporaneous public
offerings of the stock; (5) the stock was not broken down into smaller
denominations; and (6) the negotiations for the sale of the stock took place
directly between the offeree and the Company.

      All stock certificates issued exhibit restrictive legends in accordance
with the rules and regulations of the Securities Act.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The following discussion and analysis should be read in conjunction with
the Financial Statements and Notes included in Item 8 of this report. 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

      We are a development stage 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 G.I. 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 (August 7,
1997) have been, in addition to research and development, establishing our
offices and research facilities, recruiting personnel, filing patent
applications, developing a business strategy and raising capital.

      We began to test market several consumer health products to the Canadian
and US markets under the AlphaRx brand name in February 2002. Test marketing and
additional clinical human studies to substantiate expected marketing claims,
including


                                       22
<PAGE>

comparative advertising claims, are expected to continue throughout 2002.
Assuming the successful completion of test marketing, a national roll-out of
several over-the-counter products are expected to occur in early 2003, at which
time management anticipates the Company emerging from the development stage.

      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.

Results of Operations

Year ended September 30, 2002 compared to year ended September 30, 2001

      Losses for 2002 were $1,019,290, which is $513,850 more than the losses
for the fiscal year ended September 30, 2001. This is principally attributed to
the increased expense in R&D and professional fee.

      At September 30, 2002 the Company had a working capital deficiency of
$22,250 compared to $400,363 at September 30, 2001.

Research and Development Expense

      Research and development expense for the year ended September 30, 2002 was
approximately $445,637, compared to approximately $68,793 and $74,990 during the
years ended September 30, 2001 and 2000, respectively. The increase in 2002 was
primarily due to increased expense in pre-clinical study for our BCD proprietary
products, including several animal studies for Flexogan, Indoflex and Flexigan,
and increased expense in laboratory supplies.

      Our research and development expenses currently include costs for
scientific personnel, supplies, equipment, outsourced clinical and other
research activities, consultants, patent filings, depreciation, utilities,
administrative expenses and an allocation of corporate costs. The scope and
magnitude of future research and development expenses cannot be predicted at
this time for our product candidates in the early phases of research and
development as it is not possible to determine the nature, timing and extent of
clinical trials and studies, the FDA's requirements for a particular drug and
the requirements and level of participation, if any, by potential partners. As
potential products proceed through the development process, each step is
typically more extensive, and therefore more expensive, than the previous step.
Success in development therefore results, generally, in increasing expenditures.
Furthermore, our business strategy involves licensing certain of our drug
candidates to collaborative partners. Depending upon when such collaborative
arrangements are executed, the amount of costs incurred solely by us will be
impacted.


                                       23
<PAGE>

Liquidity and Capital Resources

      Since inception, we have financed operations principally from the sale of
common stock 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 business
strategy. Therefore, we will likely need to raise substantial additional capital
to fund our operations sometime in the future. We cannot be certain that any
financing will be available when needed. Any additional equity financings may 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. establishment of our own pilot scale manufacturing and marketing
capabilities or a search for 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 our own sales and marketing
capabilities or to seek 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.

      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
deferred salaries to our employees, aged accounts payable and the payment of
rent on our facilities lease.

Certain Factors that may Affect Future Results

         AlphaRx is a development stage company. 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,


                                       24
<PAGE>

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 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 7. FINANCIAL STATEMENTS

      The financial statements required by Item 7 are set forth below on pages
F-1 through F-11.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

The Company did not have any disagreements on accounting or financial
disclosures with our principal independent accountant during the previous two
years.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

      The following table sets forth, as of February 4, 2003, the name, age, and
position of each of our executive officers and directors:

<TABLE>
<CAPTION>
      Name                              Age              Position
      ----                              ---              --------
<S>                                     <C>              <C>
      Michael M.  Lee                   39               Chairman of the Board of Directors
                                                         Chief Executive Officer, Chief Financial Officer

      Sai Ming Wong, MD                 62               Executive Vice President & Director

      Joseph Schwarz, Ph.D              48               Chief Scientist & Director

      Michael Weisspapir, MD, Ph.D      46               Chief Medical Officer

      Sandro Persia                     33               Secretary/Treasurer and Director
</TABLE>


                                       25
<PAGE>

      Michael M. Lee, Mr. Lee is a founder of the Company. Mr. Lee has over 15
years of business experience in the areas of high tech development, marketing
and corporate finance. In 1984, he co-founded Logic Tech Corp. in Toronto,
Canada where he co-developed LogicDent Dental Practice Management Software and
served as Logic Tech Corp's Executive Vice President and Director until 1991.
From 1992 to 1995, Mr. Lee was a Vice President, Pacific Region of GeoFin
Partners LLC, a US merchant banking company engaged in project finance and funds
management. From 1995 to 1996, Mr. Lee served as banking consultant for 2
international commercial banks based in Asia. Mr. Lee holds a B.Sc. in Applied
Mathematics from the University of Western Ontario.

