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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 

FORM 10-KSB/A

|   | [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, 2004                                               |   |
|   | [ ] Transition      Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act      of |   |
|   | 1934 for the      transition period from____________ to **____________**                              |   |

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|-----------------------------------------------------|
| 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)  |                                      |

|                                                               |
|--------------------------------------------------------------------|
| **200-168 Konrad Crescent, Markham,      Ontario, Canada L3R 9T9** |
| (Address of principal executive offices)                           |
|                                                               |
| **(905) 479-3245**                                                 |
| (Registrant's telephone number,      including area code)          |

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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  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| Securities registered pursuant to Section 12(b) of the      Exchange Act:  Title of Each ClassName 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 bySection 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (orfor 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 405of Regulation S-B contained in this form, and that no disclosure will becontained, to the best of issuer's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB. [ ] 

Issuer's revenues for its most recent fiscal year ended September 30, 2004were $ 383,824. 

The aggregate market value of the issuer's common stock (the only class ofvoting stock), held by non-affiliates was approximately $ 6,485,239 based on theaverage closing bid and ask price for the common stock on May 17, 2005. 

As of May 17, 2005 there were 57,508,112 shares outstanding of the issuer'scommon stock. 

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**AlphaRx, Inc. 

FORM 10-KSB/A**
For the Year Ended September 30, 2004 
**INDEX**PART I           Item    1.    Description of Business3         Item 2.    Description of Property14         Item 3.Legal    Proceedings14         Item 4.    Submission of Matters to a Vote of Security Holders    14     PART II               Item 5.    Market for Common Equity and Related Stockholder Matters    15         Item 6.    Management Discussion and Analysis of Financial Condition    17         Item 7.    Financial Statements, as restated    20         Item 8.    Changes in and Disagreements with Accountants on Accounting and Financial    Disclosure    20              Item 8A    Controls and Procedures21              Item 8BOther    Information21 PART III               Item 9.    Directors, Executive Officers, Promoters and Control Persons; Compliance    with Section 16(a) of the Exchange Act.    21         Item 10.    Executive Compensation23         Item 11.    Security Ownership of Certain Beneficial Owners and Management    25         Item 12.    Certain Relationships and Related Transactions    26         Item 13.    Exhibits and Reports on Form 8-K    26         Item 14.    Controls and Procedures    26     SIGNATURES28     EXHIBITS 29 
2

PART I 
**ITEM 1. DESCRIPTION OF BUSINESS 

COMPANY BACKGROUND

In this annual report on Form 10-KSB/A, the "Company," "AlphaRx," "we," "us,"and "our," refer to AlphaRx, Inc. and AlphaRx Canada Limited, its wholly-ownedsubsidiary. 

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

Effective July 1, 2003 AlphaRx, Inc. acquired all of the shares of AlphaRxCanada Limited for nominal value of $1. AlphaRx Canada Limited was dormant untilthis time. AlphaRx Canada Limited was incorporated under the laws of Ontario inorder to streamline sales of the Company's products in the Canadian market.Prior to this time AlphaRx Canada Limited had no material assets or anyliabilities and was wholly-owned by the President & CEO of AlphaRx, Inc. Theannual report contained herein and the consolidated financial statements reflectthe activities of AlphaRx, Inc. and of AlphaRx Canada Limited - its wholly-ownedsubsidiary. 
**COMPANY OVERVIEW**
We are a pharmaceutical company, engaged in the research, development andmarketing of innovative therapeutic products using advanced drug deliverytechnologies, which we believe, can be combined with a broad range oftherapeutic products. 

In January 2003, we acquired the world-wide exclusive commercializationrights of VT1, a potential cancer therapeutic compound, from Select TherapeuticsInc. Given our recent experience with FlexoganTM, Indaflex and our new focus ondrug delivery products and plans to evolve into a sales and marketingorganization, we have decided VT1 no longer meets our strategic objective andthe VT1 program has been terminated. 

In August 2003, we out licensed Indaflex, our lead pharmaceutical product, toIndustria Farmaceutica Andromaco, S.A. de C.V. for commercialization in Mexico.We will receive royalties from future product sales. We are also attempting toestablish other international licensing and distribution arrangements togenerate revenues from our existing and future proprietary pharmaceuticalproducts. 

In August 2003, we delivered our first shipment of Flexogan to Loblaws Group,one of the largest mass market retailers in Canada. We continue to make progresson Flexogan sales in Canada. 

We believe the market for advanced drug delivery systems is large andgrowing. Based on published data, the market for orally-administered drugs thatutilize drug delivery systems is expected to increase to 

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approximately $50 billion in 2005 from approximately $10 billion in 1995. Wealso believe that pharmaceutical companies that do not themselves have drugdelivery technology expertise will rely upon third parties, such as AlphaRx, toapply such technologies to their product candidates. 

We intend to use our proprietary drug delivery technologies in collaborativearrangements with pharmaceutical companies to formulate their existingcommercialized drugs as well as drugs under development by them. By improvingdrug efficacy and reducing side effects, we believe our drug deliverytechnologies will provide pharmaceutical companies with the opportunity toenhance the commercial value of their existing products and new drug candidates.We also intend to develop either independently or jointly certain off-patent andover-the-counter ("OTC") products utilizing our proprietary drug deliverytechnologies. 
**PRINCIPAL PRODUCT AND SERVICES AND PRINCIPAL MARKETS**
Drug delivery companies apply proprietary technologies to create newpharmaceutical products utilizing drugs developed by others. These products aregenerally novel, cost-effective dosage forms that may provide any of severalbenefits, including better control of drug concentration in the blood, improvedsafety and efficacy, and ease of use and improved patient compliance. We believedrug delivery technologies can provide pharmaceutical companies with a means ofdeveloping new products as well as extending existing patents. 

The increasing need to deliver medication to patients efficiently and withfewer side effects has accelerated the development of new drug delivery systems.Today, medication can be delivered to a patient through many different means ofdelivery, including transdermal (through the skin), injection, implant and oralmethods. These delivery methods, however, continue to have certain limitations.Transdermal patches are often inconvenient to apply can be irritating to theskin and the rate of release can be difficult to control. Injections areuncomfortable for most patients. Implants generally are administered in ahospital 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 thatcapsules and tablets have limited effectiveness in providing controlled drugdelivery, resulting frequently in drug release that is too rapid (causingincomplete absorption of the drug), irritation to the gastrointestinal (GI)tract and other side effects. In addition capsules and tablets cannot providelocalized therapy. Insoluble or poorly soluble drugs are a major problem for thepharmaceutical industry, with over one-third of the drugs listed in the UnitedStates' Pharmacopoeia being insoluble or poorly soluble in water. Further, mostapproaches used to overcome insolubility result in clinical problems rangingfrom poor and erratic bioavailability to serious side effects. 

We are engaged in developing novel formulations of existing drugs that areinsoluble or poorly soluble in water, utilizing our proprietary BioadhesiveColloidal Dispersion (BCDTM) (henceforth, "BCD")drug delivery systems. Ourstrategy is to develop patentable improved formulations of such drugs that aresoluble in human medicines. Our BCD drug delivery technology includes twodifferent approaches to improve the effectiveness of insoluble drugs and providenew methods of delivery, namely, (i) CLD (Colloidal Lipid Dispersion System) and(ii) SECRET (Self Emulsifying Controlled Release Tablet System). 

The BCD drug delivery technology is designed to develop drugs with majormedical advantages, such as lower dosing, fewer side effects and alternativedosage forms, as well as commercial advantages, such as extended patentprotection and broader use. We have a number of drugs under development, certainof which have been successfully reformulated, utilizing our BCD technology. Ourcentral strategy is to seek 

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alliances with pharmaceutical companies which will assist us in completingthe reformulation and development of the drugs and which will initiate clinicaltrials and commercialize the products. 
**PRODUCT PIPLELINE**
The following is a list of some of our products in the product pipeline: 
**   Brand Name****   Application****   Delivery****   Stage**  **   Route** **   Pharmaceuticals**      2.5% Indoflex   Osteoarthritis   Topical   Phase I/II      Planned   Rifampicin   Tuberculosis   Oral   Formulation   Gentamicin   Sepsis   Oral   Formulation**   Consumer Health    (over-the-counter)**     FlexoganTM   Analgesic   Topical   Market   NuPromTM   Acne Control   Topical   Formulation   V-Relief   Anti-fungal   Topical   Formulation**BIOADHESIVE COLLOIDAL DISPERSION (BCD) SYSTEMS**
Our proprietary BCD oral and transdermal drug delivery technologies permitformulations of drug-containing polymeric units that allow controlled deliveryof an incorporated hydrophobic drug (this process is referred to as our "BCDSystems"). Although our formulations are proprietary, the polymers utilized inour BCD Systems are commonly used in the food and drug industries. By usingdifferent formulations of the polymers, we believe our BCD Systems are able toprovide continuous, controlled delivery of drugs of varying molecular complexityand solubility. 

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

1. *Enhanced Safety and Efficacy*.We believe our BCD Systems may improve the ratio of therapeutic effect totoxicity by decreasing the initial peak concentrations of a drug, associatedwith toxicity, while maintaining levels of the drug at therapeutic, subtoxicconcentrations for an extended period of time. Many drugs demonstrate optimalefficacy when concentrations are maintained at therapeutic levels over anextended period of time. When a drug is administered intermittently, thetherapeutic concentration is often exceeded for some period of time, and thenrapidly drops below effective levels. Excessively high concentrations are amajor cause of side effects, while subtherapeutic concentrations areineffective. 
2. *Greater Patient and Caregiver Convenience*.We believe our BCD Systems may permit once-daily dosing for certain drugs thatare currently required to be administered several times daily, thereby promotingcompliance with dosing regimens. Patient noncompliance with dosing regimens hasbeen associated with increased costs by prolonging treatment duration,increasing the likelihood of secondary or tertiary disease manifestation andcontributing to over-utilization of medical personnel and facilities. Byimproving patient compliance, providers and third-party payors may reduceunnecessary expenditures and improve therapeutic outcomes. 
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3.*Expanding the Types of DrugsCapable of Oral Delivery*.****Some drugs, including certainproteins 
(complex organic compounds of high molecular weight containing numerous aminoacids) and peptides (low molecular weight compounds consisting of two or moreamino acids), because of their large molecular size and susceptibility todegradation in the GI tract, must currently be administered by injection or bycontinuous infusion, which is typically done in a hospital or other clinicalsetting. We believe our BCD Systems may permit some of these drugs to bedelivered orally and/or transdermally. 

4. *ProprietaryReformulation of Generic Products*.****We believe our BCD Systems offerthe potential to produce improved proprietary formulations of off-patent drugs,differentiated from the existing generic products by reduced dosingrequirements, improved efficacy, decreased toxicity or additional indications.**DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES**
We intend to have the BCD Systems used with as many pharmaceutical productsas possible. Our primary strategy is to establish collaborative relationshipswith pharmaceutical and biotechnology companies to develop improved therapeuticproducts utilizing our BCD Systems technology. The products will be jointlydeveloped, with the collaborative partner having primary responsibility toclinically test, manufacture, market and sell the product, and we retainingownership of our technologies. We believe that our partnering strategy willenable it to reduce our cash requirements while developing a larger potentialproduct portfolio. By providing new formulations of existing products using theBCD Systems, We believes it will not only be able to offer our partners improvedproducts but also may provide them with the ability to extend the life of theirpatents on such products, especially attractive to pharmaceutical companieswhose patents on existing products are close to expiration. Collaborations withpharmaceutical and biotechnology companies are expected to provide near-termrevenues from sponsored development activities and future revenues from licensefees and royalties relating to the sale of products. 

We have identified as potential partners three top tier drug companies webelieve have drugs which can derive potential benefits utilizing the BCD Systemsand have initiated preliminary discussions with some of these companies. Therecan be no assurance that any of these discussions will lead to our entering intoa development agreement with a collaborative partner or, if such agreement isentered into, that such collaboration will lead to the successful development ofa product. 

