SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[X]  Annual Report Under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934.

                  For the fiscal year ended: September 30, 2001

                                       OR

[_]  Transition Report Under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934.

             For the transition period from:___________to___________

                       Commission File Number: 000-030813

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

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


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

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

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

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

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

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained,  to the best of registrant's
knowledge,  in  definitive  proxy  or  information  statements  incorporated  by
reference in  Part  III  of  this Form  10-KSB or  any  amendment  to  this Form
10-KSB. [ ]


<PAGE>


Registrant's  revenues  for its fiscal year ended  September  30, 2001 (its most
recent fiscal year) were $0.00.

The aggregate market value of registrant's Common Stock (the only class of stock
outstanding)  held by  non-affiliates  of the  registrant  on December 18, 2001,
based upon the closing price of the Common Stock on the NASD OTC Bulletin  Board
on such date, was approximately $1,087,500.

The number of outstanding  shares of  registrant's  Common Stock on December 18,
2001 was 50,193,330.


<PAGE>


                                  ALPHARx, INC.

                             2001 FORM 10-KSB REPORT

                                TABLE OF CONTENTS

PART I.........................................................................1

   ITEM 1.  BUSINESS...........................................................1
   ITEM 2.  PROPERTIES........................................................21
   ITEM 3.  LEGAL PROCEEDINGS.................................................21
   ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............21

PART II.......................................................................22

   ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS...........................................................22
   ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS.............................................24
   ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................27
   ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
            FINANCIAL DISCLOSURE..............................................27

PART III......................................................................27

   ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT................27
   ITEM 10. EXECUTIVE COMPENSATION............................................29
   ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....32
   ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................32
   ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
            8-K...............................................................32


"SAFE HARBOR"  STATEMENT UNDER THE PRIVATE  SECURITIES  LITIGATION REFORM ACT OF
1995:  This Annual  Report on Form 10-KSB  contains  forward-looking  statements
within the meaning of Section 27A of the  Securities Act of 1933 and Section 21E
of the  Securities  Exchange  Act of 1934 which are not  historical  facts,  and
involve  risks and  uncertainties  that  could  cause  actual  results to differ
materially  from those  expected  and  projected.  Such risks and  uncertainties
include the  following:  constraints  on our financial and personnel  resources,
competitive  factors,  receipt of FDA  approval  and/or  compliance  with United
States or foreign governmental regulations and our exposure to potential product
liability  risks,  and those set forth under  "Certain  Factors  that may Affect
Future Results" and elsewhere in this Annual Report on Form 10-KSB.  Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof.  We have no obligation to publicly release the
result  of  revisions  to  these  forward-looking  statements  as  a  result  of
occurrences  after the date hereof or to reflect the occurrence of unanticipated
events.



<PAGE>


                                     PART I

ITEM 1. BUSINESS

COMPANY BACKGROUND

     In this Annual Report on Form 10-KSB, the "company," "AlphaRx," "we," "us,"
and "our," refer to AlphaRx, Inc.

     AlphaRx,  formerly known as Logic Tech International Inc., was incorporated
in Delaware on August 8, 1997 as an intellectual  property holding company whose
mission is to  identify,  acquire and develop new  technologies  or products and
devise commercial  applications to be taken to market through licensing or joint
venture partners.  Logic Tech  International Inc. was renamed to AlphaRx Inc. on
January 28, 2000 and our common stock  commenced  trading on the OTC Pink Sheets
under the symbol "AHRX" on July 25, 2000. On October 12, 2000,  our Common Stock
ceased  trading  on the OTC Pink  Sheets and began  trading on the OTC  Bulletin
Board under the same symbol.

COMPANY OVERVIEW

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

     Pain Management - developing oral and topical NSAID pharmaceuticals;

     Oral Care Management - developing antimicrobial mouth rinse and toothpaste;

     Nutraceuticals  -  developing  bioavailable  specialized  supplements  with
     therapeutic benefits; and

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

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

                                       1

<PAGE>


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

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

PRINCIPAL PRODUCT AND SERVICES AND PRINCIPAL MARKETS

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

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

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

                                       2

<PAGE>


PRODUCT PIPLELINE

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

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
Brand Name             Application                   Delivery Technology    Stage          Market Size
----------------------------------------------------------------------------------------------------------
<S>                    <C>                           <C>                    <C>            <C>
Pain Management                                                                            US$ 3 Billion
----------------------------------------------------------------------------------------------------------
Flexigan cream         Arthritis                     Topical/CLD            Pre-clinical
----------------------------------------------------------------------------------------------------------
Indoflex cream         Arthritis                     Topical/CLD            Pre-clinical
----------------------------------------------------------------------------------------------------------
Flexogan (OTC)         Arthritis                     Topical/CLD            Developed
----------------------------------------------------------------------------------------------------------
Oral Health                                                                                US$ 1 Billion
----------------------------------------------------------------------------------------------------------
ChlorSM Mouth Rinse    Anti-gingivitis, Anti-plaque  Oral/CLD               Developed
----------------------------------------------------------------------------------------------------------
ChlorSM Toothpaste     Anti-gingivitis, Anti-plaque  Oral/CLD               Developed
----------------------------------------------------------------------------------------------------------
OTC Mouth Rinse        Anti-plaque, Breath control   Oral/CLD               Developed
----------------------------------------------------------------------------------------------------------
ARX100C Lozenges       Periodontal Disease           Oral/SECRET            Developed
----------------------------------------------------------------------------------------------------------
Nutraceuticals                                                                             US$ 9 Billion
----------------------------------------------------------------------------------------------------------
CoQ10 ER               Hearth Health                 Oral/SECRET            Developed
----------------------------------------------------------------------------------------------------------
LipoBloc               Cholesterol Lowering          Oral/SECRET            Developed
----------------------------------------------------------------------------------------------------------
LipoLette              Weight-loss                   Oral/SECRET            Developed
----------------------------------------------------------------------------------------------------------
Immnomodulators                                                                            US$ 2 Billion
----------------------------------------------------------------------------------------------------------
ARX-2001               Immunomodulator               Undetermined           R&D
----------------------------------------------------------------------------------------------------------
ARX-2002               Neuro-inflammation            Undetermined           R&D
----------------------------------------------------------------------------------------------------------
</TABLE>

OVERVIEW OF THE DRUG DELIVERY INDUSTRY

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

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

     In  recent  years,  drug  delivery  companies  have  been  able to  develop
innovative and efficient  solutions to some of the  limitations of  conventional
oral drug

                                       3

<PAGE>


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

BIOADHESIVE COLLODIAL DISPERSION (BCD) SYSTEMS

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

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

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

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

     3.  Expanding  the Types of Drugs  Capable of Oral  Delivery.  Some  drugs,
including  certain proteins  (complex organic compounds of high molecular weight
containing  numerous amino acids) and peptides (low molecular  weight  compounds
consisting of two or more amino acids),  because of their large  molecular  size
and   susceptibility   to  degradation  in  the  GI  tract,  must  currently  be
administered by injection

                                       4

<PAGE>

or by  continuous  infusion,  which is  typically  done in a  hospital  or other
clinical  setting.  We believe our BCD Systems may permit some of these drugs to
be delivered orally and/or transdermally.

     4.  Proprietary  Reformulation  of Generic  Products.  We  believe  our BCD
Systems  offer the potential to produce  improved  proprietary  formulations  of
off-patent drugs,  differentiated  from the existing generic products by reduced
dosing  requirements,   improved  efficacy,  decreased  toxicity  or  additional
indications.

