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, 2002

                                       OR

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

                       Commission File Number: 000-030813

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

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

                             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, 2002 (its most
recent fiscal year) were $282.

The aggregate market value of registrant's Common Stock (the only class of stock
outstanding) held by non-affiliates of the registrant on December 23, 2002,
based upon the closing price of the Common Stock on the NASD OTC Bulletin Board
on such date, was approximately $3,425,710.

The number of outstanding shares of registrant's Common Stock on December 23,
2002 was 15,617,341.

"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. Subsequent to March 19, 2002, we changed our symbol
to ALRX after effecting a reverse split on a 1 for 5 basis. All references to
common stock have been retroactively restated.

COMPANY OVERVIEW

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

      Pain Management - developing topical NSAID pharmaceuticals;

      Nutraceuticals - developing bioavailable specialized supplements with
      therapeutic benefits; and

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

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


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<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.


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<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 cream (OTC)        Pain Relief                    Topical/CLD             Developed

Nutraceuticals                                                                                     US$ 9 Billion
CoQ10 ER                    Hearth Health                  Oral/SECRET             Developed
ARX100C                     Oral Health                    Oral/SECRET             Developed
LipoBloc                    Cholesterol Lowering           Oral/SECRET             Developed
LipoLette                   Weight-loss                    Oral/SECRET             Developed

Neuroprotection                                                                                    US$ 2 Billion
ARX-2001                    Neuroprotection                Undetermined            Pre-clinical
ARX-2002                    Neuro-inflammation             Undetermined            Pre-clinical
</TABLE>

OVERVIEW OF THE DRUG DELIVERY INDUSTRY

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

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

      In recent years, drug delivery companies have been able to develop
innovative and efficient solutions to some of the limitations of conventional
oral drug administration. For example, the improved oral delivery system
developed by ALZA in the 1980's reduced the side effects and dosing frequency of
the hypertension drug, Procardia(R). The improved product, Procardia XL(R),
resulted in substantially


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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 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.


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<PAGE>

      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.

         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


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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.

      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


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


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<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 several topical NSAID products under development:

           Brand Name           Active Ingredient            Status
           ----------           -----------------            ------
           Flexigan             1.5% Diclofenac              Pre-clinical
           Indoflex             2.0% Indomethacin            Pre-clinical
           Flexogan             Menthol, Camphor,            OTC
                                Methyl Salicylate

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

      Flexigan does not irritate the skin when the cream is applied topically
causing Indomethaic to penetrate rapidly and deeply into the affected parts of
the body due to the


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<PAGE>

CLD formulation. CLD are oil-in-water emulsions composed of lipid phase,
emulsified in aqueous medium with the aid of natural emulsifiers. CLD do not
contain unsafe ingredients and are therefore highly acceptable and of low
irritancy.

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

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

NUTRACEUTICALS

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

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

      Our enabling technology offers the following benefits:

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

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


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      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.

NEUROPROTECTION

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

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


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<PAGE>

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

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

COMPETITION

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

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


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<PAGE>

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


                                       12
<PAGE>

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 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


                                       13
<PAGE>

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 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


                                       14
<PAGE>

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

o     any insurance will provide adequate protection against potential
      liabilities.


                                       15
<PAGE>

EMPLOYEES

      As of September 30, 2002, 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, 2002, we leased approximately 1,100 square feet in
Richmond Hill, Ontario, under a lease which expires on April 30, 2003. We
believe that our existing properties are sufficient for our administrative,
research and development needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

      The Company is a defendant in a lawsuit, filed by a prospective investor
alleging breach of contract, which seeks damages totalling $25,000. We believe
the lawsuit has no merit and we plan to defend it vigorously. We denies any
breach of contract and have filed Statement of Defence accordingly, In any
event, the entire claim is accrued in the financial statements.

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

      None


                                       16
<PAGE>

                                     PART II

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

MARKET INFORMATION

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

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

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

      The foregoing quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions. The reported bid prices reflect the 5 for 1 reverse stock split
that occurred on March 19th, 2002.