We also intend to develop over-the-counter (OTC) and/or off-patent drugproducts utilizing our BCD Systems, either independently or jointly by enteringinto collaborative partnerships with pharmaceutical, biotechnology or otherhealthcare companies. To reduce costs and time-to-market, we intend to selectthose products that treat indications with clear-cut clinical end-points andthat are reformulations of existing compounds already approved by the FDA. Webelieve that products utilizing the BCD Systems will provide favorable productdifferentiation in the highly competitive generic and OTC drug product marketsat costs below those of other drug delivery systems, thereby enabling We and ourcollaborative partners to compete more effectively in marketing improvedoff-patent and OTC drug products. We are also seeking to establish allianceswith overseas sales and marketing partners for the initial sale of our futuregeneric products. We believe that due to the more favorable regulatoryenvironments in some foreign countries, it may be able to generate revenues fromthese markets while awaiting FDA approval in the United States. 
**COMPETITION**
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There are other companies that have oral drug delivery technologies thatcompete with the BCD Systems. The competitors have oral tablet products designedto release the incorporated drugs over time. Each of these companies has apatented technology with attributes different from ours, and in some cases withdifferent sites of delivery to the GI tract. We believe that we are the onlydrug delivery company that is currently using polymeric based colloidaldispersion controlled release technologies to develop products for oral andtransdermal drug delivery systems for enhanced solubility and bioavailabilityfor drugs that are not readily water soluble. We believe that this combinationof oral and transdermal drug delivery technologies differentiates us from otheroral drug delivery companies and will enable us to attract pharmaceuticalcompanies to incorporate their proprietary drugs into the BCD Systems and alsoto differentiate any OTC and/or off-patent drugs that utilize the BCD Systemsfrom those of other drug delivery companies. 

Competition in the areas of pharmaceutical products and drug delivery systemsis intense and is expected to become more intense in the future. Competingtechnologies may prove superior, either generally or in particular marketsegments, in terms of factors such as cost, consumer satisfaction or drugdelivery profile. Our principal competitors in the business of developing andapplying drug delivery systems have substantially greater financial,technological, marketing, personnel and research and development resources thanus. In addition, we may face competition from pharmaceutical and biotechnologycompanies that may develop or acquire drug delivery technologies. Many of ourpotential collaborative partners have devoted and are continuing to devotesignificant resources in the development of their own drug delivery systems andtechnologies. Products incorporating our technologies will compete both withproducts employing advanced drug delivery systems and with products inconventional dosage forms. New drugs or future developments in alternate drugdelivery technologies may provide therapeutic or cost advantages over anypotential products which utilize the BCD Systems. There can be no assurance thatdevelopments by others will not render any potential products utilizing the BCDSystems non-competitive or obsolete. In addition, our competitive success willdepend heavily on entering into collaborative relationships on reasonablecommercial terms, commercial development of products incorporating the BCDSystems, regulatory approvals, protection of intellectual property and marketacceptance of such products.**PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS**
It is our policy to file patent applications in the United States and certainforeign jurisdictions. We currently have one issued United States patent andthree United States patent pending applications and have applied for patents intwo foreign countries which are still pending. No assurance can be given thatour patent applications will be approved or that any issued patents will providecompetitive advantages for the BCD System or our technologies or will not bechallenged or circumvented by competitors. With respect to any patents which maybe issued from our applications, there can be no assurance that claims allowedwill be sufficient to protect our technologies. Patent applications in theUnited States are maintained in secrecy until a patent issues and we cannot becertain that others have not filed patent applications for technology covered byour pending applications or that we were the first to file patent applicationsfor such technology. Competitors may have filed applications for, or may havereceived patents and may obtain additional patents and proprietary rightsrelating to, compounds or processes that may block our patent rights or competewithout infringing our patent rights. In addition, there can be no assurancethat any patents issued to us will not be challenged, invalidated orcircumvented, or that the rights granted thereunder will provide proprietaryprotection or commercial advantage to us. 

We also rely on trade secrets and proprietary know-how which it seeks toprotect, in part, through confidentiality agreements with employees,consultants, collaborative partners and others. There can be 

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no assurance that these agreements will not be breached, that we will haveadequate remedies for any such breach or that our trade secrets will nototherwise become known or be independently developed by competitors. Althoughpotential collaborative partners, research partners and consultants are notgiven access to our proprietary trade secrets and know-how until they haveexecuted confidentiality agreements, these agreements may be breached by theother party thereto or may otherwise be of limited effectiveness orenforceability. 
**Trademarks**
We have registered the following trademarks in Canada: "BCD", "Flexogan", "Indaflex","AlphaRx","PhytoScience", "NuProm", and "LipoLette". We have registered the followingtrademarks in the United States: "Flexogan", "Indaflex", "LipoBloc", "NuProm", "Oralife".We have also registered "Flexogan" in the Peoples' Republic of China. Inconnection with our Internet web site, we have registered with NetworkSolutions, Inc., the internet domain name "AlphaRx.com" for our corporatewebsite. 
**Proprietary Information**
Much of our technology is dependent upon the knowledge, experience and skillsof key scientific and technical personnel. To protect the rights to ourproprietary technology, our policy requires all employees and consultants toexecute confidentiality agreements that prohibit the disclosure of confidentialinformation to anyone outside of us. These agreements also require disclosureand assignment to us of discoveries and inventions made by such persons whiledevoted to Company activities. 
**MANUFACTURING, MARKETING AND SALES**
We do not have and do not intend to establish in the foreseeable futureinternal manufacturing capabilities. Rather, we intend to use the facilities ofour collaborative partners or those of contract manufacturers to manufactureproducts using the BCD Systems. Our dependence on third parties for themanufacture of products using the BCD Systems may adversely affect our abilityto develop and deliver such products on a timely and competitive basis. Theremay not be sufficient manufacturing capacity available to us when, if ever, itis ready to seek commercial sales of products using the BCD Systems. Inaddition, we expect to rely on our collaborative partners or to developdistributor arrangements to market and sell products using the BCD Systems. Wemay not be able to enter into manufacturing, marketing or sales agreements onreasonable commercial terms, or at all, with third parties. Failure to do sowould have a material adverse effect on us. 

Applicable good manufacturing practices ("GMP") requirements and other rulesand regulations prescribed by foreign regulatory authorities will apply to themanufacture of products using the BCD Systems. We will depend on themanufacturers of products using the BCD Systems to comply with current goodmanufacturing practices ("cGMP") and applicable foreign standards. Any failureby a manufacturer of products using the BCD Systems to maintain cGMP or complywith 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 regardingpharmaceutical products and also various Canadian federal and provincial lawsregarding, among other things, occupational safety, environmental protection,hazardous substance control and product advertising and promotion. In connectionwith our research and development activities, AlphaRx is subject to federal,provincial and 

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local laws, rules, regulations and policies governing the use, generation,manufacture, storage, air emission, effluent discharge, handling and disposal ofcertain materials and wastes. We believe that we have complied with these lawsand regulations in all material respects and we have not been required to takeany action to correct any material non-compliance. 

In the United States, pharmaceutical products, including any drugs utilizingthe BCD System, are subject to rigorous regulation by the FDA. If a companyfails to comply with applicable requirements, it may be subject toadministrative or judicially imposed sanctions such as civil penalties, criminalprosecution of We or our officers and employees, injunctions, product seizure ordetention, product recalls, total or partial suspension of production, FDAwithdrawal of approved applications or FDA refusal to approve pending new drugapplications, premarket approval applications, or supplements to approvedapplications. 

Prior to commencement of clinical studies involving human beings, preclinicaltesting of new pharmaceutical products is generally conducted on animals in thelaboratory to evaluate the potential efficacy and the safety of the product. Theresults of these studies are submitted to the FDA as a part of an INDapplication, which must become effective before clinical testing in humans canbegin. Typically, clinical evaluation involves a time consuming and costlythree-phase process. In Phase I, clinical trials are conducted with a smallnumber of subjects to determine the early safety profile and the pharmacokineticpattern of a drug. In Phase II, clinical trials are conducted with groups ofpatients afflicted with a specific disease in order to determine preliminaryefficacy, optimal dosages and expanded evidence of safety. In Phase III,large-scale, multi-center, comparative trials are conducted with patientsafflicted with a target disease in order to provide enough data to demonstratethe efficacy and safety required by the FDA. The FDA closely monitors theprogress of each of the three phases of clinical testing and may at ourdiscretion, re-evaluate, alter, suspend or terminate the testing based upon thedata which have been accumulated to that point and our assessment of therisk/benefit ratio to the patient. 

The results of the preclinical and clinical testing on drugs are submitted tothe FDA in the form of an NDA for approval prior to commencement of commercialsales. In responding to an NDA, the FDA may grant marketing approval, requestadditional information or deny the application if the FDA determines that theapplication does not satisfy our regulatory approval criteria. There can be noassurance that approvals will be granted on a timely basis, if at all. Failureto receive approval for any products utilizing the BCD Drug Delivery Systemscould have a material adverse effect on us. 

OTC products that comply with monographs issued by the FDA are subject tovarious FDA regulations such as cGMP requirements, general and specific OTClabelling requirements (including warning statements), the restriction againstadvertising for conditions other than those stated in product labelling, and therequirement that in addition to approved active ingredients OTC drugs containonly safe and suitable inactive ingredients. OTC products and manufacturingfacilities are subject to FDA inspection, and failure to comply with applicableregulatory requirements may lead to administrative or judicially imposedpenalties. If an OTC product differs from the terms of a monograph, it will, inmost cases, require FDA approval of an NDA for the product to be marketed. 

Additionally, even if required FDA approval has been obtained with respect toa product, foreign regulatory approval of a product must also be obtained priorto marketing the product internationally. Foreign approval procedures vary fromcountry to country and the time required for approval may delay or preventmarketing. In certain instances we or our collaborative partners may seekapproval to market and sell certain of our products outside of the U.S. beforesubmitting an application for U.S. approval to the FDA. The regulatoryprocedures for approval of new pharmaceutical products vary significantly amongforeign countries. The clinical testing requirements and the time required toobtain foreign regulatory approvals may differ from that required for FDAapproval. Although there is now a 

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centralized EU approval mechanism in place, each EU country may nonethelessimpose our own procedures and requirements, many of which are time consuming andexpensive, and some EU countries require price approval as part of theregulatory process. Thus, there can be substantial delays in obtaining requiredapproval from both the FDA and foreign regulatory authorities after the relevantapplications are filed, and approval in any single country may not be ameaningful indication that the product will thereafter be approved in anothercountry. 
**RESEARCH AND DEVELOPMENT**
We conduct our research and development activities in house and throughcollaborative arrangements with universities, contract research organizationsand independent consultants. We are also dependent upon third parties to conductclinical studies, obtain FDA and other regulatory approvals and manufacture andmarket a finished product. 

We anticipate incurring significant development expendituresin the future as we continue our efforts to develop our present technologies andnew formulations and as we begin to research other technologies and to expandclinical studies of certain products. **PRODUCT LIABILITY AND OTHER INSURANCE**
Our business involves exposure to potential product liability risks that areinherent in the production and manufacture of pharmaceutical products. Any suchclaims could have a material adverse effect on us. 

Although we currently maintain product liability insurance, principallythrough third party insurers, that provides coverage for product liabilityclaims, there can be no assurance that: 
- we will be able to maintain  product liability insurance on acceptable terms;
- we will be able to secure increased  coverage as the commercialization of the BCD Systems proceeds; or
- any insurance will provide adequate  protection against potential liabilities.
We have applied for Directors and Officers Liability insurance coverage inorder to be able to attract additional independent directors. There is noassurance, however, that we will be able to obtain such insurance coverage, oreven if it is obtained, there is no assurance that such coverage would beadequate to protect us in the event of a claim. 
 