BACKGROUND

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

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

COLLOIDAL LIPID DISPERSION (CLD) SYSTEM

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

                                       5

<PAGE>


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

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

SELF EMULSIFYING CONTROLLED RELEASE TABLET (SECRET) SYSTEMS

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

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

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

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

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

                                       6

<PAGE>


     The  principal   excipients   used  in  SECRET   formulations   are  highly
biocompatible and acceptable to the FDA. SECRET formulated water-insoluble drugs
offer the following benefits: (i) lower toxicity  formulations;  (ii) controlled
absorption  with resultant  reduction in peak to trough  ratios;  (iii) targeted
release of the drug to specific areas within the  gastrointestinal  tract;  (iv)
absorption  irrespective  of the feeding state;  (v) minimal  potential for dose
dumping;  (vi) improved oral bioavailability;  (vii) enhanced stability;  (viii)
improved  dissolution  rate;  (ix) less  irritation;  (x)  bioadhesive to mucous
membranes  for maximum  penetration;  (xi) high drug  payloads;  and (xii) lower
production cost.

DISTRIBUTION METHODS OF THE PRODUCTS AND SERVICES

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

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

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

                                       7

<PAGE>

some foreign  countries,  it may be able to generate revenues from these markets
while awaiting FDA approval in the United States.

                                       8

<PAGE>


PAIN MANAGEMENT

Arthritis Overview

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

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

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

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

Products under Development

     We have two topical NSAID products under development:

          -------------------------------------------------------------
          Brand Name       Active Ingredient       Status
          -------------------------------------------------------------
          Flexigan         1.5% Diclofenac         Pre-clinical
          -------------------------------------------------------------
          Indoflex         2.0% Indomethacin       Pre-clinical
          -------------------------------------------------------------

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

     Flexigan  does not  irritate  the skin when the cream is applied  topically
causing  Indomethaic to penetrate  rapidly and deeply into the affected parts of
the body due to the CLD formulation.  CLD are oil-in-water emulsions composed of
lipid phase,  emulsified in

                                       9

<PAGE>


aqueous  medium with the aid of natural  emulsifiers.  CLD do not contain unsafe
ingredients and are therefore highly acceptable and of low irritancy.

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

Controlled Release NSAIDs in Self Emulsifying Tablets

     Oral  NSAIDs,  such  as  Indomethacin  and  Diclofenac  have  a  pronounced
irritating  action in the  gastrointestinal  (GI) level and  stomach.  Different
enteric-coated, extended-release,  delayed-release, buffered capsules or tablets
or oral suspension  formulations may reduce this side effect,  however, they are
often in an undesirable range and costly to produce.

     NSAIDs in emulsion are less  irritating to the GI and also  bioavailability
and absorption  kinetic of active  ingredient are also improved.  Currently,  we
have  developed  two oral NSAID  products  that utilize the SECRET drug delivery
system:

     --------------------------------------------------------------------
     Brand Name       Active Ingredient         Status
     --------------------------------------------------------------------
     Flexigan         25 & 50 mg Diclofenac     Research & development
     --------------------------------------------------------------------
     Indoflex         25 & 50 mg Indomethacin   Pre-clinical
     --------------------------------------------------------------------
     Flexigan ER      100 mg Diclofenac         Research & development
     --------------------------------------------------------------------
     Indoflex ER      50 mg Indomethacin        Pre-clinical
     --------------------------------------------------------------------


ORAL CARE MANAGEMENT

Overview

     The  worldwide  oral care market is  estimated  to exceed  $7.0  billion in
annual retail sales. Annual oral care sales in North America are estimated to be
$2.8  billion in 1999 and are  projected to reach $3.0 billion by the year 2000.
It is estimated  that the oral care  products will grow at an annual rate of 10%
internationally for the next 10 years with the highest growth rate in developing
countries such as China.

     We  intend  to  be  a  provider  of  proprietary   oral  care  products  to
international  consumers  using a scientific  approach  that will  significantly
reduce the  long-term  costs of dental care.  We are focused on  developing  and
marketing  proprietary  oral care products to treat the cause of tooth decay and
gum disease.  We seek to establish  distinctive  brand identity  emphasizing the
enhanced  therapeutic  benefits  of  our  oral  care  products,  which  will  be
communicated to both consumers and dental professionals.

     Traditional  dentistry  is  shifting  away  from  treating  symptoms  (i.e.
drilling and filling  cavities) and moving towards taking  preventive  action to
treat the cause of tooth decay and gum disease. This shift is caused by mounting
scientific  evidence  that tooth decay and gum  disease  are medical  conditions
caused by chronic  low-grade  bacterial

                                       10

<PAGE>


infections that can be prevented and treated with  antimicrobial  agents such as
Chlorhexidine and Fluoride.

     Secondly,  in  response  to rising  costs and  decreasing  access to dental
treatments,  consumers' interest in self-diagnosis and preventive treatment have
grown dramatically.  Additionally,  consumers are becoming increasingly aware of
the  importance  of oral  hygiene.  Consumers  are looking for value and product
innovation that emphases therapeutic values.

     We are focused on developing and marketing  therapeutic  oral care products
based on  proprietary  formulations  and  technologies.  Our products  treat the
bacterial  infections that cause tooth decay and gingivitis.  Through scientific
studies it has been shown that our  formulations  stop the  demineralization  of
tooth enamel.

     We believe that the  effectiveness of oral care products depend on how long
our active agents stay in the mouth.  Most of the  commercially  available  oral
care  formulations  have suffered from a number of drawbacks,  including lack of
suitability   of  the  carrier  for  our  intended  use.  Most  of  these  known
formulations suffer an inability to carry a large amount of the active agent and
to ensure a controlled and prolonged  release  thereof at the desired site. This
inability is particularly  undesirable,  since most  biologically  active agents
must remain at the desired site for a prolonged period in order to be effective.

     Our oral care  products are based on the active  ingredients  chlorhexidine
and sodium fluoride in proprietary  formulations  that  effectively  control the
release of  chlorhexidine  in the oral cavity over an extended period of time to
provide a sustained  antimicrobial  activity  against  tooth  "demineralization"
(whereby  sodium  fluoride  induces the uptake of minerals,  such as calcium and
phosphate), which enhances tooth "remineralization".

Role of Bacteria in Dental Pathology

     Although  there are many  origins for the  conditions  commonly  treated by
dentists  (ranging  from  tumors  of the oral  cavity to  trauma  induced  tooth
injuries),  a common feature of the two major dental diseases is the role played
by bacteria.  In particular it is well established that tooth decay and most gum
diseases result from bacterial infections.

     Tooth  decay,  or caries,  refers to a hole or cavity in the surface of the
tooth.  Depending  on the  length  of time  from  our  inception,  the  hole may
penetrate  only the top surface of the tooth (the enamel) or may penetrate  past
the dentin (the bone-like  material which is the main  constituent of the tooth)
into the pulp. The scientific  literature has established quite clearly that one
species of bacteria, Streptococcus mutans (S. mutans - actually a group of seven
closely  related  bacteria) is  responsible  for the onset of tooth decay.  This
bacterium  grows on the surface of the teeth in almost all  individuals.  In the
presence  of  sugars  and  starches  in the  diet,  S.  mutans  metabolizes  the
carbohydrate and produces acids.  Acids demineralize the calcium phosphates that
are the major mineral

                                       11

<PAGE>


constituent of tooth enamel and the decay process begins.  Our proprietary  oral
care products,  kill S. mutans to prevent further cavities. The evidence for the
primary role of S. mutans in tooth decay is manifold,  including the  following:
significant  correlation  between S. mutans  counts in saliva and plaque and the
incidence of caries.(i) the  correlation of S. mutans counts and the progression
of tooth decay;  (ii) S. mutans can be isolated  from the tooth  surface  before
initiation of a cavity;  (iii) infection of experimental  animals with S. mutans
procedures high incidence of caries;  (iv) immunization of experimental  animals
with S. mutans  significantly  reduces the  incidence  of caries;  (v) S. mutans
produces  copious amounts of  extracellular  polysaccharide,  a key component of
plaque;(vi)  S. mutans  metabolism of sucrose  rapidly  produces an organic acid
which demineralizes tooth enamel.

