ALPHARX INC - FORM 10-K - December 9, 2011

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - ALPHARX INC	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - ALPHARX INC	exhibit31-1.htm
EX-32.1 - EXHIBIT 32.1 - ALPHARX INC	exhibit32-1.htm
EX-31.2 - EXHIBIT 31.2 - ALPHARX INC	exhibit31-2.htm
EX-32.2 - EXHIBIT 32.2 - ALPHARX INC	exhibit32-2.htm

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

FORM 10-K

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

For the fiscal year ended: September 30, 2011

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934

for the transition period from __________to __________

Commission File Number: 000-30813

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

Delaware	98-0416123
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

31/F, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong
(Address of principal executive offices)

(852) 2824 8716
(Registrant’s telephone number, including area code)

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

YES [ ] NO [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

YES [ ] NO [X]

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Persons who respond to the collection of information contained
in this form are not required to respond unless the form displays
a currently valid OMB control number.

SEC 1673 (03-10)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.

[X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

[X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer [ ]	Accelerated filer [ ]
	Non-accelerated filer [ ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the act).

[ ] Yes [X] No

Issuer’s revenues for its most recent fiscal year ended September 30, 2011 were $ 183,503.

The aggregate market value of the issuer’s Common Stock (the only class of voting stock), held by non-affiliates was approximately $3,485,612 based on the average closing bid and ask price for the Common Stock on September 30, 2011.

As of September 30, 2011 there were 95,935,047 shares outstanding of the issuer’s Common Stock.

AlphaRx, Inc.

FORM 10-K

For the Year Ended September 30, 2011

INDEX

PART I

Item 1.	Business	3
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	15
Item 4.	(Removed and Reserved)	15

PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	24
Item 9A.	Controls and Procedures	24
Item 9B.	Other Information	26

PART III

Item 10.	Directors, Executive Officers and Corporate Governance	26
Item 11.	Executive Compensation	27
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	30
Item 13.	Certain Relationships and Related Transactions, and Director Independence	30
Item 14.	Principal Accounting Fees and Services	30

PART IV

Item 15.	Exhibits, Financial Statements Schedules	31
SIGNATURES		31

PART I

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should,” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

Although these forward-looking statements reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As a result, our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

ITEM 1. BUSINESS

Overview of AlphaRx

Introduction and History

In this annual report on Form 10-K, the "Company," "AlphaRx" "we," "us," and "our," refer collectively to AlphaRx Inc., AlphaRx Canada Limited, our wholly owned subsidiary and 80% of AlphaRx International Holdings Limited.

AlphaRx Inc., formerly known as Logic Tech International Inc., was incorporated in Delaware on August 8, 1997 as an intellectual property holding company whose mission was to identify, acquire and develop new technologies or products and devise commercial applications to be taken to market through licensing or joint venture partners. Logic Tech International Inc. was renamed 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 AlphaRx Inc. Common Stock ceased trading on the Pink Sheets and began trading on the Over The Counter Bulletin Board (“OTCBB”) under the same symbol. Subsequent to March 19, 2002 AlphaRx Inc.’s symbol was changed to “ALRX” after a consolidation of its Common Stock on a 1 new for 5 old basis. All references to AlphaRx Inc. Common Stock have been retroactively restated.

AlphaRx is a specialty pharmaceutical company dedicated to developing therapies to treat and manage pain. Prior to July, 2011, the business of the Company was focused on reformulating FDA approved and marketed drugs using its proprietary site-specific nano drug delivery technology. From 2000 until June 2011, substantial efforts and resources were devoted to understanding our nano drug delivery technology and establishing a product development pipeline that incorporated this technology with selected molecules. On July, 2011 the Board and management adopted a new business plan that it believed would improve the Company’s performance. The new business plan narrowed the Company’s focus to developing and commercializing 2 existing product candidates for the pain market.

Business Development

The Company’s nano drug delivery development business model was formed in 2000; substantial efforts and resources were devoted to understanding our nano drug delivery technology and establishing a product development pipeline that incorporated this technology with selected molecules. On July, 2011 the Board and management adopted a new business plan that it believed would improve the Company’s performance. The new business plan narrowed the Company’s focus to developing and commercializing 2 existing product candidates Indaflex and ARX8203 for the pain market.

To date, we have engaged in organizational activities, preparing ARX8203 for human trials; and expanding Indaflex sales. We have generated funding through the issuances of debt and private placement of common stock. We have not generated any substantial revenues and we do not expect to generate any substantial revenues in the near future. We may not be successful in developing our product candidates and start selling our products when planned, or that we will become profitable in the future. We have incurred net losses in each fiscal period since inception of our operations.

Principal products

Indaflex

Indaflex™ is a topical NSAID (Non-Steroidal Anti-inflammatory Drug) formulation currently in clinical development for the reduction of signs and symptoms associated with osteoarthritis of the knee. Arthritis is the most common chronic disease in North America and afflicts an estimated 10% of the world’s population. The active ingredient in Indaflex™, indomethacin, has a long-standing and proven clinical treatment record. Delivered through the skin using proprietary technology developed by AlphaRx, the companies believe Indaflex™ will have an attractive safety, tolerability and efficacy profile in comparison to oral treatments and other topical preparations. The side effects of the GI tract found with orally ingested NSAIDs will be dramatically reduced. This drug delivery vehicle significantly increases drug loading through a unique combination of polarity and hydrophobicity of the carrier components. Indaflex long-term market objective is to gain leadership in the anti-inflammatory topical cream/ointment arthritic and chronic joint/muscle pain relief market.