EMPLOYEES 
 
We have seven full time employees, and three part time consultants on staff.None of our staff is represented by a collective bargaining agreement, nor havewe experienced any work stoppage. We believe that our relations with our staffare excellent. 
 
RISK FACTORS 
 
We provide the following cautionary discussion of risks, uncertainties andpossible inaccurate assumptions relevant to our business and our products. Theseare factors that we think could cause our actual results to differ materiallyfrom expected results. Other factors besides those listed here could adverselyaffect us. 

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  **We have significant historical losses and may continue to incur losses in thefuture.**
We have incurred annual operating losses since our inception. As a result, atSeptember 30, 2004, we had an accumulated deficit, as restated, of approximately$ 7,159,820. Our gross revenues for the years ended September 30, 2004 andSeptember 30, 2003 were $ 383,834 and $52,925 respectively. However, ourrevenues have not been sufficient to sustain our operations. Revenue for 2004consisted primarily of revenue from sales of Flexogan in Canada. In order toachieve profitability our marketing activities will have to increase as well asour sales and there is no assurance that sales can increase to such a level. Wemight never be profitable. 
**We will require additional financing to sustain our operations, and ourability to secure additional financing is uncertain.**
We may be unable to raise on acceptable terms, if at all, thesubstantial capital resources necessary to conduct our operations. If we areunable to raise the required capital, we may be forced to limit some or all ofour research and development programs and related operations, curtailcommercialization of our product candidates and, ultimately, cease operations.Our future capital requirements will depend on many factors, including: 
- continued scientific progress in our research programs;
- progress with preclinical studies and clinical trials;
- the magnitude and scope of our research and development programs;
- our ability to establish corporate partnerships and licensing  arrangements;
- our ability to sell and market our products;
- the time and costs involved in obtaining regulatory approvals;
- the costs involved in preparing, filing, prosecuting, maintaining,  defending and enforcing patent claims;
- the potential need to develop, acquire or license new technologies and  products;
- the continued ability to source demand loans from our private lenders; and
- other factors beyond our control.

At September 30, 2004, we had working capital of approximately $ 2,183,913.Based on our current estimates our working capital will sustain operations forapproximately 18 months. The independent auditors' report for the year endedSeptember 30, 2004 includes an explanatory paragraph stating that our recurringlosses from operations and working capital levels raise substantial doubt aboutour ability to continue as a going concern. 

We believe that satisfying our long-term capital requirements will require atleast the successful commercialization of one of our over-the-counter healthcare products. However, our products may never become commercially successful.
**We face significant competition in the over-the-counter health care market.**
The over-the-counter health care market is highly competitive and ischaracterized by the frequent introduction of new products, including themigration of prescription drugs to the over-the-counter market, oftenaccompanied by major advertising and promotional support. These introductionsmay adversely affect our business, especially because we compete in categoriesin which product sales are highly influenced by advertising and promotions. Ourcompetitors include large over-the-counter 

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pharmaceutical companies such as Pfizer, Inc. and Johnson & Johnson, consumerproducts companies such as Procter & Gamble Co., many of which have considerablygreater financial and other resources than we do and are not as highly leveragedas we are. These competitors are thus better positioned to spend more onresearch and development, employ more aggressive pricing strategies, utilizegreater purchasing power, build stronger vendor relationships and developbroader distribution channels than we. In addition, our competitors may useaggressive spending on trade promotions and advertising as a strategy forbuilding market share, at the expense of their competitors, including us. If weare unable to introduce new and innovative products that are attractive toconsumers, or are unable to allocate sufficient resources to effectivelyadvertise and promote our products so that they achieve wide spread marketacceptance, we may not be able to compete effectively, and our operating resultsand financial condition may be adversely affected. 
**If our pharmaceutical products receive regulatory approval, our competitorsmay eventually include large pharmaceutical companies with superior resources.**
We are engaged in a rapidly changing and highly competitive field. To date,we have concentrated our efforts primarily on one pharmaceutical product --Indaflex - for treating osteoarthritis and other inflammatory indications. Likethe market for any pharmaceutical product, the market for treating arthritis andthese other indications has the potential for rapid, unpredictable andsignificant technological change. Competition is intense from specializedbiotechnology companies, major pharmaceutical and chemical companies anduniversities and research institutions. We currently have no products approvedfor sale in the U.S. If we are successful in obtaining approval for one of ourproducts, our future competitors will have substantially greater financialresources, research and development staffs and facilities, and regulatoryexperience than we do. Major companies in the field of osteoporosis treatmentinclude Novartis, Wyeth, Merck, Eli Lilly, Aventis and Procter & Gamble Co. Anyone of these potential competitors could, at any time, develop products or amanufacturing process that could render our technology or productsnon-competitive or obsolete. 
**Our success depends upon our ability to protect our intellectual propertyrights.**
We filed applications for U.S. patents relating to proprietary drug deliverytechnologies and formulations that we have invented in the course of ourresearch. To date, one U.S. patent has been issued and other applications arepending. We have also made patent application filings in selected foreigncountries. We face the risk that any of our pending applications will not issueas patents. In addition, our patents may be found to be invalid orunenforceable. Our business also is subject to the risk that our issued patentswill not provide us with significant competitive advantages if, for example, acompetitor were to independently develop or obtain similar or superiortechnologies. To the extent we are unable to protect our patents and patentapplications, our investment in those technologies may not yield the benefitsthat we expect. 

We also rely on trade secrets to protect our inventions. Our policy is toinclude confidentiality obligations in all research contracts, joint developmentagreements and consulting relationships that provide access to our trade secretsand other know-how. However, parties with confidentiality obligations couldbreach their agreements causing us harm. If a secrecy obligation were to bebreached, we may not have the financial resources necessary for a legalchallenge. If licensees, consultants or other third parties use technologicalinformation independently developed by them or by others in the development ofour products, disputes may arise from the use of this information and as to theownership rights to products developed using this information. These disputesmay not be resolved in our favour. 
**Our technology or products could give rise to product liability claims.**
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Our business exposes us to the risk of product liability claims that are apart of human testing, manufacturing and sale of pharmaceutical products. Theadministration of drugs to humans, whether in clinical trials or commercially,can result in product liability claims even if our products are not actually atfault for causing an injury. Furthermore, our products may cause, or may appearto cause, adverse side effects or potentially dangerous drug interactions thatwe may not learn about or understand fully until the drug is actuallymanufactured and sold. Product liability claims can be expensive to defend andmay result in large judgments against us. Even if a product liability claim isnot successful, the adverse publicity, time, and expense involved in defendingsuch a claim may interfere with our business. We may not have sufficientresources to defend against or satisfy these claims. We currently maintain$5,000,000 in product liability insurance coverage and plan to increase thiscoverage as our products advance. However, these amounts may not be sufficientto protect us against losses or may be unavailable in the future on acceptableterms, if at all. 
**We may be unable to retain key employees or recruit additional qualifiedpersonnel.**
Because of the specialized scientific nature of our business, we are highlydependent upon qualified scientific, technical, and managerial personnel. Thereis intense competition for qualified personnel in our business. Therefore, wemay not be able to attract and retain the qualified personnel necessary for thedevelopment of our business. The loss of the services of existing personnel, aswell as the failure to recruit additional key scientific, technical, andmanagerial personnel in a timely manner would harm our research and developmentprograms and our business. 
**The market price of our common stock is volatile.**
The market price of our common stock has been, and we expect it to continueto be, highly unstable. Factors, including our announcement of technologicalimprovements or announcements by other companies, regulatory matters, researchand development activities, new or existing products or procedures, signing ortermination of licensing agreements, concerns about our financial condition,operating results, litigation, government regulation, developments or disputesrelating to agreements, patents or proprietary rights, and public concern overthe safety of activities or products have had a significant impact on the marketprice of our stock. We expect such factors to continue to impact our marketprice for the foreseeable future. 

Our common stock is classified as a "penny stock" under SEC rules which maymake it more difficult for our stockholders to resell our common stock. 

Our common stock is traded on the OTC Bulletin Board. As a result, theholders of our common stock may find it more difficult to obtain accuratequotations concerning the market value of the stock. Stockholders also mayexperience greater difficulties in attempting to sell the stock than if it waslisted on a stock exchange or quoted on the Nasdaq National Market or the NasdaqSmall-Cap Market. Because AlphaRx common stock is not traded on a stock exchangeor on Nasdaq, and the market price of the common stock is less than $5.00 pershare, the common stock is classified as a "penny stock." Rule 15g-9 of theSecurities Exchange Act of 1934 imposes additional sales practice requirementson broker-dealers that recommend the purchase or sale of penny stocks to personsother than those who qualify as an "established customer" or an "accreditedinvestor." This includes the requirement that a broker-dealer must make adetermination that investments in penny stocks are suitable for the customer andmust make special disclosures to the customer concerning the risks of pennystocks. Application of the penny stock rules to our common stock could adverselyaffect the market liquidity of the shares, which in turn may affect the abilityof holders of our common stock to resell the stock. 

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**Lack of Independent Directors**
We cannot guarantee that our Board of Directors will have a majority ofindependent directors in the future. In the absence of a majority of independentdirectors, our executive officers, who are also principal stockholders anddirectors, could establish policies and enter into transactions withoutindependent review and approval thereof. This could present the potential for aconflict of interest between the Company and its stockholders generally and thecontrolling officers, stockholders or directors. 
**Ownership of our Common Stock by Current Officers and Directors**
The present officers and directors own approximately 16.5% of the outstandingshares of common stock, and are therefore no longer in a position to elect allof our Directors and otherwise control the Company. With the Company's recentprivate placement described under Item 5 below, the largest single externalshareholder owns approximately 4.5% of the outstanding common stock and hencethe Company can no longer be controlled by any single shareholder or themanagement group as a whole. Shareholders have no cumulative voting rights. (SeeSecurity Ownership of Certain Beneficial Owners and Management) 
**ITEM 2. DESCRIPTION OF PROPERTY**
We lease approximately 2,930 square feet in Markham, Ontario, under a leasewhich expires on November 30, 2008 for approximately $2,600 a month. We believethat our existing properties are sufficient for our administrative, research anddevelopment needs for the foreseeable future. 
**ITEM 3. LEGAL PROCEEDINGS**
Farhad Walji has filed suit against AlphaRx, Inc. and AlphaRx Canada Limitedin the Supreme Court of British Columbia on August 23, 2002. Farhad Walji hasfiled a claim asking for $25,000 plus interest for allegedly providing $20,000pursuant to a subscription agreement to purchase common shares of AlphaRx'sstock and damages resulting from lost opportunity. The Company has denied anyliability in this case and is currently defending this action vigorously.Nonetheless, the value of the entire claim has been accrued in our financialstatements as a liability. 
**ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
During the quarter ended September 30, 2004 the holders of amajority of our outstanding stock acted by written consent to: (a) authorize theBoard of Directors to amend our restated certificate of incorporation toincrease the number of shares of common stock we are authorized to issue from100,000,000 to 250,000,000 shares; and (b) to authorize the adoption of a newoption plan so that we may issue up to an additional 24,000,000 shares of commonstock to our management. This written consent was solicited from record holdersof our outstanding common stock as of July 15, 2004 through an informationstatement. The number of shares voting for these proposals were 8,640,726, or50.8% of total outstanding common shares, while none voted against the proposaland none abstained. 

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**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 inthe Electronic Bulletin Board of the National Association of Securities Dealers,Inc. 

The following table sets forth the range of high and low bid quotations forour common stock for the periods indicated from sources we deem reliable. ****  High $Low $Fourth Quarter(Ended September 30, 2004)0.470.28Third Quarter(Ended June 30,    2004)0.530.37Second Quarter(Ended March 31,    2004)0.500.14First Quarter(Ended December    31, 2003)0.450.14Fourth Quarter(Ended September    30, 2003)0.350.30Third Quarter(Ended June 30,    2003)0.480.45Second Quarter(Ended March 31,    2003)0.410.36First Quarter(Ended December    31, 2002)0.560.51
The foregoing quotations reflect inter-dealer prices without retail mark-up,mark-down or commissions and may not necessarily represent actual transactions.