     Due  to the  aging  of the  population,  gum  disease  is  becoming  a more
prevalent  disease than tooth decay. It is  characterized by the pulling away of
the gums from the  teeth due to the  presence  of plaque on the  surface  of the
teeth.  Plaque is a mixture of bacteria,  bacterial products and saliva which is
the medium in which  bacteria  grow.  It is believed  that  bacterial  metabolic
products in plaque are toxic to the cells of the gum tissue (gingiva) leading to
inflammation  (gingivitis or the more severe  periodontitis) and the receding of
the gum tissue from the teeth. If left untreated,  the supporting  tissue of the
gums becomes so loose that the teeth are lost.

Chlorhexidine in Dentistry and Oral Health

     The bisbiguanide chlorhexidine (CHX) was first described more than 40 years
ago and is the most thoroughly studied antimicrobial  substance used orally. CHX
is bactericidal against gram-positive and gram-negative bacteria and yeasts.

     The antibacterial  activity of CHX is associated with the absorption by the
bacteria.  At neutral pH, the positively charged CHX molecule is absorbed on the
surface  of the  bacteria,  where it reacts  with  negatively  charged  membrane
components.  Under acid  conditions  the  absorption  decreases,  resulting in a
reduced antibacterial  effect. At low concentrations CHX causes  disorganisation
of the  cytoplasmic  membrane,  making the bacteria  permeable to the drug which
inhibit  essential  metabolic events.  At higher  concentrations  CHX coagulates
cytoplasmic constituents and prevents the bacterial cells from recovering.

     Compared with other substances,  CHX shows our special effectiveness in the
fact  that  plaque is  considerably  reduced,  the  development  of  caries  and
gingivitis  is  interrupted,  effects  that  certainly  are  related to our high
substantively.  CHX is absorbed in sub-MIC concentrations for a few hours on the
outer  surface of the teeth,  as well as the oral mucous  membrane and is slowly
released.  Therefore the metabolism of the bacteria is effected. In vivo studies
show that acid  production  in the plaque is inhibited  for extended  periods of
time and the growth rate of bacteria reduced.

     In  patients   with  high  caries   activity  and  high  counts  of  mutans
streptococci,  CHX is  employed  as an  adjunct  to other  preventive  measures.
Combinations of chlorhexidine

                                       12

<PAGE>


with  fluoride  is also  possible.  The best  clinical  effect,  resulting  in a
considerable  caries reduction,  has been obtained when persons highly colonized
with mutans streptococci have been treated with gels and when the results of the
antimicrobial  measures  have  been  verified  by  microbiological  examination.
Sustained  release  devices,  like  varnishes,  reduce  the  numbers  of  mutans
streptococci in a patient's mouth to levels below detection for long periods.

     Older  persons are at an  increased  risk of root caries  since they may be
impaired,  take multiple  medications  or have  partials.  Treatment  strategies
should  include  antimicrobial  agents  for both the  remineralization  of early
lesions and prevention of further root caries. In periodontal treatment,  CHX is
used for post-operative rinsing and as an adjunct to oral hygiene and mechanical
debridement.  This  means  that  CHX  has a  significant  inhibitory  effect  on
gingivitis, but that it cannot dissolve already formed plaque.

     People  who have  been  treated  with  chemotherapy  and  radiotherapy  for
neoplasms in the head and neck regions are more  vulnerable to dental  diseases.
In the long term,  however,  periodontal  diseases and caries can be  controlled
with appropriate use of CHX and fluoride.

     Scientific and clinical  studies have shown that children  treated with CHX
had 50% less  caries.  In those  children  with high  counts of S.  mutans,  the
incidence of caries was reduced by 80%. The treatment of first-time mothers with
CHX reduced the S. mutans level and incidence of caries in their children (It is
well established that young children pick up S. mutans from their parents).

Description of Products

     We have the following products to treat the bacterial infections that cause
tooth decay and gingivitis:

          ----------------------------------------------------------
          Product Description             Active Ingredient(s)
          ----------------------------------------------------------
          ChlorSM Mouth Rinse             Chlorhexidine w/NaF
          ----------------------------------------------------------
          ChlorSM Toothpaste              Chlorhexidine w/MFP
          ----------------------------------------------------------

ChlorSM colloidal mouth rinse

     ChlorSM   colloidal  mouth  rinse  is  a  proprietary   sustained   release
formulation of chlorhexidine available by prescription in North America. ChlorSM
colloidal  mouth rinse is an advanced  mouth rinse  formulation  based on BCD, a
proprietary lipid based drug delivery technology which is highly mucoahesive and
capable of carrying a high load of active agents.  BCD effectively  controls the
release of  chlorhexidine  in oral  cavity  over an  extended  period of time to
provide an effective and sustained protection.

                                       13

<PAGE>


SME (Sub Micron Emulsion) colloidal toothpaste and mouth rinse

     Chlor(SM) SME toothpaste is a proprietary  controlled  release  therapeutic
toothpaste based on the BCD drug delivery  system.  The active agents in the SME
toothpaste are  chlorhexidine  and Fluoride;  it has been proven clinically that
the combination of the two active agents has a positive  synergetic  effect. The
SME toothpaste will inhibit  demineralization of tooth enamel and provide cavity
prevention and pain relieving  properties  for  individuals  with exposed dentin
caused by receding gums. We,  utilizing the BCD formulation,  have  successfully
retained  the  antimicrobial  property  of the  active  agent  chlorhexidine  in
toothpaste form under a stable and controlled  release  environment.  We believe
that  there  is no  chlorhexidine  toothpaste  commercially  available  in North
America.

NUTRACEUTICALS

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

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

     Our enabling technology offers the following benefits:

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

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

                                       14

<PAGE>


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

Core Product Descriptions

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

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

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

IMMUNOMODULATORS

     Human  immune  systems are  designed  to protect  the body from  assault by
parasites. These pathogens include cellular virus and cellular parasites such as
bacteria,  mycoplasms,  fungi,  unicellular protozoa and multicellular protozoa.
The immune system also defends the organism against cancerous cells.

     Immunomodulators  offer a  powerful  tool  for the  control  of  infectious
diseases.  These chemicals modulate (stimulate or suppress) the immune system in
a non-specific  manner.  Stimulation of immunity is also important in the host's
defense  against  cancer.  The latter occurs,  for example,  upon  activation of
tumoricidal  macrophages in response to  immunomodulators.  Immunomodulators may
also be used in the treatment of diseases

                                       15

<PAGE>


caused by immune system  disorders  such as arthritis.  They may also be used in
the  treatment  of  individuals  with a  compromised  immune  system in order to
enhance their immune response. This group of patients includes surgery patients,
burn victims, patients undergoing radiotherapy or chemotherapy and patients with
immune disorders such as AIDS.

     Unfortunately,  most of the marketed immunomodulators show non-reproducible
and ambiguous results. Peptide and protein molecules (interferons, interleukins,
antibodies and vaccines) are very  expensive and  demonstrate  many  undesirable
side effects and uncertain activities.  Accordingly,  there is a need to develop
new  immunomodulators  which have  significant  immunomodulating  activity,  are
readily accessible, and possess less toxicity than the marketed agents.

     Our newly discovered  compounds  possessed high stimulation  properties for
immune   system   (either  in  normal  or  in  depressed   state).   Preliminary
investigations showed low toxicity,  fast onset of action and very high response
of immune system. Additionally,  some of the investigated compounds demonstrated
prominent anti-inflammatory activity in different models.