      Sai Ming Wong, M.D., Dr. Wong practiced medical research in China from
1965 to 1980. Dr Wong was the chief surgeon of the medical unit provided medical
and research services for the first China atomic testing. Dr. Wong served as the
Director of Product Development at the China Academy of Medical Sciences from
1970 to 1980, where he was the leader of a research team which specialized in
the development of drug formulations. From 1980 - 1992, Dr. Wong served as
General Manager of China National Light Industries Corp., a China state owned
company based in Hong Kong, where Dr. Wong was responsible for the daily
operation of the company. Dr. Wong earned his degree in Medicine from the
Beijing Capital University of Medical Sciences.

      Joseph Schwarz, Ph.D. Dr. Schwarz is the chief scientist of the Company.
Dr. Schwarz has extensive experience in the research and development of
controlled release drug delivery systems, his areas of expertise cover
controlled delivery of drugs, targeted drug delivery, biodegradable
nanoparticles and nanocapsules, colloidal and microcorpusculate drug delivery
systems, submicron emulsions (SME), transdermal delivery (topical and systemic),
transdermal patches preformulation and technology development. Dr. Schwarz was
the recipient of the Young Scientist Award in 1977 and 1978 and the Institute
Award in 1979, both from the Academy of Science, Moscow and the Institute award
in 1986 from the Biotechnology Institute of Moscow. Dr. Schwarz has published
more than 40 articles in various scientific journals and has written over 20
patents and patent applications. Dr. Schwarz was the senior scientist at Pharmos
Corp., a publicly traded U.S. Pharmaceuticals, prior to joining the Company.

      Michael Weisspapir, M.D., Ph.D. Dr. Weisspapir has 19 years of successful
experience in experimental medicine and extensive experience in
interdisciplinary research and development in experimental pharmacology,
immunopharmacology, toxicology and neuroscience. Dr. Weisspapir was a professor
at the Faculty of Medicine at Chelyabinsk State Medical Institute where he
taught courses in pharmacology, toxicology and clinical chemistry. Prior to
joining the Company, Dr. Weisspapir held a variety of research positions at the
University of Tel Aviv and Rabin Medical Center, Israel and the University
Health Network, University of Toronto, Canada. Dr. Weisspapir received a Ph.D.
in Pharmacology, Internship in Pediatrics and degree in Medicine from the
Chelyabinsk State Medical Institute in Russia.


                                       26
<PAGE>

      Sandro Persia, Mr. Persia joined Logic Tech Corp. in 1989 as Marketing
Manager and promoted to Vice President in 1996. Mr. Persia has extensive
business experience in high tech marketing and sales. Mr. Persia holds a diploma
in business administration from the Seneca College.

      All directors will hold office until the next annual stockholder's meeting
and until their successors have been elected or qualified or until their death,
resignation, retirement, removal, or disqualification. Vacancies on the board
will be filled by a majority vote of the remaining directors. Officers of the
Company serve at the discretion of the Board of Directors.

      No director, officer, significant employee or consultant has been
convicted in a criminal proceeding, exclusive of traffic violations.

      No director, officer, significant employee or consultant has been
permanently or temporarily enjoined, barred, suspended or otherwise limited from
involvement in any type of business, securities or banking activities.

      No director, officer, significant employee or consultant has been
convicted of violating a federal or state securities or commodities law.

      None of the Directors receive a fee for serving as Directors of the
Company. Directors are reimbursed for direct out-of-pocket expenses for
attendance at meetings of the Board of Directors and for expenses incurred for
and on behalf of the Company.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, the
Company is aware of certain persons who during the fiscal year ended September
30, 2002 were directors, officers, or beneficial owners of more than ten percent
of the common stock of the Company, and who failed to file, on a timely basis,
reports required by Section 16(a) of the Securities Exchange Act of 1934 during
such fiscal year as follows:

Michael M. Lee failed to timely file a Form 3 or Form 5 disclosing his position
as chairman of the board of directors, executive officer and shareholder owning
in excess of 10% of the Company's common stock.

Dr. Sai Ming Wong failed to timely file a Form 3 or Form 5 disclosing his
position as a director and executive officer of the Company.