Records of our stock transfer agent indicate that as ofSeptember 30, 2004, there were approximately 113 record holders of our commonstock. This does not include an indeterminate number of shareholders who mayhold their shares in "street name". 
**DIVIDENDS**
We have never declared any cash dividends and do not anticipate paying suchdividends in the near future. We anticipate all earnings, if any, over the nexttwelve (12) to twenty - four (24) months will be retained for future investmentsin business. Any future determination to pay cash dividends will be at thediscretion of the Board of Directors and will be dependent upon our results ofoperations, financial conditions, contractual restrictions, and other factorsdeemed relevant by the Board of Directors. We are under no contractualrestrictions 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 ownmore than five percent of the outstanding voting securities of the Company mayhave an adverse effect on the public market for our common stock. 

Equity Compensation Plan Information 
     Number of Securities    Weighted-Average    Number of securities remaining to    be issued upon    Exercise Price of    available for future issuance     exercise of outstanding    outstanding    under equity compensation plans     options, warrants, and    options, warrants,    (excluding securities reflected in     rights    and rights    the first two columns)
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    Equity    14,940,000    $0.174    10,780,000Compensation   Plans   Approved by   Security   Holders       Equity    None    None    NoneCompensation   Plans Not   Approved by   Security   Holders           Total    14,940,000    $0.174    10,780,000
Under the new 2004 Stock Option Plan recently approved by ourstockholders, 24,000,000 shares of common stock were made available asmanagement options. Under the new 2004 Option Plan we issued the followingoptions on November 15, 2004: options to purchase up to 12,720,000 shares ofcommon stock with an exercise price of $0.15 per share; options to purchase upto 250,000 shares of common stock with an exercise price of $0.40 per share;options to purchase up to 110,000 shares of common stock with an exercise priceof $0.45 per share; and options to purchase up to 140,000 shares of common stockwith an exercise price of $0.50 per share. A total of 13,220,000 options wereissued, all of which expire on November 15, 2014. These options were issued tomanagement, directors and consultants and vest 100% on November 15, 2005 as to12,720,000 options and November 15, 2004 as to the remaining 500,000 optionswhich were allocated to our consultants. On January 10, 2005 we issued 7,000,000options under this plan with an exercise price of $0.16 per share. These optionswere issued to management and vest 100% on January 10, 2006. 

On February 8, 2005 we issued options to purchase up to390,000 shares of common stock to employees of the Company. These options haveand exercise price of $0.15, vest 100% on February 8, 2006, and expire onFebruary 8, 2015. There remain up to 3,390,000 options to be issued under the2004 Option Plan. 
**RECENT SALES OF UNREGISTERED SECURITIES**
The following is a list of all unregistered securities issued by AlphaRxduring our fiscal year ended September 30, 2004 including where applicable, theidentity of the person who purchased the securities, title of the securities,the exemption relied upon for the issuance and the date issued are outlinedbelow. 

On November 20, 2003 we issued 50,000 shares of our common stock to anindividual in reliance upon the exemption from registration afforded by Rule 506of Reguation D. The consideration for these shares consisted of servicesrendered to us. The deemed value of these services was equal to $0.30 per share.We also issued 50,000 shares of our common stock in accordance with S-8 at $0.30per share. These 

16

shares are registered pursuant to a registration statement filed with theSecurities and Exchange Commission. 

On February 28, 2004, we issued promissory notes convertible into our commonstock to 10 individuals in reliance upon the exemption from registrationafforded by Rule 506 of Regulation D. The conversion rate for these convertiblepromissory notes was equal to $0.10 per share of common stock. We paidcommissions in connection with this issuance of 1,313,543 shares of our commonstock and 2,287,669 warrants to purchase common stock at $0.30 per share to ourplacement agent. Subsequent to this issuance, on July 21, 2004, $375,234 ofpromissory notes were converted into 3,752,339 shares of common stock. 

On July 21, 2004 and September 2, 2004, we issued 27,224,034 shares of ourcommon stock to 38 parties in reliance upon the exemption from registrationafforded by Rule 506 of Regulation D. The consideration consisted of $0.15 pershare. We paid commissions in connection with this issuance of 2,994,644 sharesof our common stock and 2,994,644 warrants to purchase common stock at $0.15 pershare to our placement agent. 
**ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**
The following discussion and analysis should be read in conjunction with theFinancial Statements and Notes included in Item 8 of this report. Except for thehistorical information contained herein the foregoing discussion containsforward-looking statements that involve risks and uncertainties. Our actualresults could differ materially from those projected in the forward-lookingstatements discussed herein. 
**GENERAL**
AlphaRx is a drug delivery company specializing in the development ofinnovative therapeutic products for the pharmaceutical and consumer health caremarket. Our core competence is in the development of novel drug formulations fortherapeutic molecules or compounds that have exhibited poor G.I. absorption dueto poor solubility or have yet be administerable to the human body with anacceptable delivery method. Our drug delivery system is versatile and offerssignificant flexibility in the development of suitable dosage formulations (i.e.oral, topical or parenteral) to meet the requirements of specific drugmolecules. During 2003 we also started to focus on commercialization of ourproducts commencing with sales of Flexogan in the Canadian market. 

We acquired the world-wide exclusive commercialization rights of VT-1 fromSelect Therapeutics Inc. in January 2003. Given our recent national launch withFlexogan in Canada and our new focus on drug delivery products and plans toevolve into a sales and marketing organization, we have decided VT1 no longermeets our strategic objective and the VT1 program has been terminated. 

We launched Flexogan, a series of over-the-counter topicalanalgesics, in Canada in August 2003. In order to support national sales ofFlexogan in Canada, we expect to continue to incur significant marketingexpenditures in 2005. 

We signed a licensing agreement with Industria FarmaceuticaAndromaco, S.A de C.V. ("Andromaco") in August 2003 for the commercialization ofour lead pharmaceutical products "Indoflex" in Mexico. The Company will receiveroyalties from product sales. Mexican health authorities have given approval toAndromaco to start sales of Indaflex in Mexico. 

We intend to continue investing in the further development of our drugdelivery technologies and to actively seek collaborators and licensees toaccelerate the development and commercialization of products 

17

incorporating our drug delivery systems. Depending upon a variety of factors,including collaborative arrangements, available personnel and financialresources, we will conduct or fund clinical trials on such products and willundertake the associated regulatory activities. 
**RESULTS OF OPERATIONS 

Year ended September 30, 2004, as restated, compared to year ended September30, 2003 

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

The gross margins on sales of Flexogan products was $ 230,501 or 60% of grosssales for the year ended September 30, 2004 as compared to $ 33,415 or 63% ofgross sales for the year ended September 30, 2003. Gross margins as a percentageof sales have decreased due to increased competition in the pain relief segment.The increased competition placed pricing pressure on our products which, inturn, required price reductions to remain competitive. We anticipate furthercompetitive pressures to continue. 
**Net Loss, as restated**
Net loss, as restated, for the year ended September 30, 2004 increased to$2,933,840 from $1,414,597 for the comparable period ended September 30, 2003,an increase of $1,519,243 or 107%. This increase in net loss, as restated, isattributable to an increase in Flexogan marketing activities when compared toprior year. Also included in the net loss, as restated, was interest expense inthe amount of $1,161,000 related to the issuance of convertible debt with nocomparable expense for the same period a year ago. 
**Selling and Administrative Expenses**
Selling and administrative expenses consist primarily of sales and marketingexpenditures, personnel costs related to management functions, finance, officeoverheads, insurance, and professional fees related to legal, and audit, and taxmatters. Selling and administrative expenses for the year ended September 30,2004 increased to $1,383,557 from $ 1,225,140 for the year ended September 30,2003, an increase of $158,417 or approximately 13%. The increase is primarilydue to the increase in sales and marketing expenses, related to the Canadianroll-out of Flexogan. 

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

Administration expenses totalled $597,314 for the year ended September 30,2004 as compared to $902,537 incurred in the same period a year ago, a decreaseof approximately $305,223 or 34%. We did not incur any expenses related to stockoption granting during the year ended September 30, 2004 as compared to $280,594incurred in stock option expenses for the year ended September 30, 2003. 
**Research and Development Expenses**
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Research and development expenses include costs for scientific personnel,supplies, equipment, outsourced clinical and other research activities,consultants, patent filings, depreciation of research and development equipment,and office overheads directly related to research and development. 

Research and development expenses for the year ended September 30, 2004totaled $360,467 as compared to $186,241 incurred for the same period a yearago, an increase of $174,226 or approximately 94%. In preparation for clinicaltrials of our topical cream - Indaflex, we incurred approximately $192,000 forthe year ended September 30, 2004. Research and development for our othertopical creams continued during fiscal 2004 at a pace similar to 2003. 
**Depreciation Expense**
We incurred $36,447 in depreciation expense for the year ended September 30,2004 as compared to $26,764 for the same period a year ago, an increase of$9,683 or approximately 36%. We purchased approximately $139,000 of research anddevelopment machinery and equipment during fiscal 2004 as well as about $12,500in other capital assets for a total capital asset purchase of $151,445 ascompared to $36,197 in capital asset purchases for the same period a year ago.This, in turn, generated substantially all of the incremental depreciationexpense. 
**Other Income and Expenses**
Other income and expenses totaled $1,383,870 net expense for the year endedSeptember 30, 2004 as compared to $ 9,867 net expense for the same period a yearago, an increase of $1,374,003. During fiscal 2004 we wrote off previouslyacquired VT-1 commercialization rights in the amount of $229,999.Commercialization of VT-1 was prohibitive from a cost perspective, and attemptsto resell these rights have not been successful. There was no comparable expensein the previous year. 

Also included in other income and expenses was interestexpense of $1,161,000 related to the issuance of convertible debt, which wasconvertible into common stock and warrants to purchase common stock. At the timeof issuance the quoted value of our stock exceeded the conversion price of$0.10, requiring this interest expense to be reflected in accordance with EITF98-5 and EITF 00-27. There was no comparable expense in the previous year. 
**Net Loss, as restated**
The above mentioned income and expenses resulted in a net loss, as restated,of $2,933,840 for the year ended September 30, 2004 as compared to a net loss of$1,414,597 incurred in the same period a year ago. 
**Liquidity And Capital Resources**
As of September 30, 2004 the Company had working capital of $2,183,913compared to a working capital deficiency of $556,784 at September 30, 2003. 

Since inception, we have financed operations primarily from the issuance ofcommon stock and promissory notes and expect to continue this practice to fundour ongoing activities. 
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We currently do not have sufficient resources to complete thecommercialization of all of our proposed products or to carry out our businessstrategy. Therefore, we will likely need to raise additional capital to fund ouroperations sometime in the future. We cannot be certain that any financing willbe available when needed. Any additional equity financings may be dilutive toour existing shareholders, and debt financing, if available, may involverestrictive covenants on our business. 

We expect to continue to spend capital on: 

1. research and development programs; 2. preclinical studies and clinical trials; 3. sales and marketing activities; and 4. regulatory processes. 

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

1. the progress, timing and scope of our research anddevelopment programs; 2. the progress, timing and scope of our preclinical studies and clinicaltrials; 3. the time and cost necessary to obtain regulatory approvals; 4. the time and cost necessary to establish our own sales and marketingcapabilities or to seek marketing partners to market our products for us; 5. the time and cost necessary to respond to technological and marketdevelopments; and 6. new collaborative, licensing and other commercial relationships that we mayestablish. 