Indaflex is approved for sale in Mexico, but must undergo FDA approval for sale in United States and other countries. Indaflex is our only prescription drug at the clinical trial stage. We completed a Phase I human trial for Indaflex in Canada during March 2005.

Together with our former licensee Proprius Pharmaceuticals Inc. ("Proprius"), we completed Phase II clinical trials for Indaflex in March 2007. The randomized double-blind placebo and vehicle controlled trial, which included a six-week treatment period, was conducted on 233 patients with osteoarthritis of the knee. While the trial did not meet its primary endpoints, subgroup analyses of patients with moderate to severe pain and more impaired physical function at baseline showed positive trends in patients treated with Indaflex as compared to patients treated with either placebo or vehicle. Indaflex was demonstrated to be safe and well tolerated. Because we did not meet the primary endpoints, under the terms of the Licensing Agreement with Proprius we did not receive any milestone payments for this trial. On March 2008, Proprius was acquired by Cypress Bioscience Inc. (“Cypress”) and Cypress assumed Indaflex clinical development. Our agreement with Cypress expired on June 28, 2010.

ARX-8203

ARX-8203 is a prodrug of a well-known non-steroidal anti-inflammatory drug, designed to reduce the occurrence of side- effects associated with the parent drug. ARX-8203 is pH neutral and has significantly less GI toxicity than diclofenac in a 28 days GI animal study. ARX-8203 demonstrates excellent G.I. safety profile in acute GLP toxicity studies and can be administrated orally or via intravenous infusion or IV bolus injection.

Over the last 12 months we have made significant progress in moving ARX8203 toward clinical application. Sufficient amount of ARX8203 is being synthesized for the planned clinical trial. The Company is planning to conduct a POC (Proof of Concept) human trial as soon as practicable, anticipating that the POC human trials will enroll 90 patients in 3 arms (ARX8203 vs. comparator), whereby the primary endpoint will be safety (cumulative incidence of gastric ulcers) as assessed by endoscopy. With an estimated 15 million Americans taking prescription NSAIDs for arthritis, and an estimated 68 million prescriptions a year being written for these products, according to the FDA, the market for NSAIDs is strong. Prolonged use of NSAID’s has been associated with a high incidence of gastro-intestinal ulcers. There will be a robust market for new drugs without the serious G.I. side-effects which prolonged use of current NSAID’s risk.

We intend to perform the regulatory filings with FDA and AlphaRx owns all the regulatory licenses for Indaflex and ARX-8203. However, we may manufacture these two products under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses and have appropriate capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements. The Company plans to market these drugs either on its own or in conjunction with marketing partners. The Company also plans to actively pursue co-development, as well as other licensing agreements with other Pharmaceutical companies. Such agreements may entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other instruments that may bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing and development options that the company may pursue.

Distribution Methods of The Products And Services

Our primary strategy is to establish collaborative relationships with pharmaceutical companies to develop our products. The products will be jointly developed, with the collaborative partner having primary responsibility to clinically test, manufacture, market and sell the product, and we retain ownership of our products.

Competition

Our products in development target a number of diseases and conditions associated with inflammation such as Osteoarthritis and rheumatoid arthritis. There are many commercially available products for these diseases and a large number of companies and institutions are spending considerable amounts of money and other resources to develop additional products to treat these diseases. Most of these companies have substantially greater financial and other resources, larger research and development staffs, and extensive marketing and manufacturing organizations. If we are able to successfully develop products, they would compete with existing products based primarily on:

efficacy;
safety;
tolerability;
acceptance by doctors;
patient compliance;
patent protection;
ease of use;
price;
insurance and other reimbursement coverage;
distribution;
marketing; and
adaptability to various modes of dosing.

Our Indaflex in development for osteoarthritis would compete with Pennsaid, Valtaren Emugel and Flector Patch that are sold by Nuvo Research, Novartis and Alpharma, respectively.

The competition for our ARX8203 will come from the oral anti-arthritic market, or more specifically the traditional non-selective NSAIDs (such as naproxen and diclofenac), traditional NSAID/gastroprotective agent combination products or combination product packages (such as Arthrotec® and Prevacid® NapraPACTM ) and the only remaining COX-2 inhibitor, Celebrex®. The U.S. prescription market for oral solid NSAIDs was approximately $2.6 billion in 2009, of which 72% was accounted for by Celebrex, according to IMS. This market is continuing to undergo significant change, due to the voluntary withdrawal of Vioxx® by Merck & Co. in September 2004, the FDA-ordered withdrawal of Bextra® by Pfizer in April 2005 and the issuance of a Public Health Advisory by the FDA in April 2005 stating that it would require that manufacturers of all prescription products containing NSAIDs provide warnings regarding the potential for adverse cardiovascular events as well as life-threatening gastrointestinal events associated with the use of NSAIDs. Moreover, subsequent to the FDA advisory committee meeting in February 2005 that addressed the safety of NSAIDs, and, in particular, the cardiovascular risks of COX-2 selective NSAIDs, the FDA has indicated that long-term studies evaluating cardiovascular risk will be required for approval of new NSAID products that may be used on an intermittent or chronic basis.