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

DIVIDENDS

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

      The future sale of presently outstanding "unregistered" and "restricted"
common stock of the Company by present members of management and persons who own
more than five percent of the outstanding voting securities of the Company may
have an adverse effect on any market that may develop in the shares of the
Common Stock of the Company.


                                       17
<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

      In March 2002, we effectuated a five-for-one reverse stock split of our
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. The following unregistered securities have been issued since October,
1999 and are previously disclosed in our 10-QSB's unless otherwise noted:

<TABLE>
<CAPTION>
Date                 No. of Shares         Title            Valued At       Reason
----                 -------------         -----            ---------       ------
<S>                  <C>                   <C>              <C>             <C>
Oct. 15/99           630,666               Common           $0.05           Private Placement
Dec. 31/99           340,000               Common           $0.25           Private Placement
June 30/00           392,000               Common           $0.50           Private Placement
May 8/01             25,000                Common           $0.50           Private Placement
Dec. 7/01            17,500                Common           $0.45           Private Placement
Dec. 11/01           15,200                Common           $0.50           Private Placement
Dec. 14/01           12,580                Common           $0.50           Private Placement
Dec. 20/01           57,000                Common           $0.43           Private Placement
Dec. 31/01           792,000               Common           $0.50           Salaries
Jan. 10/02           100,000               Common           $0.15           Private Placement
Jan. 14/02           101,520               Common           $0.25           Debt Settlement
Feb. 28/02           90,000                Common           $0.15           Debt Settlement
Sept. 30/02          924,000               Common           $0.50           Salaries
Sept. 30/02          1,257,277             Common           $0.40           Debt Settlement
</TABLE>

      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/or Section
4(2) under the Securities Act and to persons outside the United States within
the meaning of Regulation S of the Securities Act.


                                       18
<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 drug delivery company specializing in the
development of innovative therapeutic products for the pharmaceutical and
consumer health care market. Our core competence is in the development of novel
drug formulations for therapeutic molecules or compounds that have exhibited
poor G.I. absorption due to poor solubility or have yet be administerable to the
human body with an acceptable delivery method. Our drug delivery system is
versatile and offers significant flexibility in the development of suitable
dosage formulations (i.e. oral, topical or parenteral) to meet the requirements
of specific drug molecules. Our primary activities since inception (August 7,
1997) have been, in addition to research and development, establishing our
offices and research facilities, recruiting personnel, filing patent
applications, developing a business strategy and raising capital.

      We began to test market several consumer health products to the Canadian
and US markets under the AlphaRx brand name in February 2002. Test marketing and
additional clinical human studies to substantiate expected marketing claims,
including comparative advertising claims, are expected to continue throughout
2002. Assuming the successful completion of test marketing, a national roll-out
of several over-the-counter products are expected to occur in early 2003, at
which time management anticipates the Company emerging from the development
stage.

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

Results of Operations

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

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


                                       19
<PAGE>

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

Research and Development Expense

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

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

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


                                       20
<PAGE>

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

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

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

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

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

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

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

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

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

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

Certain Factors that may Affect Future Results

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

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The financial statements and supplementary data required by Item 7 are set
forth below on pages F-1 through F-13.


                                       21
<PAGE>

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

      None

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The following table sets forth, as of September 30, 2002, the name, age,
and position of each of our executive officers and directors:

     Name                           Age      Position
     ----                           ---      --------

     Michael M.  Lee                39       Chairman of the Board,
                                             President & Director

     Sai Ming Wong, MD              62       Executive Vice President & Director

     Tin Pui Lo                     57       Chief Financial Officer

     Joseph Schwarz, Ph.D           48       Chief Scientist & Director

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

     Sandro Persia                  33       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 provided medical
and research services for the first China atomic testing. Dr. Wong served as the
Director of Product Development at the China Academy of Medical Sciences from
1970 to 1980, where he was the leader of a research team which specialized in
the development of drug formulations. From 1980 - 1992, Dr. Wong served as
General Manager of China National Light Industries Corp., a China state owned
company based in Hong Kong, where Dr. Wong was responsible for the daily
operation of the company. Dr. Wong earned his degree in Medicine from the
Beijing Capital University of Medical Sciences.


                                       22
<PAGE>

      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.