The inability to raise capital would have a material adverse effect on theCompany. 
**Certain Factors that may Affect Future Results**
Certain of the information contained in this document constitutes"forward-looking statements", including but not limited to those with respect tothe future revenues, our development strategy, involve known and unknown risks,uncertainties, and other factors which may cause our actual results, performanceor achievements to be materially different from any future results, performanceor achievements expressed or implied by such forward-looking statements. Suchfactors include, among others, the risks and uncertainties associated with adrug delivery company including a history of net losses, unproven technology,lack of manufacturing experience, current and potential competitors withsignificant technical and marketing resources, need for future capital anddependence on collaborative partners and on key personnel. Additionally, we aresubject to the risks and uncertainties associated with all drug deliverycompanies, including compliance with government regulations and the possibilityof patent infringement litigation, as well as those factors disclosed in ourdocuments filed from time to time with the United States Securities and ExchangeCommission. 
**ITEM 7. FINANCIALSTATEMENTS, AS RESTATED**
The financial statements, as restated, required by Item 7 are set forth onpages F-1 through F-16. 
**ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE**
On December 29, 2003, we dismissed Philip K. Yeung, ("Yeung") the principalaccountant previously engaged to audit AlphaRx's financial statements and onDecember 31, 2003 retained Schwartz Levitsky 

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Feldman LLP ("Schwartz") as the principal accountants to replace Yeung. TheCompany's board of directors approved the change of accountants from Yeung toSchwartz. 

The audit reports of Yeung on AlphaRx's financial statements for the fiscalyears ending September 30, 2002 and September 30, 2001 did not contain anyadverse opinion or disclaimer of opinion, nor were they qualified or modified asto uncertainty, audit scope, or accounting principles, except such reports weremodified to include an explanatory paragraph for a going concern uncertainty.

In connection with the audits of the fiscal years ending September 30, 2002and September 30, 2001 including the subsequent interim periods since engagementthrough December 29, 2003, the date of dismissal, the Company had nodisagreements with Yeung with respect to accounting or auditing issues of thetype discussed in Item 304(a)(iv) of Regulation S-B. Had there been anydisagreements that were not resolved to their satisfaction, such disagreementswould have caused Yueng to make reference in connection with their opinion tothe subject matter of the disagreement. In addition, during that time there wereno reportable events (as defined in Item 304(a)(1)(iv) of Regulation S-B). 

During the fiscal years ending September 30, 2002 and September 30, 2001including the subsequent interim periods since engagement through December 29,2003, the date of Yeung's dismissal, and prior to the appointment of Schwartz,AlphaRx (or anyone on its behalf) did not consult with Schwartz regarding any ofthe accounting or auditing concerns stated in Item 304(a)(2) of Regulation S-B.Since there were no disagreements or reportable events (as defined in Item304(a)(2) of Regulation S-B), we did not consult Schwartz in respect to thesematters during the time periods detailed herein. 
**ITEM 8A. CONTROLS AND PROCEDURES**
The Company's chief executive officer and the Company's chief financialofficer are responsible for establishing and maintaining disclosure controls andprocedures for the Company. 

Evaluation of Disclosure Controls and Procedures 

Based on their evaluation as of September 30, 2004, the chief executiveofficer and the chief financial officer have concluded that the Company'sdisclosure controls and procedures (as defined in Rule 13a-14(c) and 15d-15(e)of the Securities Exchange Act of 1934, as amended) are effective to ensure thatinformation required to be disclosed by the Company in reports that the Companyfiles or submits under the Securities Exchange Act, as amended is recorded,processed, summarized and reported within the time periods specified in therules and forms of the Securities and Exchange Commission. 

Changes in Internal Controls 

Despite the restatement of financial information reported in this amendedannual report, as of September 30, 2004, the chief executive officer and thechief financial officer have concluded that there were no significant changes inthe Company's internal controls over financial reporting or in any other areasthat could significantly affect the Company's internal controls subsequent tothe date of their most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses. 
**ITEM 8B. OTHER INFORMATION**
None**.**
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**PART III 

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCEWITH SECTION 16(A) OF THE EXCHANGE ACT**
The following table sets forth, as of December 9, 2004, the name, age, andposition of each of our executive officers and directors: 
Name    AgePositionTerm    Michael M. Lee41Chairman of the    Board of Directors   Chief Executive    OfficerSince 8/8/1997    Marcel Urbanc,    C.A.48Chief Financial    Officer     Joseph Schwarz,    Ph.D50Chief Scientist     Michael    Weisspapir, MD, Ph.D48Chief Medical    Officer     Sandro Persia34    Secretary/Treasurer     Dr. David Milory53DirectorSince 4/15/2003    Dr. Ford Moore53DirectorSince 4/15/2003
Michael M. Lee: Mr. Lee is a founder of the Company. Mr. Leehas over 15 years of business experience in the areas of high tech development,marketing and corporate finance. Mr. Lee holds a B.Sc. in Applied Mathematicsfrom the University of Western Ontario. Mr Lee founded the company in August1997. 

Marcel Urbanc, C.A:****Mr.Urbanc obtained his Chartered Accountant designation in 1985 after articlingwith Arthur Andersen & Co. for 3 years. Prior to joining the Company, Mr. Urbancserved as Controller and then VP Finance & CFO of Oasis Technology Ltd., asoftware company involved in transaction processing from 1994 to 2002. Duringhis tenure at Oasis private equity funding of approximately $45,000,000 wasraised. Mr Urbanc has been with the company since March, 2003. 
Joseph Schwarz, Ph.D**.:**Dr.Schwarz is the chief scientist of the Company. Dr. Schwarz has extensiveexperience in the research and development of controlled release drug deliverysystems, his areas of expertise cover controlled delivery of drugs, colloidaland microcorpusculate drug delivery systems, submicron emulsions (SME),transdermal delivery (topical and systemic). Dr. Schwarz has published more than40 articles in various scientific journals and has written over 20 patents andpatent applications. Dr. Schwarz was the senior scientist at Pharmos Ltd., apublicly traded U.S. pharmaceuticals company from 1991 to 1995. From 1995 to1997 he was the senior scientist in the research and development department ofTEVA Pharmaceuticals Ltd. From 1997 to 1998, Dr. Schwarz was the seniorscientist of D-PHARM, a pharmaceuticals concern located in Israel. From 1998 to1999 Dr. Schwarz served as a part time consultant to the Company and has beenwith the company since that time. 
Michael Weisspapir, M.D.: Ph.D.****Dr. Weisspapir has 19 years of successfulexperience in experimental medicine and extensive experience ininterdisciplinary research and development in experimental pharmacology,immunopharmacology, toxicology and neuroscience. Prior to joining the Company,Dr. 
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Weisspapir held a variety of research positions at the University of Tel Avivand Rabin Medical Center, Israel and the University Health Network, Universityof Toronto, Canada. 

Sandro Persia: Mr. Persia joined Logic Tech Corp. in 1989 as MarketingManager and promoted to Vice President in 1996. Mr. Persia has extensivebusiness experience in high tech marketing and sales. Mr. Persia holds a diplomain business administration from the Seneca College. 

David Milroy, D.D.S. M.R.C.D. (C): Dr. Milroy is a Certified Oral &Maxillofacial Surgeon and has been in private practice in Richmond Hill,Woodbridge, and Port Hope, Ontario for the past twenty years. He graduated fromthe University of Toronto, Faculty of Dentistry with a Doctor of Dental Surgerydegree in 1976 and a Residency in Oral & Maxillofacial Surgery at the Universityof Toronto, Toronto General and Toronto Doctor's Hospitals in 1982. 

Ford Moore, D.D.S. F.R.C.D. (C): Dr. Moore is a a certified Oral &Maxillofacial Surgeon, is engaged in a full-time private practice in Newmarket,Ontario which he established in 1981. Dr. Moore graduated from the University ofToronto with a Doctor of Dental Surgery degree in 1976, and completed a hospitalResidency in Oral Surgery and Anesthesia at Toronto General Hospital, TorontoDoctor's Hospital and the University of Toronto in 1980.****
All directors will hold office until the next annual stockholder's meetingand until their successors have been elected or qualified or until their death,resignation, retirement, removal, or disqualification. Vacancies on the boardwill be filled by a majority vote of the remaining directors. Officers of theCompany serve at the discretion of the board of directors. 
**Compensation of Directors**
AlphaRx's directors are not currently compensated for theirservices as directors of the Company. Directors are reimbursed for out-of-pocketcosts incurred in attending meetings of the Board of Directors and for expensesincurred for and on behalf of the AlphaRx. 
**Board of Directors Committees**
The board of directors has established an audit committee effective December1, 2004. The audit committee is comprised of two independant board members - Dr.Ford Moore and Dr. David Milroy. A third independent board member with publiccompany experience and financial expertise is being sought. At the outset, ouraudit committee will review and approve our financial statements prior to boardmeetings, act on and report to the board of directors with respect to variousauditing and accounting matters, including the recommendations of ourindependent auditors, review the scope of the annual audits, and fees to be paidto the independent auditors. As the Audit Committee becomes more established itwill also review and approve any material internal accounting and financialcontrol policies and procedures and ensure compliance with all requiredgovernance procedures and policies. Finally, the audit committee will establishprocedures for the receipt, retention, and treatment of complaints received bythe Company regarding accounting, internal controls and auditing. 

The board of directors has not yet established a compensation committee. 
**COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT**
Section 16(a) of the Exchange Act requires directors, officers and personswho own more than 10% of a registered class of our equity securities to filereports of ownership and change in ownership with the 

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Securities and Exchange Commission. Directors, officers and greater than 10%shareholders are required by SEC regulations to furnish us with copies of allSection 16(a) forms they file. 

Based solely upon our review of the copies of such forms thatwe received during the fiscal year ended September 30, 2004, we believe thateach person who at any time during the fiscal year was a director, officer, orbeneficial owner of more than ten percent of our common stock complied with allSection 16(a) filing requirements during such fiscal year. 
**CODE OF ETHICS**
We have not adopted a code of ethics at this time, as ourfocus has been on our growth and product development. Our board of directors iscurrently reviewing and evaluating a proposal to adopt a comprehensive code ofethics for our executive officers and directors. 
**ITEM 10. EXECUTIVE COMPENSATION**
Summary Compensation 

The table below summarizes the compensation received by the Company's ChiefExecutive Officer for the fiscal years ended September 30, 2004, 2003 and 2002and each other executive officer of the Company who received compensation inexcess of $40,000 for services rendered during any of those years ("namedexecutive officers"). ****         LONG TERM         COMPENSATION         SECURITIESNAME AND       UNDERLYINGPRINCIPAL POSITIONYEARSALARY ($)BONUS ($)OPTION (#)    Michael M. Lee200429,5310--        President & C.E.O.    2003    83,6520    150,000      2002    230,0000--    Joseph Schwarz    2004    22,7310--        Chief Scientist    2003    56,9920    80,000      2002    150,0000--    Michael Weisspapir    2004    59,1000--        Chief Medical Scientist    2003    46,9920    80,000      2002    114,0000--    Marcel Urbanc    2004    36,2180--        Chief Financial Officer    2003    13,0000    80,000      200200--  0.The    above officers accepted 672,000 restricted shares in lieu of their salary    for fiscal year 2000, 2001 and the 3 months ended December 31, 2001.0.The    above officers accepted 780,000 restricted shares in lieu of their salary    between 1/1/2002 and 9/30/2002.0.The    above officers accepted 392,500 restricted shares in lieu of their salary    between 10/1/2002 and 3/31/2003.
There were no options granted during the fiscal year ended September 30,2004. 