Patents, Trademarks and Proprietary Rights

It is our policy to file patent applications in the United States and certain foreign jurisdictions for any drug formulations and any drug delivery methodologies that we consider commercially viable. There can be no assurance that our patent applications will issue as patents or, with respect to our issued patents, that they will provide us with significant protection. The following provides a general description of our patent portfolio and is not intended to represent an assessment of claim limitations or claim scope.

Indaflex

We have three issued patents in the U.S., China and Mexico under the title “Vehicle for topical delivery of anti-inflammatory compounds” for the use of Indaflex to increase efficacy of non steroidal anti-inflammatory drugs. This US patent was issued on November 21, 2006 and will expire on September 29, 2021.

ARX8203

We have received a notice of allowance from the US Patent office covering the use of ARX8203 for ocular inflammation. We have filed 2 additional US patent applications for ARX8203 in 2011.

No assurance can be given that our patent applications will be approved or that any issued patents will provide competitive advantages for our products or will not be challenged or circumvented by competitors. With respect to any patents which may be issued from our applications, there can be no assurance that claims allowed will be sufficient to protect our products.. Competitors may have filed applications for, or may have received patents and may obtain additional patents and proprietary rights relating to, compounds or processes that may block our patent rights or compete without infringing our patent rights. In addition, there can be no assurance that any patents issued to us will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide proprietary protection or commercial advantage to us.

We also rely on trade secrets and proprietary know-how that we seek 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 or may otherwise be of limited effectiveness or enforceability.

Trademarks

We have registered the following trademarks in Canada: “BCD”, “Flexogan”, “Indaflex”,”AlphaRx”, and “PhytoScience”. We have registered the following trademarks in the United States: “Flexogan”, “Indaflex”, “LipoBloc”, “PhytoScience”, “BCD” and “Oralife”. We have also registered “Flexogan” and “Indaflex” in the Peoples’ Republic of China. In connection with our Internet web site, we have registered with Network Solutions, Inc., the internet domain name “AlphaRx.com” for our corporate website.

Proprietary Information

Much of our technology is dependent upon the knowledge, experience and skills of key scientific and technical personnel. To protect the rights to our proprietary technology, our policy requires all employees and consultants to execute confidentiality and non-competition agreements that prohibit the disclosure of confidential information to anyone outside the Company. These agreements also require disclosure and assignment to us 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 our products. Our dependence on third parties for the manufacture of products may adversely affect our ability to develop and deliver such products on a timely and competitive basis.

We are not actively pursuing the direct sales and marketing of our market ready products or potential products due primarily to our limited amount of financial resources. We do retain marketing and sales agents from time to time on an as needed basis on a commission or flat fee basis and other incentives.

Government Regulation

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

In the United States, pharmaceutical products are subject to rigorous regulation by the FDA. If a company fails to comply with applicable requirements, it may be subject to administrative or judicially imposed sanctions such as civil penalties, criminal prosecution of 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 the United States, a manufacturer must prepare and file an IND submission with the FDA before testing can begin on humans. An application contains a variety of information about the products, including the results of previous animal and human studies, the basic chemistry of the product and manufacturing information. The submission also provides details on the testing that is to be performed, including who will be performing the testing and where it will be performed. As in Canada, human studies are characterized as Phase I, Phase II or Phase III studies. Phase I studies focus on the safety profile of the product, Phase II seeks clues as to efficacy, and Phase III seeks to statistically confirm in larger trials the efficacy of the product.

After acceptance of the initial IND application, the manufacturer has certain reporting responsibilities to the FDA including the submission of yearly updates on the product’s safety. As the testing progresses into Phases II and III, the focus shifts to the efficacy of the product and the clinical studies that will enable the manufacturer to receive FDA approval for the marketing of the product.

We presently have a licensed manufacturer and distributor in Mexico - Andromaco. We rely on Andromaco to complete, maintain and adhere to the required regulatory processes and procedures needed to manufacture and distribute our product in Mexico. Andromaco is a large pharmaceutical manufacturer in Mexico with more than 50 years of experience in manufacture, marketing and distribution of drugs. We will attempt to complete licensing and distribution arrangements in foreign countries and in the United States with larger, experienced organizations to ensure that regulatory processes and country-specific regulations are being observed and maintained.

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, and to obtain FDA and other regulatory approvals. We conduct all of our fundamental research and development activities in China. We conduct animal testing, and other specialized research and development activities in various countries via third parties depending primarily on the most competitive pricing we can obtain.

Insurance

We maintained product liability insurance until September 30, 2008 in the amount of CAD $1,000,000. As we no longer directly sell, market, or manufacture any products we determined that product liability insurance is no longer necessary. We have never had any adverse legal or other consequences from either Flexogan sales, nor from our Phase 1 and II clinical trials on Indaflex. Our licensees do have product liability insurance based on their commercial activities. Should we determine to commence direct sales or production of any of our products or product candidates, product liability insurance will be obtained accordingly. Any clinical trials require separate insurance coverage related specifically to those trials. We could still be indirectly subject to product liability claims.

Employees

We have two full time employees and one part time consultant on staff. None of our staff is represented by a collective bargaining agreement, nor have we experienced any work stoppage. We believe that our relations with our staff are good.