COMPETITION

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

     Competition  in the  areas of  pharmaceutical  products  and drug  delivery
systems  is intense  and is  expected  to become  more  intense  in the  future.
Competing  technologies  may prove superior,  either  generally or in particular
market segments, in terms of factors such as cost, consumer satisfaction or drug
delivery  profile.  Our principal  competitors in the business of developing and
applying  drug  delivery  systems  all  have  substantially  greater  financial,
technological,  marketing, personnel and research and development resources than
us. In addition,  we may face competition from  pharmaceutical and biotechnology
companies  that may develop or acquire drug delivery  technologies.  Many of our
potential  collaborative  partners  have  devoted and are  continuing  to devote
significant  resources in the development of their own drug delivery systems and
technologies.  Products  incorporating  our technologies  will compete both with
products   employing  advanced  drug  delivery  systems  and  with  products  in
conventional  dosage

                                       16

<PAGE>


forms. New drugs or future developments in alternate drug delivery  technologies
may provide  therapeutic or cost  advantages  over any potential  products which
utilize the BCD Systems.  There can be no assurance that  developments by others
will not render any potential products utilizing the BCD Systems  noncompetitive
or  obsolete.  In  addition,  our  competitive  success  will depend  heavily on
entering  into  collaborative  relationships  on  reasonable  commercial  terms,
commercial  development of products  incorporating  the BCD Systems,  regulatory
approvals,  protection of  intellectual  property and market  acceptance of such
products.

PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS

     It is our  policy to file  patent  applications  in the  United  States and
foreign  jurisdictions.  We currently  have one issued  United States patent and
three United States patent pending  applications and have applied for patents in
two foreign  countries  which are still pending.  No assurance can be given that
our patent applications will be approved or that any issued patents will provide
competitive  advantages for the BCD Drug Delivery Systems or our technologies or
will not be  challenged  or  circumvented  by  competitors.  With respect to any
patents which may issue from our  applications,  there can be no assurance  that
claims  allowed  will  be  sufficient  to  protect  our   technologies.   Patent
applications  in the United  States  are  maintained  in secrecy  until a patent
issues, and we cannot be certain that others have not filed patent  applications
for technology covered by our pending  applications or that we were the first to
file  patent  applications  for such  technology.  Competitors  may  have  filed
applications for, or may have received patents and may obtain additional patents
and proprietary  rights  relating to,  compounds or processes that may block our
patent rights or compete  without  infringing  our patent  rights.  In addition,
there can be no assurance  that any patents issued to us will not be challenged,
invalidated or circumvented,  or that the rights granted thereunder will provide
proprietary protection or commercial advantage to us.

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

Trademarks

     We have  filed  applications  in the  United  States  and China  Patent and
Trademark Office to register the word mark "ChlorSM" and "Oralife" for oral care
products,  such as medicated mouth rinse,  professional dental gels and varnish.
We  also  registered  the  following  trademarks,  "Alpha-Source",   "Flexogan",
"AlphaRx"   and   "LipoLette"   in

                                       17

<PAGE>


Canada and "Flexogan",  "LipoBloc" and  "PhytoScience"  in the United States. In
connection  with  our  Internet  web  site,  we  have  registered  with  Network
Solutions,  Inc., the internet domain name "AlphaRx.com." and AlphaRx-Sales.com"
for our corporate website.

Proprietary Information

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

MANUFACTURING, MARKETING AND SALES

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

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

GOVERNMENT REGULATION

     We  are  subject  to  regulation   under  various  federal  laws  regarding
pharmaceutical products and also various federal and state laws regarding, among
other things, occupational safety, environmental protection, hazardous substance
control and product  advertising and promotion.  In connection with our research
and development activities, AlphaRx is subject to federal, state and local laws,
rules,  regulations  and policies  governing the use,  generation,  manufacture,
storage,  air  emission,  effluent  discharge,  handling and disposal of certain
materials  and  wastes.  We believe  that we have  complied

                                       18

<PAGE>


with these laws and  regulations  in all material  respects and we have not been
required to take any action to correct any material noncompliance.

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

     Prior  to  commencement  of  clinical   studies   involving  human  beings,
preclinical  testing of new  pharmaceutical  products is generally  conducted on
animals in the  laboratory to evaluate the potential  efficacy and the safety of
the product.  The results of these studies are submitted to the FDA as a part of
an IND  application,  which must become  effective  before  clinical  testing in
humans can begin.  Typically,  clinical evaluation involves a time consuming and
costly  three-phase  process.  In Phase I, clinical  trials are conducted with a
small  number  of  subjects  to  determine  the  early  safety  profile  and the
pharmacokinetic  pattern of a drug. In Phase II,  clinical  trials are conducted
with groups of patients  afflicted with a specific disease in order to determine
preliminary efficacy,  optimal dosages and expanded evidence of safety. In Phase
III, large-scale,  multi-center,  comparative trials are conducted with patients
afflicted  with a target  disease in order to provide enough data to demonstrate
the  efficacy  and safety  required  by the FDA.  The FDA closely  monitors  the
progress  of each of the  three  phases  of  clinical  testing  and may,  at our
discretion,  re-evaluate, alter, suspend or terminate the testing based upon the
data  which  have  been  accumulated  to that  point and our  assessment  of the
risk/benefit ratio to the patient.

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

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

                                       19

<PAGE>


monograph,  it will,  in most  cases,  require  FDA  approval  of an NDA for the
product to be marketed.

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

RESEARCH AND DEVELOPMENT

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

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

PRODUCT LIABILITY

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

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

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

                                       20

<PAGE>


     o    any  insurance  will provide  adequate  protection  against  potential
          liabilities.

EMPLOYEES

     As of September 30, 2001, we employed five people on a full-time  basis and
two persons on a part-time  basis.  None of our  employees is  represented  by a
collective bargaining  agreement,  nor have we experienced any work stoppage. We
believe that our relations with our employees are excellent.

ITEM 2. PROPERTIES

     At  September  30,  2001,  we leased  approximately  1,100  square  feet in
Richmond  Hill,  Ontario,  under a lease  which  expires on April 30,  2002.  We
believe that our existing  properties  are  sufficient  for our  administrative,
research and development needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

     Not applicable.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter  of  the  fiscal  year  ended   September  30,  2001,   whether  through
solicitation of proxies or otherwise.

                                       21

<PAGE>


                                     PART II

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

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

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

                                                            High       Low
     ---------------------------------------------------------------------------
     Fourth Quarter      (Ended September 30, 2001)         0.87       0.10
     Third Quarter       (Ended June 30, 2001)              0.82       0.11
     Second Quarter      (Ended March 31, 2001)             1.20       0.16
     First Quarter       (Ended December 31, 2000)          1.25       0.10

     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 of September 30, 2001,
there were approximately 54 record holders of our common stock. We have not paid
any cash  dividends to date and do not  anticipate  or  contemplate  paying cash
dividends in the foreseeable  future.  We plan to retain any earnings for use in
the operation of our business and to fund future growth.

RECENT SALES OF UNREGISTERED SECURITIES

     In October 2000, the Company  effectuated a ten-for-one  stock split of its
Common Stock. All of the following  information regarding the issuance of shares
of our Common Stock has been adjusted, where appropriate,  to reflect such stock
splits.  Since  October  1999,  we have sold the  following  securities  without
registration under the Securities Act:

     1.   In October  15,  1999,  we issued an  aggregate  of 315,333  shares of
          Common Stock to existing  shareholders  for a total  purchase price of
          $31,533. The proceeds were used for working capital.

     2.   In December  31, 1999,  we issued an  aggregate  of 170,000  shares of
          Common Stock for a total purchase price of $85,000.  The proceeds were
          used for working capital.