Tin Pui Lo failed to timely file a Form 3 or Form 5 disclosing his former
position as the Company's chief financial officer. Mr. Lo resigned his position
on December 31, 2002.

Joseph Schwarz, Ph.D failed to timely file a Form 3 or Form 5 disclosing his
position as an executive officer and director of the Company.


                                       27
<PAGE>

Dr. Michael Wiesspapir, Ph.D. failed to timely file a Form 3 or Form 5
disclosing his position as an executive officer of the Company.

Sandro Persia failed to timely file a Form 3 or Form5 disclosing her position as
a an executive officer and director of the Company.

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation

      The table below summarizes the compensation received by the Company's
Chief Executive Officer for the fiscal years ended September 30, 2002, 2001 and
2000 and each other executive officer of the Company who received compensation
in excess of $60,000 for services rendered during any of those years ("named
executive officers"). No other executive officer of the Company received
compensation in excess of $60,000 during such years.

<TABLE>
<CAPTION>
                                                                                         LONG TERM
                                                                                        COMPENSATION
                                                                                        ------------
                                                                                          SECURITIES
              NAME AND                                                                   UNDERLYING
         PRINCIPAL POSITION               YEAR       SALARY ($)           BONUS ($)       OPTION (#)
-----------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>                  <C>         <C>
Michael M. Lee....................        2002         230,000                                 --
  President & C.E.O.                      2001          74,000                0                --
                                          2000           6,000                0           400,000
Joseph Schwarz ...................        2002         150,000                                 --
 Chief Scientist                          2001          84,000                0                --
                                          2000           6,000                0           250,000
Michael Weisspapir ...............        2002         114,000                                 --
 Chief Medical Scientist                  2001          63,000                0                --
                                          2000           3,000                0           200,000
Sai Ming Wong.....................        2002          90,000                                 --
 Executive V.P.                           2001          39,000                                 --
                                          2000           3,000                            300,000
</TABLE>

1.    The above officers accepted 792,000 restricted shares in lieu of their
      salary for fiscal year 2000, 2001 and the 3 months ended December 31,
      2001.

2.    The above officers accepted 924,000 restricted shares in lieu of their
      salary between 1/1/2002 and 9/30/2002.

Employment Agreements

      The Company has entered into an employment agreement with Michael M. Lee
on July 1, 2000, pursuant to which Mr. Lee is employed as President. The
agreement, as amended, provides that Mr. Lee will devote all of his business
time to the Company in consideration of an annual salary of $24,000 for the
period July 1, 2000 to December 31, 2000, $36,000 for the period January 1, 2001
to June 30, 2001, $160,000 for the period July 1, 2001 to December 31, 2001,
$240,000 for the period January 1, 2002 to December 31, 2002 and $280,000 for
the period January 1, 2003 to December 31, 2003. In addition,


                                       28
<PAGE>

pursuant to the employment agreement, Mr. Lee was granted a ten-year option to
purchase 400,000 shares of common stock at an exercise price equal to $0.05 per
share that vest over the first five years of the agreement.

      The Company has entered into an employment agreement with Dr. Joseph
Schwarz, pursuant to which Dr. Schwarz is employed full-time as Chief Scientist
for a term of three years commencing on July 1, 2000. Pursuant to the employment
agreement, effective as of July 1, 2000, as amended, Dr. Schwarz will devote his
full time to the Company in consideration of an annual salary of $24,000 for the
period July 1, 2000 to December 31, 2000, $96,000 for the period January 1, 2001
to June 30, 2001, $120,000 for the period July 1, 2001 to December 31, 2001,
$160,000 for the period January 1, 2002 to December 31, 2002 and $200,000 for
the period January 1, 2003 to December 31, 2003. Dr. Schwarz was granted
ten-year options to purchase an aggregate 250,000 shares of common stock at an
exercise price equal to $0.05 per share that vest over the first five years of
the agreement.

      The Company has entered into an employment agreement with Dr. Michael
Weisspapir, pursuant to the agreement, as amended, Dr. Weisspapir is employed
full-time as Senior Scientist for a term ending in December 31, 2003. Dr.
Weisspapir will devote his full time to the Company in consideration of an
annual salary of $12,000 for the period July 1, 2000 to December 31, 2000,
$72,000 for the period January 1, 2001 to June 30, 2001, $96,000 for the period
July 1, 2001 to December 31, 2001, $120,000 for the period January 1, 2002 to
December 31, 2002 and $160,000 for the period January 1, 2003 to December 31,
2003. Dr. Weisspapir was granted ten-year options to purchase an aggregate
200,000 shares of common stock at an exercise price equal to $0.05 per share
that vest over the first five years of the agreement.