Reports to Security Holders

As a result of its filing of Form 10-SB/A and listing on the NASD OTC Bulletin Board, the Company has become subject to the reporting obligations of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These obligations include filing an annual report under cover of Form 10-K, with audited financial statements, unaudited quarterly reports on Form 10-Q and the requisite proxy statements with regard to annual shareholder meetings. The public may read and copy any materials the Company files with the Securities and Exchange Commission (the “Commission”) at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0030. The Commission maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. Information about the Company is also available on its Web site at www.AlphaRx.com. Information included on the Web site is not part of this Form 10-K.

Website

Our website address is www.AlphaRx.com.

We intend to make available through our website, all of our filings with the Commission and all amendments to these reports as soon as reasonably practicable after filing, by providing a hyperlink to the EDGAR website containing our reports.

Our Information

Our principal executive offices are currently located at 31/F, Tower One, Times Square, Causeway Bay, Hong Kong and our telephone number is (852) 2824 8716. We can be contacted by email at info@AlphaRx.com.

ITEM 1A. RISK FACTORS

We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business and our products. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed here could also adversely affect us.

We have significant historical losses and may continue to incur losses in the future.

We have incurred annual operating losses since our inception. As a result, at September 30, 2011 we had an accumulated deficit of approximately $ 19,045,635. Our revenues for the years ended September 30, 2011 and September 30, 2010 were $183,503 and $326,345 respectively. Our revenues have not been sufficient to sustain our operations. Revenues for 2011 consisted of royalty revenues and consulting revenues and in 2010 revenues consisted of royalty revenues and consulting revenues. In order to achieve profitability our revenue streams will have to increase and there is no assurance that revenues can increase to such a level. We may never be profitable.

We face intense competition in the pharmaceutical business, and our failure to compete effectively would decrease our ability to generate meaningful revenues from our products.

The pharmaceutical business is highly competitive and is affected by new technologies, governmental regulations, health care legislation, availability of financing, litigation and other factors. Many of our competitors have longer operating histories and greater financial, research and development, marketing and other resources than we do. We are subject to competition from numerous other entities that currently operate or intend to operate in the industry. These include companies that are engaged in the development of colloidal drug delivery technologies and products as well as other manufacturers that may decide to undertake in-house development of these products. Many of the major pharmaceutical companies also have internal drug delivery programs that may compete directly with our business.

Many of our competitors have more extensive experience than we have in conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. Many competitors also have competing products that have already received regulatory approval or are in late-stage development, and may have collaborative arrangements in our target markets with leading companies and research institutions.

Our competitors may develop or commercialize more effective, safer or more affordable products, or obtain more effective patent protection, than we are able to develop, commercialize or obtain. As a result, our competitors may commercialize products more rapidly or effectively than we do, which would adversely affect our competitive position, the likelihood that our products will achieve market acceptance, and our ability to generate meaningful revenues from our products.

Pre-clinical Research and Clinical Trials

In order to apply for a new medicine certificate, a pharmaceutical company must conduct a series of pre-clinical research including research on the synthesis technology, extraction methods, physical and chemical nature and purity, pharmaceutical forms, selection of prescriptions, manufacturing technologies, examination methods, quality indicators, stability, pharmacology, toxicology and animal pharmacokinetics of pharmaceuticals. This pre-clinical research should be conducted in compliance with the relevant technological guidelines issued by the SFDA. In particular, the safety evaluation research must be conducted in compliance with the Good Laboratory Practice.

After completion of pre-clinical studies and obtaining the relevant approval from the SFDA, clinical trials are conducted in compliance with the Good Clinical Practice. Clinical trials to be conducted range from Phase I to IV, although under certain circumstances, only Phase II and III or only Phase III clinical trials are required.

Phase I — preliminary trial of clinical pharmacology and human safety evaluation studies. The primary objective is to observe the pharmacokinetics and the tolerance level of the human body to the new medicine as a basis for ascertaining the appropriate methods of dosage.
Phase II — preliminary exploration on the therapeutic efficacy. The purpose is to assess preliminarily the efficacy and safety of pharmaceutical products on patients within the target indication of the pharmaceutical products and to provide the basis for the design research and dosage tests for Phase III. The design and methodology of research in this phase generally adopts double-blind and random methods with limited sample sizes.
Phase III — confirm the therapeutic efficacy. The objective is to further verify the efficacy and safety of pharmaceutical products on patients within the target indication of the pharmaceutical products, to evaluate the benefits and risks and finally to provide sufficient experimental proven evidence to support the registration application of the pharmaceutical products. In general, the trial should adopt double-blind, random methods with sufficient sample sizes.
Phase IV — stage of application with research conducted by the applicants themselves after the launch of a new pharmaceutical. The objective is to observe the efficacy and adverse reaction of pharmaceutical products under extensive use, to perform an evaluation of the benefits and risks of the application among ordinary or special group of patients, and to ascertain and improve the appropriate dosage volume for application.

Our prior clinical trials evaluating Indaflex for Osteoarthritis of the knee failed to meet all of their primary endpoints and there can be no assurance this product will be approved for marketing.

In October 2007, our Phase 2 Canadian trials evaluating Indaflex for Osteoarthritis of the knee failed to meet all of their primary endpoints. However, additional analyses demonstrated that patients with moderate to severe pain demonstrated improvements in pain outcomes compared to placebo- and vehicle-treated patients. While these improvements involved only a small subset of patients, the data were robust, showing clinically meaningful improvements. Based on the guidance from Chinese regulatory consultants, we expect to initiate a pivotal human trial for Indaflex in China in mid-2011. The trial will be known as PAIN 3. There can be no assurance the results of the PAIN 3 trial will demonstrate the product candidate is sufficiently safe and effective to obtain Chinese approval for marketing.