     3.   In June 30, 2000,  we issued an aggregate of 196,000  shares of Common
          Stock for a total purchase  price of $196,000.  The proceeds were used
          for working capital.

     4.   In May 8, 2001,  we issued an  aggregate  of 125,000  shares of Common
          Stock for a total  purchase  price of $12,500.  The proceeds were used
          for working capital.

                                       22

<PAGE>


     No  underwriting  commissions  or  discounts  were paid with respect to the
sales of the unregistered  securities described above. The above sales were made
to accredited investors in reliance on Rule 506 of Regulation D and Section 4(2)
under the  Securities  Act and to persons  outside the United  States within the
meaning of Regulation S of the Securities Act.

                                       23

<PAGE>


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

     The following  discussion and analysis  should be read in conjunction  with
the Financial Statements and Notes included in Item 8 of this report. Except for
the historical  information  contained herein the foregoing  discussion contains
forward-looking  statements  that involve  risks and  uncertainties.  Our actual
results  could differ  materially  from those  projected in the  forward-looking
statements discussed herein.

General

     We are a development  stage company  engaged in the  development of new and
proprietary drug delivery products. We have developed two types of drug delivery
systems,  the Colloidal Lipid Dispersion  System (the "CLD System") and the Self
Emulsifying  Controlled Release Tablet System (the "SECRET System" and together,
the "BCD Systems"). The CLD System is designed to deliver drugs through the skin
in order to reduce the gastrointestinal irritation that is a side effect of many
orally  administered  drugs,  and the  SECRET  System  is  designed  to  provide
continuous,  controlled  delivery of an incorporated drug. In addition,  the BCD
Systems  are  designed to improve the  bioavailability  of poorly  water-soluble
drugs.

     Since our inception in August 1997, we have devoted  substantially  all our
efforts to research  and  development  conducted  on our own behalf with the BCD
Drug Delivery Systems.  Our primary  activities since inception (August 7, 1997)
have been, in addition to research and development, establishing our offices and
research   facilities,   recruiting   personnel,   filing  patent  applications,
developing a business strategy and raising capital.

     We have experienced  significant operating losses since our inception,  and
expect to incur substantial and continuing losses for the foreseeable future. We
incurred a net loss of  approximately  $505,440 for the year ended September 30,
2001, resulting in an accumulated deficit of approximately  $1,792,093. To date,
we have  received  only  limited  revenue,  all of which has been from  interest
earned from invested funds.

     We intend to  continue  investing  in the further  development  of our drug
delivery  technologies  and to actively  seek  collaborators  and  licensees  to
accelerate the development and  commercialization of products  incorporating our
BCD Drug  Delivery  Systems.  Depending  upon a variety  of  factors,  including
collaborative arrangements, available personnel and financial resources, we will
conduct  or fund  clinical  trials  on such  products  and  will  undertake  the
associated  regulatory  activities.  We will  need to  make  additional  capital
investments in laboratories  and related  facilities,  including the purchase of
laboratory and pilot scale manufacturing  equipment. As additional personnel are
hired in 2002 and beyond,  expenses can be expected to increase  from their 2001
levels.

                                       24

<PAGE>


Results of Operations

Year ended September 30, 2001 compared to year ended September 30, 2000

     Losses for 2001 were  $505,440,  which is $226,636 more than the losses for
the fiscal year ended September 30, 2000. This is principally  attributed to the
increase in general and administrative  expenses of $231,477 that was the result
of employment  related  expenses.  The Company  recognized  accrued  salaries of
$278,000 for the year ended September 30, 2001.

     At  September  30,  2001 the Company had a working  capital  deficiency  of
$400,363  compared to working  capital of $92,577 at  September  30,  2000.  The
principal item  contributing to the deficiency is working  capital  expenditures
supporting operations for fiscal 2001.

Liquidity and Capital Resources

     Since inception,  we have financed operations  principally from the sale of
Common  Stock  and  expect  to  continue  this  practice  to  fund  our  ongoing
activities.

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

     We expect to continue to spend capital on:

     1.   research and development programs;

     2.   preclinical studies and clinical trials;

     3.   regulatory processes; and

     4.   establishment  of our own  pilot  scale  manufacturing  and  marketing
          capabilities or a search for third party  manufacturers  and marketing
          partners to manufacture and market our products for us.

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

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

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

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

     4.   the time and cost  necessary to establish  our own sales and marketing
          capabilities or to seek marketing  partners to market our products for
          us;

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

                                       25

<PAGE>


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

     The inability to raise capital would have a material  adverse effect on the
Company.

     We currently have no capital commitments other than the payment of deferred
salaries to our employees,  aged accounts payable and the payment of rent on our
facilities lease.

Impact of Year 2000

     Year 2000 ("Y2K")  exposure was the result of some computer  programs using
two instead of four digits to  represent  the year.  Computer  programs may have
erroneously  interpreted  dates beyond the year 1999 causing system  failures or
other computer errors, possibly leading to disruptions in operations.

     In response to this potentiality, we developed and implemented a program to
eliminate Y2K exposures. Computer systems and applications were reviewed for Y2K
compliance,  remedied as necessary and tested.  Third-party  relationships  were
reviewed and monitored for Y2K  compliance.  We developed a contingency  plan to
stockpile  materials  from any  vendors  that did not  meet  Y2K  compliance  by
year-end; however, we were sufficiently confident in our preparation, and in our
vendors',  that  we  did  not  implement  our  contingency  plan.  We  have  not
experienced any system failures,  errors or disruptions in our operations due to
Y2K and we do not expect any in the future.

Certain Factors that may Affect Future Results

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

                                       26

<PAGE>


ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

     Not applicable.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following  table sets forth,  as of September 30, 2001, the name,  age,
and position of each of our executive officers and directors:

Name                               Age       Position
----                               ---       --------
Michael M.  Lee                    38        Chairman of the Board,
                                             President & Director

Sai Ming Wong, MD                  60        Executive Vice President & Director

Tin Pui Lo                         57        Chief Financial Officer

Joseph Schwarz, Ph.D               47        Chief Scientist & Director

Michael Weisspapir, MD, Ph.D       44        Chief Medical Officer

Sandro Persia                      32        Secretary/Treasurer and Director


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

     Sai Ming Wong, M.D., Dr. Wong practiced medical research in China from 1965
to 1980. Dr Wong was the chief surgeon of the medical unit that provided medical
and research services for the first China atomic testing. Dr. Wong served as the
Director of Product  Development  at the China Academy of Medical  Sciences from
1970 to 1980,  where he was the leader of a research team which  specialized  in
the  development  of drug  formulations.  From 1980 - 1992,  Dr.  Wong served as
General  Manager of China

                                       27

<PAGE>


National Light Industries Corp., a China state owned company based in Hong Kong,
where Dr. Wong was responsible for the daily operation of the company.  Dr. Wong
earned his degree in Medicine  from the Beijing  Capital  University  of Medical
Sciences.

     Tin Pui Lo, Mr. Lo is the Chief  Financial  Officer of the Company.  Mr. Lo
has extensive  experience  in financial  resources  management.  He worked as an
executive  officer in various  departments in the Hong Kong Government from 1971
to 1994. His main tasks included preparation of departmental budgets and control
of expenditure of the department as well as of individual building projects. Mr.
Lo was a graduate of the Queen's College.