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

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The following table sets forth certain information regarding exercises ofstock options during the fiscal year ended September 30, 2004 by the namedexecutive officers. Value of unexercised options is considered to be thedifference between exercise price and market price of $0.31 per share onSeptember 30, 2004. No options were exercised by the named executive officersduring fiscal 2004. 
NameNumber of    Exercisable Options atValue of    Unexercised In-The-Money Fiscal    Year-End (#)Options at    Fiscal Year-End (#) Exercisable/UnexercisableExercisable/Unexercisable   Michael M. Lee450,000/100,000$84,000/$0Marcel Urbanc80,000/0$0/$0Joseph Schwarz276,667/53,333$52,500/$0Michael    Weisspapir226,667/53,333$42,000/$0**2003 Stock Option Plan**
The 2003 Plan is administered by the board of directors, which determineswhich directors, officers, employees, consultants, scientific advisors andindependent contractors of the Corporation are to be granted options, the numberof shares subject to the options granted, the exercise price of the options, andcertain terms and conditions of the options. No options may be granted under the2003 Plan more than ten years after the date the 2003 Plan is adopted by theboard of directors, and no options granted under the 2003 Plan may be exercisedafter the expiration of ten years from date of grant. The board of directors maydelegate administration of the 2003 Plan, including the power to grant optionsto persons who are not officers or directors of the Corporation, to a StockOption Committee, composed of members of the board of directors. 

We have reserved 1,500,000 common shares under the 2003 Plan for issuanceunder option or restricted stock purchase agreements. As of January 26, 2004there were 645,000 options granted under this Plan. The 2003 Stock Option Planwas considered no longer adequate for our future needs and hence the Companyadopted the 2004 Plan described below. 
**2004 Stock Option Plan**
The 2004 Plan is administered by the board of directors, which determineswhich directors, officers, employees, consultants, scientific advisors andindependent contractors of the Company are to be granted options, the number ofshares subject to the options granted, the exercise price of the options, andcertain terms and conditions of the options. The board of directors may delegateadministration of the 2004 Plan, including the power to grant options to personswho are not officers or directors of the Corporation, to a Stock OptionCommittee, composed of members of the board of directors. The board ofdirectors, in its sole discretion, may amend, modify or terminate the 2004 Planat any time without restriction. However, no amendment may, without stockholderapproval, increase the total number of shares of stock which may be issued underthe 2004 Plan (other than increases to reflect stock dividends, stock splits orother relevant capitalization changes). There are 24,000,000 authorized sharesof our Common Stock that are not issued or outstanding, reserved forimplementation of the 2004 Plan. 

On November 15, 2004 the Company granted 13,220,000 options under the 2004Plan to 14 individuals including officers, directors and consultants. 

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**ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
The following table sets forth information with respect to ownership of theCompany's securities by its officers and directors and by any person (includingany "group") who is the beneficial owner of more than 5% of the Company's commonstock. The total number of shares authorized is 250,000,000 shares of commonstock, each of which has a par value of $0.0001. As of December 8, 2004 therewere 57,508,112 shares of common stock issued and outstanding. 
Name and Address    Amount and Nature of    Percent ofOf OwnerBeneficial OwnerClass   Michael Lee(1)    7,580,726 shares    13.18%Joseph Schwarz(2)    602,500 shares    1.05%Michael    Weisspapir(2)    457,500 shares    0.80%Sandro Persia(2)    16,000 shares    0.03%Ford Moore(3)    492,579 shares    0.86%Marcel Urbanc(2)    20,000 shares    0.03%David Milroy(3)300,000 shares0.52%All directors and officers9,469,305 shares16.47%as a group (7    persons)     (1)     Director and Officer  (2)     Officer  (3)     Director  **ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**
Except as disclosed in this annual report, during the past two years, therehave been no material transactions, series of similar transactions or currentlyproposed transactions, to which the Company was or is to be a party, in whichthe amount involved exceeds $60,000 and in which any director or executiveofficer, or any security holder who is known to the Company to own of record orbeneficially more than five percent of the Company's common stock, or any memberof the immediate family of any of the foregoing persons, had a materialinterest. 
**ITEM 13. EXHIBITS ANDREPORTS ON FORM 8-K**
(a) Exhibits. Exhibits required to be attached by Item 601 of Regulation S-Bare listed in the Index to Exhibits beginning on page 28 of this Form 10-KSB-A,which is incorporated herein by reference. (b) On September 9, 2004 we filed aCurrent Report on Form 8-K regarding completion of a private placement of commonstock and warrants to purchase common stock. 
**ITEM 14. PRINCIPALACCOUNTANT FEES AND SERVICES 

Audit Fees : For the year ended September 30, 2004we incurred approximately $35,011in external audit fees, and quarterly reviewsin connection with statutory and regulatory filings to our principal accountantsas compared to approximately $18,378 for the year ended September 30, 2003. 
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**Audit-Related Fees: For the year ended September 30, 2004we incurred no fees for assurance and related services by the principalaccountant. Similarly we incurred no fees for the year ended September 30, 2003.
**Tax Fees: For the year ended September 30, 2004 we incurred approximately$2,273 in tax related fees to our principal accountant as compared toapproximately $2,100 for the year ended September 30, 2003. 
**All Other Fees: For the year ended September 30, 2004 we paid no otherfees to our principal accountant.**Audit Committee's Pre-Approval Policies and Procedures:Our audit committee,established December 1, 2004, pre-approves all financial statements prior todissemination, via review and discussion with the principal accountants. Theyalso pre-approve any audit and permitted non-audit services provided by theprincipal accountants by reviewing Purchase Orders prior to issuance, anddiscussion with the principal accountants if deemed necessary. Disclosure willbe made of any non-audit services approved by the audit committee in ourquarterly 10-Q and annual 10-K reports. 
The audit committee is in the process of establishing procedures for thereceipt, retention, and treatment of complaints received by the Companyregarding accounting, internal controls and auditing. 
**SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. 

DATED: May 18, 2005 
ALPHARx, INC. By: /s/ Michael M. LeeMichael M. Lee, President
 

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

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**ALPHARx, INC.**
CONSOLIDATED FINANCIAL STATEMENTS AND AUDIT REPORT 

SEPTEMBER 30, 2004, AS RESTATED, AND SEPTEMBER 30, 2003
TABLE OF CONTENTS        CONSOLIDATED FINANCIAL STATEMENTS, AS RESTATEDPAGE(S)          REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM    F-2      CONSOLIDATED BALANCE SHEETS, AS RESTATEDF-3      CONSOLIDATED STATEMENTS OF OPERATIONS, AS RESTATED    F-4      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY, AS RESTATED    F-5      CONSOLIDATED STATEMENTS OF CASH FLOWS, AS RESTATED    F-6      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS RESTATED    F-7-16
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**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders of AlphaRx, Inc. 

We have audited the accompanying restated consolidatedbalance sheets of AlphaRx, Inc. (incorporated in the State of Delaware) as atSeptember 30, 2004 and 2003 and the related restated consolidated statements ofoperations, cash flows and stockholders' equity for the years then ended. Theserestated consolidated financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on theserestated consolidated financial statements based on our audits. 

We conducted our audits in accordance with the standards ofthe Public Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the consolidated financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion. 

In our opinion, the restated consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position of AlphaRx, Inc. as at September 30, 2004 and 2003 and theresults of its operations and its cash flows for the years then ended inaccordance with generally accepted accounting principles in the United States ofAmerica. 

The accompanying restated consolidated financial statementshave been prepared assuming that the Company will continue as a going concern.As discussed in Note 1 to the restated consolidated financial statements, theCompany has suffered recurring losses from operations that raise substantialdoubt about its ability to continue as a going concern. The restatedconsolidated financial statements do not include any adjustments that mightresult from the outcome of this uncertainty. Should the Company be unable tocontinue as a going concern, certain assets and liabilities will have to beadjusted to their liquidation values. 

The previous Report of Independent Registered PublicAccounting Firm has been withdrawn. The restated consolidated financialstatements have been adjusted as discussed in note 18. 
Toronto, Ontario,    Canada November 12, 2004    (except for note 18,/s/Schwartz    Levitsky Feldman llpwhich is as of    May 13, 2005)Chartered    Accountants
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**ALPHARx, INC.**     **CONSOLIDATED BALANCE SHEETS****AS AT    SEPTEMBER 30, 2004, AS RESTATED (NOTE 18) AND 2003**          September 30, **2004** **2003**CURRENT ASSETS                 Cash and Cash Equivalents$    2,856,042$    24,520        Accounts Receivable, net (note 3)     49,930     27,662        Prepaid Expenses     67,640     3,690        Inventory (note 4) 180,272 141,905                  TOTAL CURRENT ASSETS     3,153,884     197,777          PROPERTY, PLANT &    EQUIPMENT, net (note 5)     241,533     126,535OTHER ASSETS             Licensing Right (note 6) 1 230,000     TOTAL ASSETS 3,395,418 554,312     CURRENT    LIABILITIES            Accounts Payable and Accrued Liabilities (note 7)     279,071     254,724        Notes Payable (note 8 and 17)     665,900     474,837        Litigation Liabilities (note 9) 25,000 25,000               TOTAL CURRENT LIABILITIES 969,971 754,561     CONTINGENCIES &    COMMITMENTS (note 9 and 10)         SHAREHOLDERS'    EQUITY (DEFICIENCY)    Common Stock: $    0.0001 par value,             Authorized 250,000,000 shares; issued and             outstanding 52,304,642 shares (2003 - 100,000,000             authorized; 16,920,082 issued and outstanding) (note 11)     5,232     1,692         Additional paid-in capital     9,580,035     4,024,039         Deficit (7,159,820) (4,225,980)     TOTAL    SHAREHOLDERS' EQUITY (DEFICIENCY) 2,425,447 (200,249)     TOTAL LIABILITIES    AND SHAREHOLDERS' EQUITY (DEFICIENCY)$3,395,418$554,312     
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     **ALPHARx, INC.**     **CONSOLIDATED STATEMENTS OF    OPERATIONS****FOR THE YEARS    ENDED SEPTEMBER 30, 2004, AS RESTATED, AND 2003**          Year ended    September 30, **2004** **2003**     SALES$    383,824$    52,925     COST OF SALES 153,323 19,510                  GROSS MARGIN     230,501     33,415          SELLING AND    ADMINISTRATIVE EXPENSES     1,383,557     1,225,140RESEARCH AND    DEVELOPMENT EXPENSES     360,467     186,241DEPRECIATION 36,447 26,764LOSS FROM    OPERATIONS (1,549,970) (1,404,730)     OTHER INCOME AND    EXPENSES                 Other Income -     10,130        Interest income/(expense), net     (1,153,871) 3        Write down of Licensing Rights (note 6)     (229,999) -        Loss on Investment - (20,000)  (1,383,870) (9,867)     LOSS BEFORE    INCOME TAXES, AS RESTATED     (2,933,840)     (1,414,597)     INCOME TAX (note    12) -- --     NET LOSS, AS    RESTATED$    (2,933,840)$(1,414,597)     NET LOSS PER    COMMON SHARE, BASIC &             DILUTED (0.13) (0.09)     WEIGHTED AVERAGE    NUMBER OF COMMON             SHARES OUTSTANDING 22,741,117 15,858,421
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**ALPHARx, INC.**      **CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY****FOR THE YEARS    ENDED SEPTEMBER 30, 2004, AS RESTATED,****AND 2003**       
Common Stock    Additional    Retained    Total     Number of     Paid-in    Earnings    Shareholders'     Shares    Amount    Capital    (Deficit)    Equity      Balance at    September 30, 2002    15,327,341    $1,533    $2,897,277    $(2,811,383)    $87,427      Issuances of    Common Stock    1,592,741159    846,168     846,327      Issuance of Stock         Options for consulting services     280,594     280,594      Net loss for the    Year ending     September 30,    2003   (1,414,597)(1,414,597)      Balance at    September 30, 200316,920,0821,6924,024,039(4,225,980)(200,249)      Issuances of    Common Stock     for consulting,    legal services    100,00011    29,990     30,001      Conversion of    Promissory Notes    3,752,340375    1,535,859     1,536,234      Commission on    Promissory Notes     and Common Stock    Issued    4,308,186431    580,120     580,551      Issuances of    Common Stock    27,224,034    2,723    3,410,027     3,412,750      Net    Loss, as restated, for the year ending    September 30,    2004       (2,933,840)    (2,933,840)      Balance, as of    September 30, 200452,304,642$5,232$9,580,035$(7,159,820)$2,425,447
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     **ALPHARx, INC.**     **CONSOLIDATED STATEMENTS OF    CASH FLOWS****FOR THE YEARS ENDED SEPTEMBER    30, 2004, AS RESTATED, AND 2003**     September 30, **2004** **2003**     CASH FLOWS FROM    OPERATING ACTIVITIES            Net Loss, as restated$    (2,933,840)$        (1,414,597)        Adjustments to reconcile net loss to net cash used in operating               activities:             Depreciation and amortization     36,447     26,764         Write down of licensing rights     229,999           Shares Issued For Services Rendered     610,552     273,436         Options Issued For Services Rendered -     280,594         Interest expense on convertible debt     1,161,000 -              Changes in assets and liabilities:                  Increase in Inventory     (38,367)     (89,764)              Increase in Accounts Receivable     (22,268)     (27,662)             (Increase) Decrease in Prepaid Expenses     (63,950)     25,695              Increase in Accounts Payable and Accrued Liabilities 24,347 230,044     NET CASH USED IN    OPERATING ACTIVITIES (996,080) (695,490)     CASH FLOWS FROM    INVESTING ACTIVITIES                       Purchase of Licensing Rights -     (230,000)              Purchase of Machinery & Equipment (151,445) (36,197)     NET CASH USED IN    INVESTING ACTIVITIES (151,445) (266,197)     CASH FLOWS FROM    FINANCING ACTIVITIES                 Repayment of bank indebtedness -     (9,202)             Issuance of Notes Payable, net (note 8 and 17)     191,063     422,518             Proceeds from Issuance of Common Stock (net) 3,787,984 572,891     NET CASH PROVIDED    BY FINANCING ACTIVITIES 3,979,047 986,207     NET INCREASE IN    CASH     2,831,522     24,520     CASH, beginning    of year 24,520 0     CASH, and Cash    Equivalents, end of year$2,856,042$24,520*SUPPLEMENTARY    DISCLOSURE:*    The statement of    cash flows using indirect method as defined    under Statement    of Financial Accounting Standard of No. 95.    Income Tax Paid$0$0Interest Paid$154,674$25,186
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**ALPHARX INC.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS 