      The Company has entered into an employment agreement with Dr. Sai Ming
Wong, pursuant to the employment agreement, as amended, Dr. Wong is employed
full-time as Executive Vice-President for a term ending in December 31, 2003.
Dr. Wong will devote his full time to the Company in consideration of an annual
salary of $12,000 for the period July 1, 2000 to December 31, 2000, $36,000 for
the period January 1, 2001 to June 30, 2001, $72,000 for the period July 1, 2001
to December 31, 2001, $96,000 for the period January 1, 2002 to December 31,
2002 and $120,000 for the period January 1, 2003 to December 31, 2003. Dr. Wong
was granted ten-year options to purchase an aggregate 300,000 shares of common
stock at an exercise price equal to $0.05 per share that vest over the first
five years of the agreement.

      The following table sets forth the individual grants of stock options made
during the fiscal year ended September 30, 2002 to each of the named executive
officers.


                                       29
<PAGE>

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
                                             % of Total
                         Options             Granted to Employees     Exercise
Name                     Granted # (1)       in Fiscal Year (2)       Price (3)             Expiration Date
----------------------------------------------------------------------------------------------------------------
<S>                      <C>                 <C>                      <C>                   <C>
Michael M. Lee           400,000             34.78%                   $0.05                 June 30, 2010
----------------------------------------------------------------------------------------------------------------
Joseph Schwarz           250,000             21.74%                   $0.05                 June 30, 2010
----------------------------------------------------------------------------------------------------------------
Michael Weisspapir       200,000             17.39%                   $0.05                 June 30, 2010
----------------------------------------------------------------------------------------------------------------
Sai Ming Wong            300,000             26.09%                   $0.05                 June 30, 2010
----------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The options reflected in this table were all granted under the Company's
2000 Stock Option Plan (the "Plan"). The date of grant is 10 years prior to the
expiration date listed.

(2) Based on an aggregate of 1,150,000 options granted to employees of the
Company in fiscal 1999.

(3) Exercise price is the fair market value on the date of grant as determined
in accordance with the Plan.

                 Aggregated Option Exercises In Last Fiscal Year
                        and Fiscal Year End Option Values

      The following table sets forth certain information regarding exercises of
stock options during the fiscal year ended September 30, 2002 by the named
executive officers. Value of unexercised options is considered to be the
difference between exercise price and market price of $0.61 per share on
September 30, 2002. No options were exercised by the named executive officers
during fiscal 2002.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
                         Number of Exercisable                  Value of Unexercised In-The-Money
                         Options at Fiscal Year-End (#)         Options Fiscal Year-End (#)
Name                     Exercisable/Unexercisable              Exercisable/Unexercisable
-------------------------------------------------------------------------------------------------
<S>                      <C>                                    <C>
Michael M. Lee           300,000/100,000                        $168,000/$56,000
-------------------------------------------------------------------------------------------------
Joseph Schwarz           187,500/62,500                         $105,000/$35,000
-------------------------------------------------------------------------------------------------
Michael Weisspapir       150,000/50,000                         $84,000/$28,000
-------------------------------------------------------------------------------------------------
Sai Ming Wong            225,000/75,000                         $126,000/$42,000
-------------------------------------------------------------------------------------------------
</TABLE>

2000 Stock Option Plan

      The 2000 Stock Option Plan was adopted in fiscal 1999 authorizing the
issuance of 1,600,000 shares to officers, key employees, certain independent
contractors, and non-employee directors. An aggregate of 1,150,000 options were
granted to key employees and officers of the Company in fiscal 1999. The 2000
Stock Option Plan was terminated in fiscal 2001.


                                       30
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The following table sets forth information with respect to ownership of
the Company's securities by its officers and directors and by any person
(including any "group") who is the beneficial owner of more than 10% of the
Company's common stock. The total number of shares authorized is 100,000,000
shares of common stock, each of which has a par value of $0.0001. 16,317,341
shares of common stock have been issued and are outstanding as of February 4,
2003.