We will incur significant additional expenses and will not know for at least one to two years whether the drug is safe and effective such that it could be approved for marketing. Clinical development is a long, expensive and uncertain process and is subject to delays. The positive or encouraging results of prior clinical trial are not necessarily indicative of the results we will obtain in later clinical trials. Accordingly, our PAIN 3 trial may not demonstrate that Indaflex is effective for Osteoarthritis. In addition, data obtained from pivotal clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.

We have limited in-house sales and marketing resources, which we will require in order to successfully promote products through our own sales force.

If Indaflex or another product we develop or acquire is approved for marketing in the China, we may choose to promote the product with our own sale force or through a contract sales organization. The success of our own promotion efforts for Indaflex and any other product candidates that receive regulatory approval that we choose to market or co-market, will require that we substantially enhance our in-house marketing and sales force with technical expertise, or make arrangements with third parties to perform these services for us. The development of the infrastructure associated with these activities involves substantial resources, and considerable attention of our management and key personnel. To the extent that we enter into marketing and sales arrangements with other companies, our revenues will depend on the efforts of others. These efforts may not be successful. If we fail to fully develop marketing and sales capabilities, or enter into arrangements with third parties, our revenues may suffer.

We depend on our marketing partner for the successful commercialization of Indaflex in Mexico.

We have licensed exclusive marketing right to Indaflex in Mexico to Andromaco. Andromaco launched Indaflex in Mexico in June 2006. We expect to expand the license with Andromaco to cover several more countries in South America. If Andromaco fails to successfully commercialize Indaflex in these countries them, our future revenues may be adversely affected.

The global economic downturn may adversely affect our business.

The economic downturn that has affected the global economy over the past several fiscal quarters may have a material adverse effect on our liquidity and financial condition and our ability to raise additional funds, whether pursuant to our existing or future financing arrangements. In addition, if these developments negatively impact the ability of our collaborative partners to develop, manufacture, promote or commercialize our products and product candidates, our revenues may suffer and our business, financial condition and results of operations could be materially and adversely affected. Similarly, any negative impact of an economic downturn or recession on our potential collaborative partners could adversely affect the terms on which collaborative partnerships may be available to us, if at all.

If we are unable to obtain or maintain regulatory approval, we will be limited in our ability to commercialize our products, and our business will be harmed.

The regulatory process is expensive and time consuming. Even after investing significant time and expenditures on clinical trials, we may not obtain regulatory approval of our product candidates. Data obtained from clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval, and the regulatory agency may not agree with our methods of clinical data analysis or our conclusions regarding safety and/or efficacy. Significant clinical trial delays would impair our ability to commercialize our products and could allow our competitors to bring products to market before we do. In addition, changes in regulatory policy for product approval during the period of product development and regulatory agency review of each submitted new application may cause delays or rejections. Even if we receive regulatory approval, this approval may entail limitations on the indicated uses for which we can market a product.

Further, with respect to our approved products, once regulatory approval is obtained, a marketed product and its manufacturer are subject to continual review. The discovery of previously unknown problems with a product or manufacturer may result in restrictions on the product, manufacturer or manufacturing facility, including withdrawal of the product from the market. Manufacturers of approved products are also subject to ongoing regulation, including compliance with regulations governing current Good Manufacturing Practices (cGMP). Failure to comply with manufacturing regulations can result in, among other things, warning letters, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal of the government to renew marketing applications and criminal prosecution.

We depend on third parties to manufacture our products, which could adversely affect our ability to deliver our products to market on a timely or competitive basis.

We do not have, and we do not intend to establish in the foreseeable future, internal commercial scale manufacturing capabilities. Rather, we intend to use the facilities of third parties to manufacture products for clinical trials and commercialization. Our dependence on third parties for the manufacture of our products may adversely affect our ability to deliver such products on a timely or competitive basis. The manufacturing processes of our third party manufacturers may be found to violate the proprietary rights of others. If we are unable to contract for a sufficient supply of required products on acceptable terms, or if we encounter delays and difficulties in our relationships with manufacturers, the market introduction and commercial sales of our products will be delayed, and our future revenue will suffer.

Our disclosure controls & procedures and internal control over financial reporting were ineffective

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of their disclosure controls & procedures and internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of our disclosure controls & procedures and internal control over financial reporting, include in our annual report the results of the evaluation, and have our external auditors publicly attest to such evaluation. If material weaknesses were found in our disclosure controls & procedures and internal controls in the future, if we fail to complete future evaluations on time, or if our external auditors cannot attest to our future evaluations, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our disclosure and internal controls, which could have an adverse effect on our stock price.

In connection with management’s assessment of the Company’s disclosure controls & procedures and internal control over financial reporting, we identified the following material weakness in our disclosure controls & procedures and internal control over financial reporting as of September 30, 2011:

Segregation of Duties: We did not maintain adequate segregation of duties related to job responsibilities for initiating, authorizing, and recording of certain transactions. Due to this material weakness, there is a risk that a material misstatement in the financial statements would not be prevented or detected on a timely basis.

We are subject to currency fluctuations, which may affect our results

The majority of our expenses and some of our debt are in Canadian dollars, while our revenues are primarily U.S. dollars. We also incur expenses in Hong Kong dollars related to our Far East subsidiaries. The fluctuation of the Canadian dollar and Hong Kong dollar vis a vis the U.S. dollar could materially impact our operating results and financial position.