SEPTEMBER 30, 2004, AS RESTATED, AND 2003 

NOTE 1. NATURE OF BUSINESS AND GOING CONCERN
ALPHARX, INC. (the "Company") was incorporated under the laws of the State ofDelaware on August 8, 1997. The Company is an emerging pharmaceutical companyspecializing in the formulation of therapeutic products using proprietary drugdelivery technologies. The company was formally known as LOGIC TECHINTERNATIONAL, INC., and had its corporate name amended during fiscal year 2000.

Effective July 1, 2003 the Company acquired all of the shares of AlphaRxCanada Limited for nominal value of $1. AlphaRx Canada Limited was dormant untilthis time. AlphaRx Canada Limited was incorporated under the laws of Ontario inorder to streamline sales of the Company's products in the Canadian market.Prior to this time AlphaRx Canada Limited had no material assets or anyliabilities and was wholly owned by the President & CEO of the Company. Theconsolidated financial statements reflect the activities of the Company and ofAlphaRx Canada Limited - its wholly owned subsidiary. All material inter-companyaccounts and transactions have been eliminated. 

The accompanying consolidated financial statements have been prepared on agoing concern basis, which contemplates the realization of assets and thesatisfaction of liabilities in the normal course of business. Accordingly, theydo not include any adjustments relating to the realization of the carrying valueof assets or the amounts and classification of liabilities that might benecessary should the company be unable to continue as a going concern.Continuance of the company as a going concern is dependent on its futureprofitability and on the on-going support of its shareholders, affiliates andcreditors. 
**NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
This summary of significant accounting policies of ALPHARX, INC. is presentedto assist in understanding the Company's financial statements. The financialstatements and notes are representations of the Company's management who isresponsible for their integrity and objectivity. These accounting policiesconform to generally accepted accounting principles in the United States ofAmerica and have been consistently applied in the preparation of the financialstatements. 
**Cash and Cash Equivalents**
Cash and cash equivalents includes cash on hand, amounts on deposit withbanks, and any other highly liquid investments purchased with a maturity ofthree months or less. The carrying amount approximates fair value because of theshort maturity of those instruments. 
**Fair Value of Financial Instruments**
The carrying amount of the Company's account receivables, accounts payable,accrued liabilities, litigation liabilities and notes payable approximates fairvalue because of the short maturity of these instruments. 

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**Long-Term Financial Instruments**
The fair value of each of the Corporation's long-term financial assets isbased on the amount of future cash flows associated with each instrumentdiscounted using an estimate of what the Company's current borrowing rate forsimilar instruments of comparable maturity would be. 

It is of the management's opinion that the Company is not exposed tosignificant interest rate risk, credit risk or currency risks arising from thesefinancial instruments. 
**Inventory**
Inventory is recorded at the lower of cost and net realizable value. Cost isdetermined on the first-in first-out basis. 
**Foreign Currency Translation**
The Company maintains the books and records of the subsidiary in Canadiandollars, its functional currency. The records of the Canadian subsidiary areconverted to US dollars, the reporting currency. The translation method used isthe current rate method which is the method mandated by SFAS 52 where thefunctional currency is the foreign currency. Under the current rate method allassets and liabilities are translated at the current rate, stockholder's equityaccounts are translated at historical rates and revenues and expenses aretranslated at average rates for the year. 
**Earnings or Loss Per Share**
The Company adopted FAS No.128, "Earnings per Share", which requiresdisclosure on the financial statements of "basic" and "diluted" earnings (loss)per share. Basic earnings (loss) per share is computed by dividing net income(loss) by the weighted average number of common shares outstanding for the year.Diluted earnings (loss) per share is computed by dividing net income (loss) bythe weighted average number of common shares outstanding plus common stockequivalents (if dilutive) related to stock options and warrants for each year.
**Income Taxes**
The Company accounts for income tax under the provision of Statement ofFinancial Accounting Standards No. 109, which requires recognition of deferredtax assets and liabilities for the expected future tax consequences of eventsthat have been included in the financial statement or tax returns. Deferredincome taxes are provided using the liability method. Under the liabilitymethod, deferred income taxes are recognized for all significant temporarydifferences between the tax and financial statement bases of assets andliabilities. 

Effects of changes in enacted tax laws on deferred tax assets and liabilitiesare reflected as adjustments to tax expense in the period of enactment. Deferredtax assets may be reduced, if deemed necessary based on a judgmental assessmentof available evidence, by a valuation allowance for the amount of any taxbenefits which are more likely, based on current circumstances, not expected tobe realized. 

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**Property and Equipment**
Property and equipment are stated at cost. Depreciation is calculated byusing Modified Accelerated Cost Recovery System Method for financial reportingas well as income tax purposes at rates based on the following estimated usefullives: 
Furniture and      Fixtures7      yearsMachinery and      Equipment3      - 7 yearsAutomobile5      yearsLeasehold      Improvements      10 years
The Company capitalizes expenditures that materially increase assets' livesand expenses ordinary repairs and maintenance to operations as incurred. Whenassets are sold or disposed or otherwise fully depreciated, the cost and relatedaccumulated deprecation are removed from the accounts and any gain or loss isincluded in the statement of income and retained earnings. 
**Research and Development**
All research and development costs are charged to expense as incurred. Thesecosts include research and development, travel to explore and evaluate newproducts, product licensing, and various legal and professional fees incurredfor preparation of patent applications. 
**Revenue Recognition**
Sales represent the invoiced value of goods supplied to customers. Revenuesare recognized upon the passage of title to the customers, provided that thecollection of the proceeds from sales are reasonably assured. A reserve forreturns is considered periodically based on actual or anticipated returns fromcustomers. The Company policy is not to accept returns, however, under certaincircumstances returns are accepted to maintain good customer relations. 
**Use of Estimates**
The preparation of consolidated financial statements in conformity withgenerally accepted accounting principles in the United States of Americarequires management to make estimates and assumptions that affect certainreported amounts of assets and liabilities and disclosures of contingent assetsand liabilities at the date of the consolidated financial statements and thereported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates. These estimates are reviewedperiodically and as adjustments become necessary, they are reported in earningsin the period in which they become known. 
**Long-Lived Assets**
The Company adopted the provisions of SFAS No. 121, Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to be Disposed ofwhich has been superseded by SFAS No. 144. SFAS No. 144 requires that long-livedassets to be held and used by an entity be reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of an assetmay not be recoverable. Management used its best estimate of the undiscountedcash flows to evaluate the carrying amount and have determined that noimpairment has occurred. 

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**Intangible Assets**
Intangible assets with an indefinite useful economic life are tested annuallyfor impairment and periodically if events or circumstances warrant such a testin accordance with SFAS 142. An impairment loss is recognized if the carryingamount exceeds the fair value. 
**Concentrations of Credit Risks and Revenues**
The Company's receivables are unsecured and are generally due in 30 Days.Currently, the Company does not have a diverse customer base as approximately75% of revenues were derived from two customers during the year ended September30, 2004. The Company is however, continuously broadening its customer base inorder to increase revenues and reduce economic dependency on these twocustomers. The majority of the Company's customers are blue chip, publiclytraded companies. 
**Recent Pronouncements**
SFAS No. 144 - Accounting for the Impairment or Disposal of Long-LivedAssets. This standard supercedes SFAS No. 121 - Accounting for the impairment oflong-lived assets and for Long-Lived Assets to be Disposed of. This standardrequires that businesses recognize impairment when the financial statementcarrying amount of long-lived asset or asset group exceeds its fair value and isnot recoverable. The provisions of this statement are effective for financialstatements issued for fiscal years beginning after December 15, 2001. 

SFAS No. 145 - Rescission of FASB Statements No.4, 44 and 64, Amendment ofFASB Statement No. 13, and Technical Corrections. SFAS 145 updates, clarifiesand simplifies existing accounting pronouncements. SFAS 145 rescinds StatementNo.4, which required all gains and losses from extinguishment of debt to beaggregated and, if material, classified as extraordinary items, net of relatedincome tax effect. As a result, the criteria in APB Opinion No. 30 will now beused to classify those gains and losses because Statement No. 4 has beenrescinded. Statement No. 44 was issued to establish accounting requirements forthe effects of transition to provisions of the Motor Carrier Act of 1980.Because the transition has been completed, Statement No. 44 is no longernecessary. 

SFAS No. 146 - Accounting for Cost Associated with Exit or DisposalActivities. SFAS 146 requires companies to recognize costs associated with exitor disposal activities when they are incurred rather than at the date of acommitment to an exit or disposal plan. Previous accounting guidance wasprovided by Emerging Issues Task Force ("EITF") Issue No. 94-3. SFAS 146replaces EITF94-3. The Statement is to be applied prospectively to exit ordisposal activities initiated after December 31, 2002. 

SFAS No.147 - Acquisition of certain Financial Institutions, an amendment of SFAS 72 and 144 and SFAS interpretation number 9 issued October 2002 and relatesto acquisitions of financial institutions. 

SFAS No. 148 - Accounting for Stock Based Compensation-Transition andDisclosure, an amendment of SFAS 123 issued December 2002 and permits twoadditional transition methods for entities that adopt the fair value basedmethod of accounting for stock based employee compensation to avoid the ramp-upeffect arising from prospective application. This statement also improves theprominence and clarity of the pro-forma disclosures required by SFAS 123. 

SFAS No. 149 - Amendment of SFAS 133 on derivative instruments and hedgingactivities. This statement amends and clarifies financial accounting andreporting for derivative instruments embedded in 

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other contracts (collectively referred to as derivatives) and for hedgingactivities under SFAS 133, accounting for derivative instruments and hedgingactivities. 