           Name and Address          Amount and Nature of       Percent of
           Of Owner                  Beneficial Owner           Class
           ------------------------------------------------------------------
           Michael Lee(1)            7,376,316 shares           45.21%
           Joseph Schwarz(1)         480,000 shares             2.94%
           Sai Ming Wong (1)         464,000 shares             2.84%
           Michael Weisspapir(2)     360,000 shares             2.21%
           Sandro Persia(1)          16,000 shares              >0.1%
           Tin Pui Lo(2)             400 shares                 >0.1%

      (1)   Director and Officer

      (2)   Officer

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      During the past two years, there have been no material transactions,
series of similar transactions or currently proposed transactions, to which the
Company was or is to be a party, in which the amount involved exceeds $60,000
and in which any director or executive officer, or any security holder who is
known to the Company to own of record or beneficially more than five percent of
the Company's common stock, or any member of the immediate family of any of the
foregoing persons, had a material interest.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-B are
listed in the Index to Exhibits beginning on page 35 of this Form 10-KSB/A,
which is incorporated herein by reference.

(b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the
last quarter of the period covered by this report.


                                       31
<PAGE>

                                  ALPHARX, INC.

               FINANCIAL STATEMENTS AND ACCOUNTANT'S AUDIT REPORT

                    SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001

                                TABLE OF CONTENTS

FINANCIAL STATEMENTS                                                     PAGE

INDEPENDENT AUDITOR'S REPORT                                             F-1

BALANCE SHEET                                                            F-2

LIABILITY AND SHAREHOLDERS' EQUITY                                       F-3

STATEMENT OF OPERATIONS                                                  F-4

STATEMENT OF SHAREHOLDERS' EQUITY                                        F-5

STATEMENT OF RETAINED DEFICITS                                           F-6

STATEMENT OF CASH FLOWS                                                  F-7

NOTES TO FINANCIAL STATEMENTS                                            F-8-11


                                       1
<PAGE>

                          Independent Auditor's Report

Board of Directors
ALPHARX Inc.
Richmond Hill, Ontario, Canada

      We have audited the accompanying balance sheet of AlphaRx, Inc. as of
September 30, 2002 and 2001, and the related income statements, retained
deficits, and cash flow for each of the year in the two-year period ended
September 30, 2002. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

      We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ALPHARX Inc. at September
30, 2002 and 2001, and the results of its operations and its cash flows for each
of the year in the two-year period ended September 30, 2002, in conformity with
generally accepted accounting principles.


/s/ Philip K. Yeung, C.P.A.

December 23, 2002


                                      F-1
<PAGE>

                                  ALPHARX, INC.

                                  BALANCE SHEET

                               FOR THE YEARS ENDED
                           SEPTEMBER 30, 2002 AND 2001

                                     ASSETS

<TABLE>
<CAPTION>
                                                           September 30   September 30
                                                               2002           2001
<S>                                                           <C>           <C>
CURRENT ASSETS

   Prepaid Legal Fees                                         $ 29,385      $      0
   Inventory                                                    52,141             0
                                                              --------      --------

     TOTAL CURRENT ASSETS                                       81,526             0

PROPERTY, PLANT & EQUIPMENT, at cost

         Less accumulated deprecation of $52,332(note 3)       117,102
         Less accumulated deprecation of $29,801                             135,355
                                                                            --------

OTHER ASSETS

   Investment (note 4)                                               0        46,408
                                                              --------      --------

TOTAL ASSETS                                                  $198,628      $181,763
                                                              ========      ========
</TABLE>


                                      F-2
<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                 September 30       September 30
                                                     2002               2001
CURRENT LIABILITIES
   Cash Shortage                                  $     9,202       $    16,259
   Accounts Payable and Accrued Liabilities            24,680            27,778
   Accrued Interest                                         0            10,335
   Salary Payable                                           0           278,000
   Notes Payable (note 7)                              50,795           249,754
   Litigation Liabilities (note 8)                     25,000                --
                                                  -----------       -----------
        TOTAL CURRENT LIABILITIES                     109,677           582,126

LONG-TERM LIABILITIES
   Notes Payable                                        1,524

CONTINGENCIES & COMMITMENTS (note 9)

SHAREHOLDER'S EQUITY
Common Stock, common, $ 0.0001 par value,
   Authorized 100,000,000 shares, issued and
   outstanding 15,327,341 shares (note 5)         $     1,533
   Additional paid-in capital                       2,897,277
   Deficit                                         (2,811,383)
                                                  -----------
Common Stock, common, $0.0001 par value,
   Authorized 100,000,000 shares, issued and
   outstanding 49,513,330 shares                                    $     4,951
   Additional paid in capital                                         1,386,779
   Deficit                                                           (1,792,093)
                                                                    -----------
TOTAL SHAREHOLDER'S EQUITY                             87,427          (400,363)
                                                  -----------       -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $   198,628       $   181,763
                                                  ===========       ===========

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-3
<PAGE>

                                  ALPHARX, INC.