We will require additional financing to sustain our operations, and our ability to secure additional financing is uncertain.

We may be unable to raise on acceptable terms, if at all, the substantial capital resources necessary to conduct our operations. If we are unable to raise the required capital, we may be forced to limit some or all of our research and development programs and related operations, curtail commercialization of our product candidates and, ultimately, cease operations. Our future capital requirements will depend on many factors, including:

.	continued scientific progress in our research programs;
.	progress with preclinical studies and clinical trials;
.	the magnitude and scope of our research and development programs;
.	our ability to establish corporate partnerships and licensing arrangements;
.	the time and costs involved in obtaining regulatory approvals;
.	the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims;
.	the potential need to develop, acquire or license new technologies and products;
.	the continued ability to source loans from our private lenders;
.	our efforts to sell and market our products through licensees, distributors and other partners; and
.	other factors beyond our control.

At September 30, 2011, we had a working capital deficiency of approximately $1,286,815 as compared to a working capital deficiency of $1,146,910 as at September 30, 2010. The independent auditors’ report for the year ended September 30, 2011 includes an explanatory paragraph stating that our recurring losses from operations and working capital levels raise substantial doubt about our ability to continue as a going concern.

We believe that satisfying our long-term capital requirements will require at least the successful commercialization of one of our over-the-counter health care products or one of our prescription drug candidates. Our products may never become commercially successful.

We are subject to industry and government regulation

All of our products, clinical trials, and certain research and development initiatives are regulated by FDA in the United States, and similar governing bodies in Mexico, China and elsewhere. Any changes in regulatory requirements, depth and breadth of clinical trials, provisions, statutes, or regulations could adversely impact the cost and duration of our research and development, product completion and related operations.

Our competitors may include large pharmaceutical companies with superior resources.

We are engaged in a rapidly changing and highly competitive field. To date, we have concentrated our efforts primarily on one pharmaceutical product -- Indaflex – for treating osteoarthritis and other inflammatory indications. Like the market for any pharmaceutical product, the market for treating arthritis and these other indications has the potential for rapid, unpredictable and significant technological change. Competition is intense from specialized biotechnology companies, major pharmaceutical and chemical companies and universities and research institutions. We currently have no products approved for sale in the U.S. If we are successful in obtaining approval for one of our products, our future competitors will have substantially greater financial resources, research and development staffs and facilities, and regulatory experience than we do. Major companies in the field of osteoporosis treatment include Novartis, Wyeth, Merck, Eli Lilly, Aventis, and Procter & Gamble Co. Any one of these potential competitors could, at any time, develop products or a manufacturing process that could render our technology or products non-competitive or obsolete.

Our success depends upon our ability to protect our intellectual property rights.

We filed applications for U.S. patents relating to proprietary drug delivery technologies and formulations that we have invented in the course of our research. To date, three U.S. patents have been issued and other applications are pending. We have also made patent application filings in selected foreign countries. We face the risk that any of our pending applications will not issue as patents. In addition, our patents may be found to be invalid or unenforceable. Our business is also subject to the risk that our issued patents will not provide us with significant competitive advantages if, for example, a competitor were to independently develop or obtain similar or superior technologies. To the extent we are unable to protect our patents and patent applications, our investment in those technologies may not yield the benefits that we expect.

We also rely on trade secrets to protect our inventions. Our policy is to include confidentiality and non-disclosure obligations in all research contracts, joint development agreements and consulting relationships that provide access to our trade secrets and other know-how. However, parties with confidentiality obligations could breach their agreements causing us harm. If a confidentiality or non-disclosure obligation were to be breached, we may not have the financial resources necessary for a legal challenge. If licensees, consultants or other third parties use technological information independently developed by them or by others in the development of our products, disputes may arise from the use of this information and as to the ownership rights to products developed using this information. These disputes may not be resolved in our favour.

We are not aware of infringing on any third party’s patents, nor are we aware of any third party infringing on any of our patents or patent applications.

Our technology, clinical trials, or products could give rise to product liability claims.

Our business exposes us to the risk of product liability claims that are a part of human testing, manufacturing and sale of pharmaceutical products. The administration of drugs to humans, whether in clinical trials or commercially, can result in product liability claims even if our products are not actually at fault for causing an injury. Furthermore, our products may cause, or may appear to cause, adverse side effects or potentially dangerous drug interactions that we may not learn about or understand fully until the drug is actually manufactured and sold. Product liability claims can be expensive to defend and may result in large judgments against us. Even if a product liability claim is not successful, the adverse publicity, time, and expense involved in defending such a claim may interfere with our business. We may not have sufficient resources to defend against or satisfy these claims. Even though our licensees are required to have product liability insurance we may still be subject to product liability claims.

We may be unable to retain key employees or recruit additional qualified personnel.

Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical, and managerial personnel. There is competition for qualified personnel in our business. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical, and managerial personnel in a timely manner would harm our research and development programs and our business.

The market price of our Common Stock is volatile.

The market price of our Common Stock has been, and we expect it to continue to be, highly unstable. Factors, including our announcement of technological improvements or announcements by other companies, regulatory matters, research and development activities, new or existing products or procedures, signing or termination of licensing agreements, concerns about our financial condition, operating results, litigation, government regulation, developments or disputes relating to agreements, patents or proprietary rights, and public concern over the safety of activities or products have had a significant impact on the market price of our stock. We expect such factors to continue to impact our market price for the foreseeable future.