SFAS No. 150- Accounting for certain financial instrumentswith characteristics of both liabilities and equity. This statement establishesstandards for how an issuer classifies and measures certain financialinstruments with characteristics of both liabilities and equity. 

The Company believes that the above standards would not have a materialimpact on its financial position, results of operations or cash flows. 
**NOTE 3. ACCOUNTS RECEIVABLE**  **2004** **2003**     Accounts    receivable$    51,576$    29,742Less: Allowance    for doubtful accounts 1,646 2,080      $49,930$27,662
The Company carries accounts receivable at the amounts it deems to becollectible. Accordingly, the Company provides allowances for accountsreceivable it deems to be uncollectible based on management's best estimates.Recoveries are recognized in the period they are received. The ultimate amountof accounts receivable that becomes uncollectible could differ from thoseestimated. 
**NOTE 4. INVENTORY**
Inventory comprised the following: 
Inventory    comprised the following:      **2004** **2003**     Raw materials$    59,844$    26,757Finished goods 120,428 115,148      $180,272$141,905**NOTE 5. PROPERTY, PLANT & EQUIPMENT**  **2004** **2003**     Leasehold Improvements$19,948$1,837Furniture & Fixtures 25,089 11,656Machinery & Equipment 293,475 170,072Automobile -- 22,067     COST 338,512 205,632     Less:  Accumulated    depreciation/amortization                  Leasehold Improvements 3,573 460              Furniture & Fixtures 8,679 5,709              Machinery & Equipment 84,727 59,496              Automobile -- 13,432       96,979 79,097NET  $ 241,533 $ 126,535
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**NOTE 6. LICENSING RIGHT**
In January 2003, the Company entered into a sub-licence agreement with athird party drug research company for the world-wide commercialization of anexperimental cancer drug. The cost of this sub-licence agreement was $230,000which was paid by cash of $190,000 and shares with a value of $40,000. Costs tobring this drug to market are currently prohibitive for the Company, and havingunsuccessfully attempted to resell these commercialization rights, they havebeen written down to a nominal value. **NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**
Accounts payable and accrued liabilities are comprised of the following: 
  **2004** **2003**          Trade Accounts Payable$177,962$205,654Accrued Liabilities 101,109 49,070      $279,071$254,724**NOTE 8. NOTES PAYABLE**
At September 30, 2004, the Company has notes payable including accruedinterest of $665,900. 

(September 30, 2003 - $474,837). Of these notes, $520,347 are secured by afirst priority interest in all of the intellectual property and other assets ofthe Company. These notes, bearing interest at 10% per annum, are convertibleinto shares of common stock at a conversion price of $0.10. The remaining notesare unsecured and bear interest at 0%-12% per annum. See also subsequent eventnote below. All notes including accrued interest were repaid subsequent to yearend or converted into common stock plus warrants to purchase common stock. 

EITF 98-5 and EITF 00-27 requires recognition of a conversion feature that isin-the-money at issuance as additional paid in capital, measured by allocating aportion of the proceeds equal to the intrinsic value of that feature. The seniorconvertible notes were issued at a conversion price less than the quoted marketprice on the date of issue. Accordingly interest expense of $1,161,000 has beenrecognized and additional paid in capital has been increased by the same amountvia a restatement of previously reported amounts. See also Note 18 -Restatement. 
**NOTE 9. LITIGATION LIABILITY**
The Company is a defendant in a lawsuit, filed by aprospective investor alleging breach of contract, which seeks damages totaling$25,000. The Company believes the suit is without merit, however, to remainconservative, the entire claim has been accrued in the financial statements. 
**NOTE 10. COMMITTMENTS**
Leases 

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The Company leases automobile and computer equipment as well as its mainpremises. The aggregate minimum annual payments due under these leases are asfollows: 
YearAmount        2005      $32,374      2006      $32,374      2007      $28,736      2008      $28,406      2009      $ 5,309**NOTE 11. COMMON STOCK**
During July, 2004, the majority of the Company's stockholders, by writtenconsent, agreed to increase the authorized number of common shares to250,000,000 from the existing authorization for 100,000,000. 

The Company is hence authorized to issue 250,000,000 sharesof common stock. As of September 30, 2004, there remains issued and outstanding52,304,642 shares of such common stock which has a stated par value of $0.0001per share. 

During the year, the Company issued 100,000 shares of common stock at a priceof $0.30 per share for consulting and legal services; $375,234 of convertiblepromissory notes were converted into 3,752,340 shares of common stock at $0.10per share; 1,313,542 shares were issued in lieu of cash commission for theplacement of promissory notes at a value of $131,354; 27,224,034 shares wereissued at $0.15 per share in connection with a private placement, and 2,994,644shares were issued in lieu of cash commission at a value of $449,197 inconnection with the private placement of stock. Total proceeds from the privateplacement, net of cash value of all commissions and other issuance expenses of$90,304, was $3,412,750. 
**NOTE 12. INCOME TAXES**
The tax effect of significant temporary differences representing deferred taxassets is as follows: 
  **2004** **2003**     Deferred tax    assets:    Operating loss    carry forwards$    1,927,500$    1,455,175             Valuation allowance 1,927,500 1,455,175     Net deferred tax    assets 0 0
These losses expire in varying amounts between 2010 and 2024. 
**NOTE 13. STOCK OPTION PLANS**
The Company has a Stock Option Plan (Plan) under which officers, keyemployees, certain independent contractors, and non-employee directors may begranted options to purchase shares of the Company's authorized but unissuedcommon stock. Since the fiscal year of 2001, the option plan was terminated. 

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Under this Plan, the option exercise price is US$0.10. Outstanding stockoptions granted under the Plan will remain in effect until the expiration datespecified in those options. Options currently expire no later than 10 years fromthe grant date and generally vest within five years. Proceeds received by theCompany from exercises of stock options are credited to common stock andadditional paid-in capital. Additional information with respect to the Plan'sstock option activity is as follows: 
     Number of    Weighted     Shares    Average      Exercise  PriceOptions    exercisable at September 30, 2003 and 20041,150,000$0.10   
The Company adopted a new option plan on February 10, 2003 under whichoptions to purchase 1,500,000 common shares will be granted to certain keyemployees and directors. Under the Plan, the option exercise price and its fairmarket value are determined to be US$0.50 -US$0.69. All options will expire onFebruary 10, 2008 and will vest, and become exercisable in three instalments.Proceeds received by the Company from exercises of stock options are credited tocommon stock and additional paid-in capital. Additional information with respectto the Plan's stock option activity is as follows: 
        Number of    Weighted     Shares    Average      Exercise  PriceOutstanding at    February 10, 2003 (plan adoption)0 Granted during    fiscal 2003    645,000    $0.63Exercised0    $0.00Cancelled during    fiscal 200375,000$0.63Outstanding as of    September 30, 2004570,000$0.63Options    exercisable at September 30, 2004406,667$0.63
The Company granted 645,000 options to consultants duringfiscal 2003. The fair value of each option granted during 2003 was recorded asconsulting expense using the Black-Scholes option pricing model. No stockoptions were granted during the year ended September 30, 2004. 

The Company, via written consent from a majority of the holders of commonstock, approved the adoption of a new option plan during July, 2004. Under thisplan the Company can issue up to 24,000,000 options to purchase common stock. Asof September 30, 2004 no options under this plan had been formally allocated. Nofurther options will be granted under the previous two plans. See alsosubsequent event note below. 
**NOTE 14. WARRANTS**
The Company has the following warrants outstanding to purchase common stockat September 30, 2004: 

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Warrants issued      in conjunction with financing costs whereby one warrant      entitles the holder to purchase one share of common stock at an      exercise price of $1.10, expiring December 19, 2004.      670,275  Warrants issued      in conjunction with financing costs whereby one warrant      entitles the holder to purchase one share of common stock at an      exercise price of $0.65 expiring June 17, 2006.      75,524  Warrants issued      in return for financial advisory services whereby one      warrant entitles the holder to purchase one share of common stock at      an exercise price of $0.05, expiring September 1, 2007. This      warrant can only be exercised after January 29, 2005.      3,000,000  Warrants issued      in conjunction with financing costs whereby one warrant      entitles the holder to purchase one share of common stock at an      exercise price of $0.05, expiring January 1, 2005.      250,000  Warrants issued      in conjunction with financing costs whereby one warrant      entitles the holder to purchase one share of common stock at an      exercise price of $0.15, expiring September 1, 2007.      2,994,642  Warrants issued      in conjunction with financing costs whereby one warrant      entitles the holder to purchase one share of common stock at an      exercise price of $0.30, expiring September 1, , 2007.      2,287,669  Warrants issued      in conjunction with conversion of promissory notes and in      conjunction with the private placement completed during July and      September, 2004. One warrant entitles the holder to      purchase one share of common stock at an exercise price of $0.30,      expiring September 1, 2007.34,728,712   44,006,822
The Company also has an obligation to honor warrants whichresult from conversion of certain remaining promissory notes. Upon conversion ofthe remaining secured convertible promissory notes, the Company must issuewarrants whereby one warrant entitles the holder to purchase one share of commonstock at an exercise price of $0.30, expiring September 1, 2007. Should theremaining convertible promissory notes be converted, the Company must issuewarrants to purchase 10,406,940 shares of common stock. See also subsequentevent note below. The remaining convertible promissory notes were convertedsubsequent to year end. 
**NOTE 15. SEGMENTED INFORMATION**
The Company, after reviewing its reporting systems, has determined that ithas one reportable segment and geographic segment. The Company's operations areall related to the research, design, manufacture and sales of therapeuticproducts. All revenue generated to date result from sales in Canada. All assetsof the business are located in Canada. 

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**NOTE 16. RECLASSIFICATIONS**
Certain amounts from prior year have been reclassified to conform withcurrent year's presentation. 
**NOTE 17. SUBSEQUENT EVENTS**
On October 8, 2004 holders of $260,208 in convertiblepromissory notes converted the notes into 2,602,083 shares of common stock pluswarrants to purchase 5,204,160 shares of common stock at an exercise price of$0.30 per share. The warrants expire on September 1, 2007. 

On October 28, 2004, holders of $260,139 in convertiblepromissory notes converted the notes into 2,601,389 shares of common stock pluswarrants to purchase 5,202,780 shares of common stock at an exercise price of$0.30 per share. The warrants expire September 1, 2007. 

On October 29, 2004 all remaining unsecured promissory notestotalling $145,554 were repaid by the Company. As a result of the abovementioned conversions and repayments, all debt reflected on the balance sheet asat September 30, 2004 has been extinguished. 

On November 15, 2004 the Company issued 13,220,000 options topurchase common stock to 14 individuals including management, directors andconsultants. Of these, 12,720,000 options were issued to management anddirectors, are exercisable at $0.15 per share, and expire on November 15, 2014.The remaining 500,000 options were issued to consultants, are exercisablebetween $0.40 and $0.50 per share, and expire on November 15, 2014. 
**NOTE 18. RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS**
EITF 98-5 and EITF 00-27 requires recognition of a conversionfeature that is in-the-money at issuance as additional paid in capital, measuredby allocating a portion of the proceeds equal to the intrinsic value of thatfeature including the value of the warrants, which was applicable in thisinstance. The warrants were valued using Black -Scholes Pricing Method. The debtdiscount on the beneficial conversion has been limited to the proceeds receivedand has been amortized over the term of the convertible debt. 

Previously reported results did not included recognition of aconversion feature that is in-the-money at issuance as additional paid incapital, measured by allocating a portion of the proceeds equal to the intrinsicvalue of that feature. Restatement of previous periods is as follows: 
For the Period    Ending:**March 31, 2004****June 30, 2004****September 30, 2004**    Net Loss as    previously reported:    $(671,368)    $(1,175,529)    $(1,772,840)    Interest expense    per EITF 98-5 and EITF 00-27:    (861,000)    (1,161,000)    (1,161,000)    Net Loss, as restated:$(1,532,368)$(2,336,529)$(2,933,840)
 

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