                             STATEMENT OF OPERATIONS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

                                                         September 30
                                                     2002              2001
                                                     ----              ----
SALES                                             $       282       $         0

COST OF SALES                                              59
                                                  -----------

         GROSS PROFIT                                     223

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES        1,000,719           505,452
                                                  -----------       -----------

         LOSS FROM OPERATION                       (1,000,496)         (505,452)

OTHER INCOME & OTHER EXPENSES
   Interest Income                                $         1       $        12
   Other Income                                         6,205                 0
   Litigation Claims (note 8)                         (25,000)                0
                                                  -----------       -----------
                                                      (18,794)               12

         LOSS BEFORE INCOME TAXES                  (1,019,290)         (505,440)

INCOME TAX                                                  0                 0
                                                  -----------       -----------

NET LOSS                                          $(1,019,290)      $  (505,440)
                                                  ===========       ===========

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-4
<PAGE>

                                  ALPHARX, INC.

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                      FOR THE YEAR ENDED SEPTEMBER 30, 2002

<TABLE>
<CAPTION>
                                  Common Stock
                                  ------------             Additional          Retained          Total
                          Number of                         Paid-in            Earnings      Shareholders'
                           Shares            Amount         Capital           (Deficits)        Equity
                           ------            ------         -------           ----------        ------
<S>                      <C>              <C>              <C>               <C>               <C>
Balance at               49,388,330       $     4,939      $ 1,374,291       $(1,286,653)      $    92,577
September 30, 2000

Issuances of                125,000                12           12,488                              12,500
stock - Common

Net loss for                                                                    (505,440)         (505,440)
The year ending
September 30, 2001

Issuances of              6,451,993               645          536,551                             537,196
Stock - Common
 (note 5)

Share                   (44,772,259)
Consolidation

Issue of                  4,134,277               414          969,470                             969,884
Stock - Common
 (note 5)

Net loss for the                                                              (1,019,290)       (1,019,290)
Year ending
September 30, 2002
                         ---------------------------------------------------------------------------------
                         15,327,341             1,533        2,897,277        (2,811,383)           87,427
                         =================================================================================
</TABLE>

See accountant's review report

The accompanying notes are an integral part of this statement


                                      F-5
<PAGE>

                                  ALPHARX, INC.

                         STATEMENT OF RETAINED DEFICITS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

RETAINED DEFICITS

<TABLE>
<CAPTION>
                                                                September 30
                                                                ------------

                                               2002                                          2001
                                               ----                                          ----
<S>                                       <C>                  <C>                      <C>
Beginning balance, October 1, 2001        $  (1,792,093)       October 1, 2000          $   (1,286,653)

Net loss for the period                      (1,019,290)                                      (505,440)
                                          -------------                                 --------------

Ending balance, September 30, 2002        $  (2,811,383)       September 30, 2001       $   (1,792,093)
                                          =============                                 ==============
</TABLE>

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-6
<PAGE>

                                  ALPHARX, INC.

                            STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                  September 30
                                                             2002              2001
<S>                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net Loss                                              $(1,019,290)      $  (505,440)
   Depreciation Amount                                        22,531            18,742

   Adjustments to reconcile note income to net cash
     Cash provided by operating activities:
       Changes in assets and liabilities:
       Increase in Inventory                                 (52,141)
       Increase in Prepaid Legal Fees                        (29,385)
       Decrease in Accounts Payable                           (3,098)           (1,061)
       Increase (Decrease) in Accrued Interest               (10,335)           10,335
       Increase (Decrease) in Salary Payable                (278,000)          278,000
       Increase in Litigation Liabilities                     25,000
       Decrease in Loan from Shareholders                                       (2,365)
                                                         -----------------------------
NET CASH USED BY OPERATIONS ACTIVITIES                   $(1,344,718)      $  (201,789)

CASH FLOWS FROM INVESTING ACTIVITIES
       Proceeds from sales of Investments                     46,408
       Acquisition of Machinery & Equipment                   (4,278)          (88,831)
       Increase in Improvements                                                 (1,836)
                                                         -----------------------------
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES         $    42,130           (90,667)

CASH FLOWS FROM FINANCING ACTIVITIES
       Issuance (Payment) of Notes Payable (note 7)         (197,435)          249,754
       Proceeds from Issuance of Stock                        (3,418)               12
       Increase in Additional Paid-In Capital              1,510,498            12,488
                                                         -----------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                $ 1,309,645       $   262,254

NET INCREASE (DECREASE) IN CASH                                7,057           (30,202)

CASH AS OF September 30, 2001 (2000)                         (16,259)           13,943
                                                         -----------------------------

CASH AS OF September 30, 2002 (2001)                     $    (9,202)      $   (16,259)
                                                         ===========       ===========
</TABLE>

SUPPLEMENTARY DISCLOSURE:

The statement of cash flows using indirect method as defined under Statement of
Financial Accounting Standard of No. 95.