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


                                       23
<PAGE>

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

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

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

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation

      The table below summarizes the compensation received by the Company's
Chief Executive Officer for the fiscal years ended September 30, 2002, 2001,
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.


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                                                               LONG TERM
                                                                                              COMPENSATION
                NAME AND                                                                 SECURITIES UNDERLYING
           PRINCIPAL POSITION                YEAR        SALARY ($)        BONUS ($)           OPTION (#)
           ------------------                ----        ----------        ---------           ----------
<S>                                          <C>           <C>                <C>               <C>
Michael M. Lee.....................          2002          230,000                                   --
  President & C.E.O.                         2001           74,000            0                      --
                                             2000            6,000            0                 400,000
                                             1999                0            0                      --

Joseph Schwarz .....................         2002          150,000                                   --
  Chief Scientist                            2001           84,000            0                      --
                                             2000            6,000            0                 250,000
                                             1999                0            0                      --

Michael Weisspapir ................          2002          114,000                                   --
  Chief Medical Scientist                    2001           63,000            0                      --
                                             2000            3,000            0                 200,000
                                             1999                0            0                      --

Sai Ming Wong......................          2002           90,000                                   --
  Executive V.P.                             2001           39,000                                   --
                                             2000            3,000                              300,000
                                             1999                0                                   --
</TABLE>

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

2.    The above officers accepted 932,000 restricted shares in lieu of their
      salary between 1/1/2002 and 9/30/2002.

Employment Agreements

      The Company has entered into an employment agreement with Michael M. Lee
on July 1, 2000, pursuant to which Mr. Lee is employed as President. The
agreement, as amended, provides that Mr. Lee will devote all of his business
time to the Company in consideration of an annual salary of $24,000 for the
period July 1, 2000 to December 31, 2000, $36,000 for the period January 1, 2001
to June 30, 2001, $160,000 for the period July 1, 2001 to December 31, 2001,
$240,000 for the period January 1, 2002 to December 31, 2002 and $280,000 for
the period January 1, 2003 to December 31, 2003. In addition, pursuant to the
employment agreement, Mr. Lee was granted a ten-year option to purchase 400,000
shares of Common Stock at an exercise price equal to $0.05 per share,
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


                                       25
<PAGE>

31, 2003. Dr. Schwarz was granted ten-year options to purchase an aggregate
250,000 shares of Common Stock at an exercise price equal to $0.05 per share.

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

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

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

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

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

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

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


                                       26
<PAGE>

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

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

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

2000 Stock Option Plan

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


                                       27
<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. 15,327,341
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)             7,376,316 shares           48.13%
       Joseph Schwarz(1)          480,000 shares              3.13%
       Sai Ming Wong (1)          464,000 shares              3.03%
       Michael Weisspapir(2)      360,000 shares              2.35%
       Sandro Persia(1)           16,000 shares                0.1%
       Tin Pui Lo(2)              400 shares                  >0.1%

(1)   Director and Officer

(2)   Officer

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transaction with Management and Others

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

Certain Business Relationships

      During the past two years, there have been no material transactions,
series of similar transactions, currently proposed transactions, or series of
similar transactions, currently proposed transactions, or series of similar
transactions, to which the Company was or is to be a party, in which the amount
involved exceeds $60,000 an in which any promoter or founder, or any member of
the immediate family of any of the foregoing persons, had a material interest.

Indebtedness of Management

      During the past two years, there have been no material transactions,
series of similar transactions or currently proposed transactions, to which the
Company was or is


                                       28
<PAGE>

to be a party, in which the amount involved exceeds $60,000 and in which any
director or executive officer, or any security holder who is known to the
Company to own of record or beneficially more than five percent of the Company's
common stock, or any member of the immediate family of any of the foregoing
persons, had a material interest.

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

(a) EXHIBITS

      Exhibits incorporated herein by reference - None.

(b) REPORTS ON FORM 8-K

      We did not file any Current Reports on Form 8-K during the year ended
September 30, 2002.


                                       29
<PAGE>

                                  ALPHARX, INC.