Our Common Stock is classified as a "penny stock" under SEC rules which may make it more difficult for our stockholders to resell our Common Stock.

Our Common Stock is traded on the OTC Bulletin Board. As a result, the holders of our Common Stock may find it more difficult to obtain accurate quotations concerning the market value of the stock. Stockholders also may experience greater difficulties in attempting to sell the stock than if it was listed on a stock exchange or quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market. Because AlphaRx Common Stock is not traded on a stock exchange or on Nasdaq, and the market price of the Common Stock is less than $5.00 per share, the Common Stock is classified as a "penny stock." Rule 15g-9 of the Securities Exchange Act of 1934 imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an "established customer" or an "accredited investor." This includes the requirement that a broker-dealer must make a determination that investments in penny stocks are suitable for the customer and must make special disclosures to the customer concerning the risks of penny stocks. Application of the penny stock rules to our Common Stock could adversely affect the market liquidity of the shares, which in turn may affect the ability of holders of our Common Stock to resell the stock.

We have a significant number of options and warrants outstanding that could be exercised in the future. Subsequent resales of these and other shares could cause the Company’s stock price to decline. This could also make it more difficult to raise funds at acceptable levels, via future securities offerings.

Lack of Independent Directors

We cannot guarantee that our Board of Directors will have a majority of independent directors in the future. In the absence of a majority of independent directors, our executive officers, which are also principal stockholders and directors, could establish policies and enter into transactions without independent review and approval thereof. This could present the potential for a conflict of interest between the Company and its stockholders generally and the controlling officers, stockholders or directors.

Ownership of our Common Stock by Current Officers and Directors

The present officers and directors own approximately 27.75% of the outstanding shares of Common Stock, and are therefore no longer in a position to elect all of our Directors and otherwise control the Company. Any single shareholder or the management group as a whole can no longer control the Company. Stockholders have no cumulative voting rights. (See Security Ownership of Certain Beneficial Owners and Management)

ITEM 1B. UNRESOLVED STAFF COMMENTS

NONE.

ITEM 2. PROPERTIES

AlphaRx is headquartered in Causeway Bay, Hong Kong, where it leases its executive offices from which the Company is managed. A lease was executed with the landlord through October 30, 2012 and the monthly rent payment is $2,190.

ITEM 3. LEGAL PROCEEDINGS

On June 29, 2011, we filed an action in the Ontario Superior Court of Justice, Case No CV-11-42969, captioned AlphaRx Inc. v Joseph Schwarz, Michael Weisspapir, and Nanoessentials Inc for conversion and misuse of our intellectual property and breach of fiduciary duty. None of the allegations have yet been adjudicated as of the date of this annual report.

ITEM 4. (REMOVED AND RESERVED)

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

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

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

		High $	Low $
Fourth Quarter	(Ended September 30, 2011)	0.05	0.03
Third Quarter	(Ended June 30, 2011)	0.06	0.03
Second Quarter	(Ended March 31, 2011)	0.07	0.03
First Quarter	(Ended December 31, 2010)	0.10	0.03
Fourth Quarter	(Ended September 30, 2010)	0.06	0.04
Third Quarter	(Ended June 30, 2010)	0.10	0.03
Second Quarter	(Ended March 31, 2010)	0.13	0.08
First Quarter	(Ended December 31, 2009)	0.16	0.07

The foregoing quotations reflect inter-dealer prices without retail mark-up, markdown or commissions and may not necessarily represent actual transactions.

Records of our stock transfer agent indicate that as of September 30, 2011 there were approximately 69 record holders of our Common Stock. This does not include an indeterminate number of stockholders who may hold their shares in "street name" or in nominee form.

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 - four (24) months will be retained for working capital purposes. 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 stockholders.

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

STOCK OPTION PLANS

At the Annual General Meeting of stockholders held on November 26, 2008 a majority of stockholders approved a new stock option plan - the 2008 Stock Incentive Plan. This plan is generally more restrictive than the preceding plans were. Major amendments to the existing plans reflected in the 2008 Stock Incentive Plan include: (i) combining the 2004 and 2006 Plans for ease of administration; (ii) providing a cap for the number of options to be issued at 22,000,000; (iii) providing guidelines for exercise prices such that the exercise price of any newly granted option is never less than the market value or in the case of a 10%+ holder, never less than 110% of the market value on the date of grant; (iv) providing for a maximum term of 5 years for any option granted; (v) provide for a vesting schedule whereby vesting must occur over at least 18 months with no more than 1/6^th of the options granted vesting in any 3 month period; (vi) providing for the maximum number of options to be granted to any one individual in any 12 month period to be no more than 5% of the issued and outstanding common stock, and (vii) providing for a maximum number of options to be granted to any Investor Relations party to be no more than 2% of the issued and outstanding common stock. Finally, in accordance with the existing Plan we can grant no more than 4,310,000 options regardless of how many options may be exercised or expire.

No options were granted nor were any exercised during the year ended September 30, 2011. There remain 7,940,000 options to purchase shares of Common Stock as of September 30, 2010.