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

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

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

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

                                       28

<PAGE>


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

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

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

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation

     The table below summarizes the compensation received by the Company's Chief
Executive  Officer for the fiscal years ended  September 30, 2001, 2000 and 1999
and each other  executive  officer of the Company who received  compensation  in
excess of  $60,000  for  services  rendered  during any of those  years  ("named
executive  officers").  No  other  executive  officer  of the  Company  received
compensation in excess of $60,000 during such years.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                                                   LONG TERM
                                                                                 COMPENSATION
        NAME AND                                                             SECURITIES UNDERLYING
   PRINCIPAL POSITION                      YEAR    SALARY ($)    BONUS ($)         OPTION (#)
----------------------------------------------------------------------------------------------------
<S>                                        <C>      <C>             <C>           <C>
Michael M. Lee.....................        2001     $74,000         0                    --
 President & C.E.O.                        2000       6,000         0             2,000,000
                                           1999           0         0                    --
Joseph Schwarz.....................        2001     $84,000         0                    --
 Chief Scientist                           2000       6,000         0             1,250,000
                                           1999           0         0                    --
Michael Weisspapir................         2001     $63,000         0                    --
 Chief Medical Scientist                   2000       3,000         0             1,000,000
                                           1999           0         0                    --
</TABLE>

     1.   No salary and bonus were  actually  paid to any  officers for the year
          ended 1999, 2000 and 2001, all of which was deferred  through December
          31, 2001.

Employment Agreements

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

                                       29

<PAGE>


July 1, 2001 to December  31, 2001,  $240,000 for the period  January 1, 2002 to
December 31, 2002 and  $280,000  for the period  January 1, 2003 to December 31,
2003. In addition,  pursuant to the employment agreement,  Mr. Lee was granted a
ten-year  option to  purchase  2,000,000  shares of Common  Stock at an exercise
price  equal to $0.01 per share,  immediately  exercisable  from the date of the
grant, and expiring ten years thereafter.

     The  Company has  entered  into an  employment  agreement  with Dr.  Joseph
Schwarz,  pursuant to which Dr. Schwarz is employed full-time as Chief Scientist
for a term of three years commencing on July 1, 2000. Pursuant to the employment
agreement, effective as of July 1, 2000, as amended, Dr. Schwarz will devote his
full time to the Company in consideration of an annual salary of $24,000 for the
period July 1, 2000 to December 31, 2000, $96,000 for the period January 1, 2001
to June 30,  2001,  $120,000  for the period July 1, 2001 to December  31, 2001,
$160,000  for the period  January 1, 2002 to December  31, 2002 and $200,000 for
the period  January 1, 2003 to  December  31,  2003.  Dr.  Schwarz  was  granted
ten-year options to purchase an aggregate 1,250,000 shares of Common Stock at an
exercise price equal to $0.01 per share.

     The Company has  entered  into an  employment  agreement  with Dr.  Michael
Weisspapir,  pursuant to the agreement,  as amended,  Dr. Weisspapir is employed
full-time  as Senior  Scientist  for a term ending in  December  31,  2003.  Dr.
Weisspapir  will  devote  his full time to the  Company in  consideration  of an
annual  salary of $12,000  for the period  July 1, 2000 to  December  31,  2000,
$72,000 for the period January 1, 2001 to June 30, 2001,  $96,000 for the period
July 1, 2001 to December  31, 2001,  $120,000 for the period  January 1, 2002 to
December 31, 2002 and  $160,000  for the period  January 1, 2003 to December 31,
2003.  Dr.  Weisspapir  was granted  ten-year  options to purchase an  aggregate
1,000,000 shares of Common Stock at an exercise price equal to $0.01 per share.

     The Company  has entered  into an  employment  agreement  with Dr. Sai Ming
Wong,  pursuant to the employment  agreement,  as amended,  Dr. Wong is employed
full-time  as Executive  Vice-President  for a term ending in December 31, 2003.
Dr. Wong will devote his full time to the Company in  consideration of an annual
salary of $12,000 for the period July 1, 2000 to December 31, 2000,  $36,000 for
the period January 1, 2001 to June 30, 2001, $72,000 for the period July 1, 2001
to December  31,  2001,  $96,000 for the period  January 1, 2002 to December 31,
2002 and $120,000 for the period  January 1, 2003 to December 31, 2003. Dr. Wong
was granted ten-year options to purchase an aggregate 1,500,000 shares of Common
Stock at an exercise price equal to $0.01 per share.

                                       30

<PAGE>


     The following table sets forth the individual  grants of stock options made
during the fiscal year ended  September 30, 2001 to each of the named  executive
officers.

--------------------------------------------------------------------------------
Name                 Options     % of Total Granted  Exercise    Expiration Date
                     Granted #   to Employees in     Price(3)
                     (1)         Fiscal Year (2)
--------------------------------------------------------------------------------
Michael M. Lee       2,000,000   34.78%              $0.01       June 30, 2010
--------------------------------------------------------------------------------
Joseph Schwarz       1,250,000   21.74%              $0.01       June 30, 2010
--------------------------------------------------------------------------------
Michael Weisspapir   1,000,000   17.39%              $0.01       June 30, 2010
--------------------------------------------------------------------------------
Sai Ming Wong        1,500,000   26.09%              $0.01       June 30, 2010
--------------------------------------------------------------------------------

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

(2) Based on an  aggregate  of  5,750,000  options  granted to  employees of the
Company in fiscal 1999.

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

           AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
                             YEAR END OPTION VALUES

     The following table sets forth certain  information  regarding exercises of
stock  options  during the fiscal  year ended  September  30,  2001 by the named
executive  officers.  Value  of  unexercised  options  is  considered  to be the
difference  between  exercise  price  and  market  price of $0.23  per  share on
September 30, 2001. No options were  exercised by the named  executive  officers
during fiscal 2001.

--------------------------------------------------------------------------------
Name                Number of Exercisable             Value of Unexercised
                    Options at Fiscal Year-End(#)     In-The-Money Options at
                    Exercisable/Unexercisable         Fiscal Year-End (#)
                                                      Exercisable/Unexercisable
--------------------------------------------------------------------------------
Michael M. Lee      1,000,000/1,000,000               $220,000/$220,000
--------------------------------------------------------------------------------
Joseph Schwarz      625,000/625,000                   $137,500/$137,500
--------------------------------------------------------------------------------
Michael Weisspapir  500,000/500,000                   $110,000/$110,000
--------------------------------------------------------------------------------
Sai Ming Wong       750,000/750,000                   $165,000/$165,000
--------------------------------------------------------------------------------

                                       31

<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth information with respect to ownership of the
Company's  securities by its officers and directors and by any person (including
any  "group")  who is the  beneficial  owner of more  than 10% of the  Company's
Common Stock.  The total number of shares  authorized is  100,000,000  shares of
Common  Stock,  each of which has a par value of $0.0001.  49,513,330  shares of
Common Stock have been issued and are outstanding.

         Name and Address      Amount and Nature of    Percent of
         Of Owner              Beneficial Owner        Class
         --------------------------------------------------------------
         Michael Lee(1)        33,405,000 shares          68%
         Sai Ming Wong (1)     1,000,000 shares            2%
         Sandro Persia(1)      100,000 shares            0.2%
         Tin Pui Lo(1)         2,000 shares             >0.1%

(1)  Directors and/or Officers

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In October 15, 1999,  the Company  issued an aggregate of 315,333 shares of
Common Stock to existing shareholders for a total purchase price of $31,533. The
proceeds were used for working capital.

     In December 31, 1999,  the Company issued an aggregate of 170,000 shares of
Common Stock for a total purchase  price of $85,000.  The proceeds were used for
working capital.

     In June 30, 2000,  the Company  issued an  aggregate  of 196,000  shares of
Common Stock for a total purchase price of $196,000.  The proceeds were used for
working capital.

     In May 8, 2001, the Company issued an aggregate of 125,000 shares of Common
Stock under  Regulation S for a total amount of $12,500 that were not registered
under the Securities Act of 1933, as amended. The proceeds were used for working
capital.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

a) EXHIBITS

     The exhibits to this Report are listed on the Exhibit  Index below.  A copy
of any of the  exhibits  listed or  referred  to below  will be  furnished  at a
reasonable  cost, upon receipt from any such person of a written request for any
such exhibit.  Such request should be sent to AlphaRx,  Inc.,  10-75 East Beaver
Creek, Richmond Hill, Ontario, Canada L4B 1B8: Shareholder Information.