               FINANCIAL STATEMENTS AND ACCOUNTANT'S AUDIT REPORT

                    SEPTEMBER 30, 2002 AND SEPTEMBER 30, 2001

                                TABLE OF CONTENTS

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

INDEPENDENT AUDITOR'S REPORT                                         F-1
BALANCE SHEET                                                        F-2
LIABILITY AND SHAREHOLDERS' EQUITY                                   F-3
STATEMENT OF OPERATIONS                                              F-4
STATEMENT OF SHAREHOLDERS' EQUITY                                    F-5
STATEMENT OF RETAINED DEFICITS                                       F-6
STATEMENT OF CASH FLOWS                                              F-7
NOTES TO FINANCIAL STATEMENTS                                        F-8-11

SUPPLEMENTARY INFORMATION

AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION                        F-12
SETLLING, GENERAL AND ADMINISTRATIVE EXPENSES                        F-13


                                       1
<PAGE>

                          Independent Auditor's Report

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

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

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

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

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

December 23, 2002


                                      F-1
<PAGE>

                                  ALPHARX, INC.

                                  BALANCE SHEET

                               FOR THE YEARS ENDED
                           SEPTEMBER 30, 2002 AND 2001

                                     ASSETS

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

  Prepaid Legal Fees                                            $     9,385       $       0
  Inventory                                                          52,141               0
                                                                -----------       ---------

     TOTAL CURRENT ASSETS                                            81,526               0

PROPERTY, PLANT & EQUIPMENT, at cost

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

OTHER ASSETS

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

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


                                      F-2
<PAGE>

                      LIABILITIES AND SHAREHOLDERS' EQUITY

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

   Cash Shortage                                                $     9,202     $    16,259

   Accounts Payable and Accrued Liabilities                          24,680          27,778
   Accrued Interest                                                       0          10,335
   Salary Payable                                                         0         278,000
   Notes Payable (note 7)                                            50,795         249,754
   Litigation Liabilities (note 8)                                   25,000
                                                                -----------     -----------
        TOTAL CURRENT LIABILITIES                                   109,677         582,126

LONG-TERM LIABILITIES

   Notes Payable                                                      1,524

CONTINGENCIES & COMMITMENTS (note 9)

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

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-3
<PAGE>

                                  ALPHARX, INC.

                             STATEMENT OF OPERATIONS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

<TABLE>
<CAPTION>
                                                          September 30
                                                     2002              2001
                                                     ----              ----
<S>                                               <C>               <C>
SALES                                             $       282       $       0

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

           GROSS PROFIT                                   223

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

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

OTHER INCOME & OTHER EXPENSES

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

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

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

NET LOSS                                          $(1,019,290)      $(505,440)
                                                  ===========       =========
</TABLE>

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-4
<PAGE>

                                  ALPHARX, INC.

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

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

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

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

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

Share                 (44,772,259)
Consolidation

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

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

See accountant's review report

The accompanying notes are an integral part of this statement


                                      F-5
<PAGE>

                                  ALPHARX, INC.

                         STATEMENT OF RETAINED DEFICITS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

RETAINED DEFICITS

<TABLE>
<CAPTION>
                                                   September 30
                                                   ------------
                                        2002                               2001
                                        ----                               ----
<S>                                 <C>            <C>                 <C>
Beginning balance, October 1, 2001  $ (1,792,093)  October 1, 2000     $ (1,286,653)

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

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

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-6
<PAGE>

                                  ALPHARX, INC.

                            STATEMENTS OF CASH FLOWS

                 FOR THE YEARS ENDED SEPTEMBER 30, 2002 AND 2001

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

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

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

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

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

CASH AS OF September 30, 2001 (2000)                                                    (16,259)         13,943
                                                                                    -----------       ---------
CASH AS OF September 30, 2002 (2001)                                                $    (9,202)      $ (16,259)
                                                                                    ===========       =========
</TABLE>

SUPPLEMENTARY DISCLOSURE:

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

See independent auditor's report


                                      F-7
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 1. FORMATION AND ORGANIZATION OF BUSINESS

ALPHARX, INC. (the Company) was incorporated under the laws of the State of
Delaware on August 8, 1997. The company is an emerging pharmaceutical company
specializing in the formulation of therapeutic products using proprietary drug
delivery technologies. The company was formally known as LOGIC TECH
INTERNATIONAL, INC., and had its corporate name amended during the fiscal year
of 1998.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Cash and Cash Equivalent