See independent auditor's report


                                      F-7
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 1. FORMATION AND ORGANIZATION OF BUSINESS

ALPHARX, INC. (the Company) was incorporated under the laws of the State of
Delaware on August 8, 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 amended during the fiscal year
of 1998.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of ALPHARX, INC. is presented to
assist in understanding the Company's financial statements. The financial
statements and notes are representations of the Company's management who is
responsible for their integrity and objectivity. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.

Cash and Cash Equivalent

For purpose of these statements, cash equivalent included cash on hand, cash in
bank, and all short-term debt securities purchased with a maturity period of
three months or less.

Depreciation

The company's property, plant, and equipment are depreciated using the Modified
Accelerated Cost Recovery System Method, with recovery period of 7 years.
Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated by using
Modified Accelerated Cost Recovery System Method for financial reporting as well
as income tax reporting purposes at rates based on the following estimated
useful lives:

                    Furniture and Fixtures       7 years
                    Machinery and Equipment      7 years
                    Automobile                   5 years
                    Improvements                10 years

The company capitalizes expenditures that materially increase assets' lives and
expense ordinary repairs and maintenance to operating as incurred. When assets
are sold or disposed or otherwise fully depreciated, the cost and related
accumulated deprecation are removed from the accounts and any gain or loss is
included in the statement of income and related earnings.

See independent auditor's report


                                      F-8
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued.)

Income Taxes

The company is a C Corporation that subjects to accrual of federal tax according
to tax laws. There is no income tax for year ended since the company did not
have active business operations, and had a operating losses. The State of
Delaware does not impose tax on corporation net income.

Research and Development (R&D)

All research and development cost were charged to expense for the period ended.
These costs included traveling to explore and evaluate new products and
negotiating marketing rights, products licensing, and various legal and
professional fees incurred for preparation of patent applications. A total of
$445,637 R&D expense had been spent during the twelve month ended September 30,
2002.

NOTE 3. PROPERTY, PLANT & EQUIPMENT

                                                      Life Year
Improvements                           1,836              10
Furniture & Fixtures               $  11,656               7
Machinery & Equipment                133,875               3
Automobile                            22,067               5
                                   --------
                                    169,434
Less accumulated depreciation       (52,332)
                                   --------
                                   $117,102
                                   ========

NOTE 4. INVESTMENTS

The Company had acquired common stocks of a foreign company located in Hong
Kong. The total amounted invested is $46,408. The securities invested are not
publicly traded. The said investment was subsequently disposed at its original
acquisition price.

See independent auditor's report


                                      F-9
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 5. COMMON STOCK

The Company is authorized to issue 100,000,000 shares of common stock. As of
September 30, 2002, 15,327,341 shares of such common stock had been issued and
outstanding, each share bears a par value of $0.0001.

A subscription agreement to issue 125,000 shares was signed on May 2001. The
proceed of $12,500 was received in several installments during April 2001. The
stock certificates were issued to the shareholders in November 2001.

NOTE 6. STOCK OPTION PLAN

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 and no
longer exercisable. Under the Plan, the option exercise price and its fair
market value are determined to be US$0.05. 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:

                                                                    Weighted
                                                   Number of        Average
                                                     Shares      Exercise Price
                                                   ---------     --------------
Outstanding at June 20, 2000 (plan adoption)       1,600,000       $   0.05
   Granted                                         1,150,000       $   0.05
   Exercised                                               0       $   0.05
   Cancelled                                         450,000       $   0.05
                                                   ---------       --------
Outstanding at September 30, 2002                  1,150,000       $   0.05
                                                   =========       ========
Options exercisable at September 30, 2002            865,200       $   0.05
                                                   =========       ========

The Company has elected to follow APB Opinion No. 25 (Accounting for Stock
Issued to Employees) in accounting for its employee stock options. Accordingly,
no compensation expense is recognized in the Company's financial statements
because none of the vested options were exercised.

NOTE 7. NOTES PAYABLE

At September 30, 2002, the Company has a note payable of $52,319. This note is
unsecured and bears interest at 0%-11% per annum. $50,795 of the notes payable
has been classified as current in the accompanying Balance Sheets because
repayment is anticipated from January 2, 2002 to September 30, 2002.