                                       32

<PAGE>


     The following is a list of each management contract or compensatory plan or
arrangement  required  to be filed as an exhibit to this  Annual  Report on Form
10-KSB pursuant to Item 13(a):

A. 2000 Stock Option Plan.

(b) REPORTS ON FORM 8-K

     We did not file any  Current  Reports  on Form 8-K  during  the year  ended
September 30, 2001.

                                Index to Exhibits

Exhibit Item No.   Item and Description

3.1                Copy of Registrant's Articles of Incorporation (1)

3.1(a)             Copy of Registrant's Certificate of Amendment to Certificate
                   of Incorporation

3.2                Copy of Registrant's By-Laws (1)

10.1               Copy of Stock Option Plan

10.2               Copy of Employment Agreement between Registrant and
                   Michael Lee

10.2(a)            Copy of Amendment to Michael Lee Employment Agreement

10.3               Copy of Employment Agreement between Registrant and Dr.
                   Joseph Schwarz

10.3(a)            Copy of Amendment to Dr. Joseph Schwarz Employment Agreement

10.4               Copy of Employment Agreement between Registrant and Dr.
                   Michael Weisspapir

10.4(a)            Copy of Amendment to Dr. Michael Weisspapir Employment
                   Agreement

10.5               Copy of Employment Agreement between registrant and Dr. Sai
                   Ming Wong

10.5(a)            Copy of Amendment to Dr. Sai Ming Wong Employment Agreement

(1)  Filed as an  exhibit  with  the  identical  exhibit  no.  to the  company's
     Registration Statement on Form 10-SB, No. 000-30813 and incorporated herein
     by reference.

                                       33

<PAGE>


                                  ALPHARX, INC.

               FINANCIAL STATEMENTS AND ACCOUNTANT'S AUDIT REPORT

                    SEPTEMBER 30, 2001 AND SEPTEMBER 30, 2000


                                TABLE OF CONTENTS

FINANCIAL STATEMENTS                                                      PAGE
--------------------

INDEPENDENT AUDITOR'S REPORT                                              F-1

BALANCE SHEET                                                             F-2

LIABILITY AND SHAREHOLDERS' EQUITY                                        F-3

STATEMENT OF OPERATIONS                                                   F-4

STATEMENT OF SHAREHOLDERS' EQUITY                                         F-5

STATEMENT OF RETAINED DEFICITS                                            F-6

STATEMENT OF CASH FLOWS                                                   F-7

NOTES TO FINANCIAL STATEMENTS                                             F-8-10

SUPPLEMENTARY INFORMATION
-------------------------

AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION                             F-11

SETLLING, GENERAL AND ADMINISTRATIVE EXPENSES                             F-12


<PAGE>


                          Independent Auditor's Report

Board of Directors
ALPHARX Inc.

Richmond Hill, Ontario, Canada

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

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

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



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


December 26, 2001

                                      F-1

<PAGE>



                                  ALPHARX, INC.

                                  BALANCE SHEET

                               FOR THE YEARS ENDED
                           SEPTEMBER 30, 2001 AND 2000

                                     ASSETS

<TABLE>
<CAPTION>
                                                        September 30    September 30
                                                            2001            2000

<S>                                                       <C>             <C>
CURRENT ASSETS

 Cash                                                     $ (16,259)      $ 13,943
                                                          ---------       --------

     TOTAL CURRENT ASSETS                                   (16,259)        13,943

PROPERTY, PLANT & EQUIPMENT, at cost

     Less accumulated deprecation of $29,801(note 3)        135,355

     Less accumulated deprecation of $11,060                                63,431
                                                                          --------

OTHER ASSETS

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

TOTAL ASSETS                                              $ 165,504       $123,782
                                                          =========       ========
</TABLE>

                                      F-2

<PAGE>


                  LIABILITIES AND SHAREHOLDERS' EQUITY FOR THE
                     YEARS ENDED SEPTEMBER 30, 2001 AND 2000


                                                      September 30  September 30
                                                          2001         2000
CURRENT LIABILITIES

   Accounts Payable and Accrued Liabilities           $    27,778   $    28,840
   Accrued Interest                                        10,335
   Salary Payable                                         278,000
   Notes Payable (note 7)                                 249,754
   Loan From Shareholders                                                 2,365
                                                      -----------   -----------
        TOTAL CURRENT LIABILITIES                         565,867        31,205

SHAREHOLDER'S EQUITY

Common Stock, common, $ 0.0001 par value,
   Authorized 100,000,000 shares, issued and
   outstanding 49,513,330 shares (note 5)             $     4,951
   Additional paid-in capital                           1,386,779
   Deficit                                             (1,792,093)
                                                      -----------
Common Stock, common, $0.0001 par value,
   Authorized 100,000,000 shares, issued and
   outstanding 49,388,330 shares                                    $     4,939
   Additional paid in capital                                         1,374,291
   Deficit                                                           (1,286,653)
                                                                    -----------
TOTAL SHAREHOLDER'S EQUITY                               (400,363)       92,577
                                                      -----------   -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY            $   165,504   $   123,782
                                                      ===========   ===========


See independent auditor's report
The accompanying notes are an integral part of this statement

                                      F-3

<PAGE>


                                  ALPHARX, INC.

                             STATEMENT OF OPERATIONS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000


                                                             September 30
                                                          2001           2000
                                                          ----           ----

SALES                                                  $       0      $       0
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES             505,452        280,172
                                                       ---------      ---------

         LOSS FROM OPERATION                            (505,452)      (280,172)

OTHER INCOME
   Interest Income                                     $      12      $     456
   Other Income                                                0            912
                                                       ---------      ---------
                                                              12          1,368

         LOSS BEFORE INCOME TAXES                       (505,440)      (278,804)
                                                       ---------      ---------

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

NET LOSS                                               $(505,440)     $(278,804)
                                                       =========      =========


See independent auditor's report
The accompanying notes are an integral part of this statement

                                      F-4


<PAGE>


                                  ALPHARX, INC.

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

                      FOR THE YEAR ENDED SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                           Common Stock
                           ------------          Additional    Retained         Total
                      Number of                   Paid-in      Earnings     Shareholders'
                       Shares      Amount         Capital     (Deficits)       Equity
                       ------      ------         -------      --------        ------
<S>                 <C>            <C>           <C>          <C>             <C>
Balance at
September 30,
1999                 4,227,500     $4,228        $1,035,800   $(1,007,849)    $  32,179

Issuances of
Stock -
  Common               711,333        711           338,491                     339,202

Stock Split         44,449,497

Net loss for
The year ending
September 30,
2000                                                             (278,804)     (278,804)

Issuances of
Stock-
  Common
  (Note 5)             125,000         12            12,488                      12,500

Net loss for
The year ending
September 30,
2001                                                             (505,440)     (505,440)
                    -------------------------------------------------------------------
                    49,513,330      4,951         1,386,779    (1,792,093)     (400,363)
                    ===================================================================
</TABLE>


See independent auditor's report
The accompanying notes are an integral part of this statement

                                      F-5

<PAGE>


                                  ALPHARX, INC.

                         STATEMENT OF RETAINED DEFICITS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000


RETAINED DEFICITS                                   September 30,
                                                    -------------

                                          2001                          2000
                                          ----                          ----

As previously reported

Beginning balance, October 1, 2000    $(1,286,653)   Oct 1, 1999    $(1,007,849)

Net loss for the period                  (505,440)                     (278,804)
                                      -----------                   -----------

Ending balance, September 30, 2001    $(1,792,093)  Sept 30, 2000   $(1,286,653)
                                      ===========                   ===========


See independent auditor's report
The accompanying notes are an integral part of this statement

                                      F-6

<PAGE>


                                  ALPHARX, INC.