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

Depreciation

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

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

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

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

See independent auditor's report


                                      F-8
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

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

Income Taxes

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

Research and Development (R&D)

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

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

NOTE 4. INVESTMENTS

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

See independent auditor's report


                                      F-9
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 5. COMMON STOCK

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

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

NOTE 6. STOCK OPTION PLAN

The Company has a Stock Option Plan (Plan) under which officers, key employees,
certain independent contractors, and non-employee directors may be granted
options to purchase shares of the Company's authorized but unissued common
stock.. Since the fiscal year of 2001, the option plan was terminated and no
longer exercisable. Under the Plan, the option exercise price and its fair
market value are determined to be US$0.05. Options currently expire no later
than 10 years from the grant date and generally vest within five years. Proceeds
received by the Company from exercises of stock options are credited to common
stock and additional paid-in capital. Additional information with respect to the
Plan's stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                        Weighted
                                                    Number of            Average
                                                     Shares          Exercise Price
                                                 ----------------    ----------------
<S>                                                 <C>                  <C>
Outstanding at June 20, 2000 (plan adoption)        1,600,000            $0.05
   Granted                                          1,150,000            $0.05
   Exercised                                                0            $0.05
   Cancelled                                          450,000            $0.05
                                                    ---------            -----
Outstanding at September 30, 2002                   1,150,000            $0.05
                                                    =========            =====
Options exercisable at September 30, 2002                   0            $0.05
                                                    =========            =====
</TABLE>

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

NOTE 7. NOTES PAYABLE

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

See independent auditor's report


                                      F-10
<PAGE>

                                  ALPHARX, INC.

                          NOTES TO FINANCIAL STATEMENTS

                               SEPTEMBER 30, 2002

NOTE 8. LITIGATION LOSS

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

NOTE 9. COMMITMENTS

Leases

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

                           Year                        Amount
                           ----                        ------
                           2004                        $  937
                           2003                        $1,022
                           2002                        $1,022


                                      F-11
<PAGE>

            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, 2002, and 2001, and have issue our
report thereon dated December 23, 2002. 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.

December 23, 2002


                                      F-12
<PAGE>

                                  ALPHARX, INC.

            SCHEDULE OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
                 FOR THE YEAR ENDED SEPTEMBER 30, 2002 and 2001

                                                  2002                  2001
                                                  ----                  ----
         Advertising                           $    7,737              $  7,257
         Automobile expenses                        3,897                 4,603
         Bank charge                                1,644                   675
         Commission                                 2,864                     0
         Contract Labor                             6,297                 6,621
         Custom Duty                                3,985                     0
         Delivery & Postage                         2,261                 3,274
         Depreciation                              22,531                18,742
         Dues & Subscriptions                       1,793                 1,396
         Employee benefits                         12,197                   521
         Exchange rate loss                         3,917                 1,033
         Insurance                                  2,096                 3,968
         Interest expense                          40,346                11,595
         License                                      409                 1,540
         Meals & Entertainment                      3,002                 1,061
         Miscellaneous                                 90                   250
         Office expense                             9,587                 5,667
         Printing & Reproduction                    3,583                   751
         Professional fees                        173,518                51,220
         Research & Development                   445,637                68,793
         Rent expense                               7,143                19,179
         Repairs & Maintenance                        100                   210
         Salary expense                           230,000               278,000
         Supplies                                   2,753                 1,922
         Tax-State                                    132                     0
         Telephone                                  4,641                 5,861
         Travel                                     6,870                 9,759
         Utility                                    1,689                 1,554
                                               ----------              --------
                 TOTAL                         $1,000,719              $505,452
                                               ==========              ========

See independent auditor's report

The accompanying notes are an integral part of this statement


                                      F-13
<PAGE>

                                   SIGNATURES:

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

DATED: January 7, 2003

                                          ALPHARx, INC.

                                          By: /S/ Michael M. Lee
                                             -----------------------------------
                                             Michael M.  Lee, President

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

DATED: January 7, 2003

                                          Directors:

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

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

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