See independent auditor's report


                                      F-10
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 8. LITIGATION LOSS

The Company is a defendant in a lawsuit, filed by a prospective investor
alleging breach of contract, which seeks damages totaling $25,000. Due to the
fact that we had failed to obtain a legal opinion from the Company's counsel,
the entire claim is accrued in the financial statements.

NOTE 9. COMMITMENTS

Leases

The Company leased its computer until August 31, 2005 and the aggregate minimum
monthly payments due are as follows:

                           Year             Amount
                           ----             ------

                           2004             $937
                           2003             $1,022
                           2002             $1,022


                                      F-11
<PAGE>

                                   SIGNATURES:

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

DATED: February 5, 2003

                                         ALPHARx, INC.


                                         By: /S/ Michael M. Lee
                                            ------------------------------------
                                         Michael M. Lee, Chief Executive Officer
                                         and Chief Financial 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: February 5, 2003

                                         Directors:


                                                    /S/ Michael M. Lee
                                                ----------------------------
                                                Michael M. Lee, Director


                                                    /S/ Sai Ming Wong
                                                ----------------------------
                                                Sai Ming Wong, Director


                                                    /S/ Joseph Schwarz
                                                ----------------------------
                                                Joseph Schwarz, Director


                                                   /S/ Sandro Persia
                                                ----------------------------
                                                Sandro Persia, Director


                                       33
<PAGE>

        CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE
         ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO SECTION 302 OF
                         THE SARBANES-OXLEY ACT OF 2002

I, Michael Lee, chief executive officer and chief financial officer of AlphaRx,
certify that:

1. I have reviewed this annual report on Form 10KSB/A of AlphaRx, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and

c) presented in this annual report my conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the Evaluation
Date;

5. We have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

Date: February 5, 2003


/s/ Michael Lee
---------------

Michael Lee, Chief Executive Officer and Chief Financial Officer


                                       34
<PAGE>

                                INDEX TO EXHIBITS

EXHIBIT     PAGE
NO.         NO.                     DESCRIPTION
---         ---                     -----------

3(i)(a)     *       Certificate of Incorporation dated August 8, 1997
                    (incorporated by reference to the Form 10-SB filed on June
                    16, 2000.

3(i)(b)     *       Amendment to Certificate of Incorporation dated January 26,
                    2000 (incorporated by reference to the Form 10-SB filed on
                    June 16, 2000).

3(i)(c)     *       Amended and Restated Certificate of Incorporation dated July
                    20, 2000 (incorporated by reference to the Form 10-KSB filed
                    on December 31, 2001).

3(ii)       *       Bylaws dated August 11, 1997 (incorporated by reference to
                    the Form 10-SB filed on June 16, 2000).

10.1        *       2000 Stock Option Plan adopted June 20, 2000 (incorporated
                    by reference to the Form 10-KSB filed on December 31, 2001).

10.2        *       Michael Lee Employment Agreement dated July 1, 2000
                    (incorporated by reference to the Form 10-KSB filed on
                    December 31, 2001).

10.3        *       Amendment to Michael Lee Employment Agreement dated August
                    20, 2001 (incorporated by reference to the Form 10-KSB filed
                    on December 31, 2001).

10.4        *       Dr. Joseph Schwarz Employment Agreement dated July 1, 2000
                    (incorporated by reference to the Form 10-KSB filed on
                    December 31, 2001).

10.5        *       Amendment to Dr. Joseph Schwarz Employment Agreement dated
                    August 20, 2001 (incorporated by reference to the Form
                    10-KSB filed on December 31, 2001).

10.6        *       Dr. Michael Wiesspapir Employment Agreement dated July 1,
                    2000(incorporated by reference to the Form 10-KSB filed on
                    December 31, 2001).

10.7        *       Amendment to Dr. Michael Wiesspapir Employment Agreement
                    dated August 20, 2001 (incorporated by reference to the Form
                    10-KSB filed on December 31, 2001).

10.8        *       Dr. Sai Ming Wong Employment Agreement dated July 1,
                    2000(incorporated by reference to the Form 10-KSB filed on
                    December 31, 2001).

10.9        *       Amendment to Dr. Sai Ming Wong Employment Agreement dated
                    August 20, 2001 (incorporated by reference to the Form
                    10-KSB filed on December 31, 2001).

99          36      Certification of Michael Lee pursuant to Section 1350 of
                    Chapter 63 of Title 18 United States Code.


                                       35