                            STATEMENTS OF CASH FLOWS

                     FOR THE YEARS ENDED SEPTEMBER 30, 2001

<TABLE>
<CAPTION>
                                                                 September 30
                                                              2001         2000
<S>                                                        <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net Loss                                                $(505,440)   $(278,804)
   Depreciation Amount                                        18,742        4,533

   Adjustments to reconcile  note income to net cash
        Cash provided by operating activities:

        Changes in assets and liabilities:
           Increase (Decrease) in Accounts Payable            (1,061)       9,814
           Increase in Accrued Interest                       10,335
           Increase in Salary Payable                        278,000
           Increase (Decrease) in Loan from Shareholders      (2,365)       2,365
                                                           ---------    ---------
NET CASH PROVIDED/(USED) BY OPERATIONS ACTIVITIES          $(201,789)   $(262,092)

CASH FLOWS FROM INVESTING ACTIVITIES
       Acquisition of Machinery & Equipment                  (88,831)     (64,729)
          Increase in Improvements                            (1,836)
                                                           ---------    ---------
NET CASH PROVIDED/(USED) BY INVESTING ACTIVITIES           $ (90,667)     (64,729)


CASH FLOWS FROM FINANCING ACTIVITIES
       Proceeds from Issuance of Notes Payable (note 7)      249,754
       Proceeds from Issuance of Stock                            12          711
       Increase in Additional Paid-In Capital                 12,488      338,491
                                                           ---------    ---------
NET CASH PROVIDED/(USDED) BY FINANCING ACTIVITIES          $ 262,254    $ 339,202

NET INCREASE (DECREASE) IN CASH                              (30,202)      12,381

CASH AS OF September 30, 2000 (1999)                          13,943        1,562
                                                           ---------    ---------

CASH AS OF September 30, 2001 (2000)                       $ (16,259)   $  13,943
                                                           =========    =========
</TABLE>


SUPPLEMENTARY DISCLOSURE

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


See independent auditor's report

                                      F-7

<PAGE>


                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2001 AND 2000

NOTE 1. FORMATION AND ORGANIZATION OF BUSINESS

ALPHARX,  INC.  (the  Company) was  incorporated  under the laws of the State of
Delaware on August 8, 1997. The company is still in its developing stage and had
no active business  operation as of September 30, 2001. The company was formally
known as LOGIC TECH  INTERNATIONAL,  INC.,  and had its  corporate  name amended
during the fiscal year.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Cash and Cash Equivalent

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

Depreciation

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

Property and Equipment

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

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

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


See independent auditor's report

                                       F-8

<PAGE>


                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                           SEPTEMBER 30, 2001 AND 2000

Income Taxes

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

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

Research and Development (R&D)

All research and development  cost were charged to expense for the period ended.
These  costs  included  traveling  to explore  and  evaluate  new  products  and
negotiating  marketing  rights,  products  licensing,   and  various  legal  and
professional  fees incurred for preparation of patent  applications.  A total of
$68,793 R&D expense had been spent during the twelve month ended  September  30,
2001.

NOTE 3. PROPERTY, PLANT & EQUIPMENT
                                                         Life Year

Improvements                             1,836              10
Furniture & Fixtures                 $  11,656               7
Machinery & Equipment                  129,597               3
Automobile                              22,067               5
                                     ---------
                                       165,156

Less accumulated depreciation          (29,801)
                                     ---------
                                     $ 135,355

NOTE 4. INVESTMENTS

The Company had  acquired  common  stocks of a foreign  company  located in Hong
Kong. The total amounted  invested is $46,408.  The securities  invested are not
publicly traded.


See independent auditor's report

                                       F-9

<PAGE>


                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000


NOTE 5. COMMON STOCK

The Company is authorized  to issue  100,000,000  shares of common stock.  As of
September 30, 2001,  49,513,330  shares of such common stock had been issued and
outstanding, each share bears a par value of $0.0001.

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

NOTE 6. STOCK OPTION PLAN

The Company has a Stock Option Plan (Plan) under which officers,  key employees,
certain  independent  contractors,  and  non-employee  directors  may be granted
options to purchase  shares of the  Company's  authorized  but  unissued  common
stock.  The maximum number of shares of the Company's common stock available for
issuance  under the Plan is 8 million  shares.  As of September  30,  2001,  the
maximum number of shares available for future grants under the Plan is 5,750,000
shares.  Under the Plan, the option exercise price and its fair market value are
determined to be $0.01. Options currently expire no later than 10 years from the
grant date and  generally  vest  within  five  years.  Proceeds  received by the
Company  from  exercises  of stock  options  are  credited  to common  stock and
additional  paid-in capital.  Additional  information with respect to the Plan's
stock option activity is as follows:

                                                           Weighted
                                                            Average
                                               Number of   Exercise
                                                Shares      Price
                                               ---------   --------
Outstanding at June 20, 2000 (plan adoption)   5,750,000   $   0.01
   Granted                                     2,875,000   $   0.01
   Exercised                                           0   $   0.01
   Cancelled                                           0   $   0.01
                                               ---------   --------
Outstanding at September 30, 2001              5,750,000   $   0.01
                                               =========   ========
Options exercisable at September 30, 2001      2,875,000   $   0.01
                                               =========   ========

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

NOTE 7. NOTES PAYABLE

At September 30, 2001, the Company has a note payable of $249,754.  This note is
unsecured  and bears  interest  at 0%-12% per annum.  The note  payable has been
classified as current in the  accompanying  Balance Sheets because  repayment is
anticipated from January 5, 2002 to September 30, 2002.


See independent auditor's report

                                      F-10

<PAGE>



            Independent Auditor's Report on Supplementary Information

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

     We have audited the accompanying  financial statements of AlphaRx,  Inc. as
of and for the year ended  September 30, 2001, and have issue our report thereon
dated  December 26, 2001.  Our audit was conducted for the purpose of forming an
opinion on the basis  financial  statements  taken as a whole.  The  information
contained in Schedule I is presented for purposes of additional  analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the basic financial statements taken as whole.



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


December 26, 2001


                                      F-11


<PAGE>


                                  ALPHARX, INC.

            SCHEDULE OF SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

                 FOR THE YEARS ENDED SEPTEMBER 30, 2001 AND 2000

                                                         2001             2000
                                                         ----             ----
Advertising                                           $  7,257
Automobile expenses                                      4,603          $  7,344
Bank charge                                                675               501
Contract Labor                                           6,621             7,675
Delivery & Postage                                       3,274             3,093
Depreciation                                            18,742             4,533
Dues & Subscriptions                                     1,396               630
Employee benefits                                          521
Exchange rate loss                                       1,033
Insurance                                                3,968             4,065
Interest expense                                        11,595               693
License                                                  1,540             1,998
Meals & Entertainment                                    1,061             1,324
Miscellaneous                                              250               368
Office expense                                           5,667             8,944
Printing & Reproduction                                    751
Professional fees                                       51,220           126,470
Research & Development                                  68,793            74,990
Rent expense                                            19,179            11,016
Repairs & Maintenance                                      210
Salary expense                                         278,000
Security                                                                     394
Supplies                                                 1,922             3,268
Telephone                                                5,861             5,573
Travel                                                   9,759            15,664
Utility                                                  1,554             1,629
                                                      --------          --------
        TOTAL                                         $505,452          $280,172
                                                      ========          ========


See independent auditor's report
The accompanying notes are an integral part of this statement

                                      F-12