During fiscal 2008 employees, officers and consultants exercised a total of 3,430,000 options at an average exercise price of approximately $0.08 per share and resulting in $274,750 in cash proceeds to the Company. Of these options 700,000 were from the 2000 Plan and had a weighted remaining contractual life of 2.5 years when exercised and 2,730,000 were from the 2004 Plan and had a weighted remaining contractual life of 7.8 years when exercised. Immediately thereafter the remaining options in the 2000 Plan and 2003 Plan were cancelled, with the agreement of the option holders. In addition, and pursuant to an application for listing on the Toronto Venture Exchange, the Company cancelled a total of 7,660,000 options with the agreement of the option holders during fiscal 2008. Also during fiscal 2008, with the agreement of the option holders, the option expiry date for all remaining 2004 Plan options was accelerated to June 30, 2012. All options now expire on or before June 30, 2012.

RECENT SALES OF UNREGISTERED SECURITIES

During fiscal 2011, 1,300,000 units with a value of $65,000 were subscribed by our 2 directors and an arm’s length investor. Each Unit consists of one (1) common share of the Company and one-half (1/2) warrant. Each full warrant offers the subscriber a call to purchase one (1) additional common share of the Company at US$0.075 per warrant before June 30, 2014. The issuance and sale of all of the securities above were exempt from registration under the Securities Act pursuant to exemptions provided by Section 4(2) of the Securities Act as a transaction by the Company not involving any public offering

There remains 95,935,047common stock issued and outstanding as of September 30, 2011

ITEM 6. SELECTED FINANCIAL DATA

Not required for smaller reporting companies.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATONS

The following discussion should be read in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in (1) the Company’s Annual Report on Form 10-K for the year ended September 30, 2011. Readers should carefully review the risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.

As used in this report, the terms "Company," "AlphaRx" "we," "us," and "our," refer collectively to AlphaRx Inc., AlphaRx Canada Limited, our wholly owned subsidiary and 80% of AlphaRx International Holdings Limited.

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe," "the Company believes," "management believes" and similar language. The forward-looking statements are based on the current expectations of the Company and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in this report. Actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them. Investors are also advised to refer to the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.

General

AlphaRx is a specialty pharmaceutical company dedicated to developing therapies to treat and manage pain. Prior to July, 2011, the business of the Company was focused on reformulating FDA approved and marketed drugs using its proprietary site-specific nano drug delivery technology. From 2000 until June 2011, substantial efforts and resources were devoted to understanding our nano drug delivery technology and establishing a product development pipeline that incorporated this technology with selected molecules. On July, 2011 the Board and management adopted a new business plan and believed that it would improve the Company’s performance. The new business plan narrowed down the Company’s focus to developing and commercializing 2 existing product candidates for the pain killer market segment.

Recent Developments

The Company’s nano drug delivery development business model was formed in 2000, substantial efforts and resources were devoted to understanding our nano drug delivery technology and establishing a product development pipeline that incorporated this technology with selected molecules. On July, 2011 the Board and management adopted a new business plan that it believed would improve the Company’s performance. The new business plan narrowed the Company’s focus to developing and commercializing 2 existing product candidates Indaflex and ARX8203 for the pain market.

Principal products

Indaflex

ARX-8203

Requirement for Additional Capital

We estimate that we will need approximately an additional $5M to $10M over the next 18 months for further development of our drug pipeline. These additional funds, if raised, will enable us to perform IND enabling Toxicology Package Studies and additional efficacy studies necessary to prepare the full dataset required for filing Investigational New Drug Application (“IND”) with the US FDA on our drug candidates and to conduct clinical trials thereafter.

The Company has limited experience with pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget. Such changes may also have an adverse impact on our projected timeline of drug development.

Management intends to use capital and debt financing, as required, to fund the Company’s operations. There can be no assurance that the Company will be able to obtain the additional capital resources necessary to fund its anticipated obligations for the next twelve months.

The Company is considered to be a development stage company and will continue in the development stage until it generates substantial revenues from the sales of its products or services.

Research and Development Costs

The Company does not maintain separate accounting line items for each project in development. The Company maintains aggregate expense records for all research and development conducted. Because at this time all of the Company’s projects share a common core material, the Company allocates expenses across all projects at each period-end for purposes of providing accounting basis for each project. Project costs are allocated based upon labor hours performed for each project.

The Company has signed several cooperative research and development agreements with different agencies and institutions.

The Company expects to enter into additional cooperative agreements with other governmental and non-governmental, academic, or commercial, agencies, institutions, and companies. There can be no assurance that a final agreement may be achieved and that the Company will execute any of these agreements. However, should any of these agreements materialize, the Company will implement a system to track these costs by project and account for these projects as customer-sponsored activities and show these project costs separately.

Overview of Results of Operations

The following tables summarize the results of operations for the years ended September 30, 2011 and 2010 and the quarterly results of operations for the past two years:

Year Ended September 30	2011 $		2010 $
Net Sales	183,503		326,345
Net Loss	(265,786	)	(728,038	)
Net Loss Per Share	(0.003	)	(0.01	)

Three Months Ended	Sep 30 2011 $	June 30 2011 $		Mar 31 2011 $		Dec 31 2010 $		Sep 30 2010 $		June 30 2010 $		Mar 31 2010 $		Dec 31 2009 $
Net Sales	77,417	31,866		51,390		22,830		180,432		45,623		48,720		51,570
Net Income (Loss)	150,078	(106,655	)	(111,753	)	(197,456	)	(242,109	)	(157,366	)	(206,078	)	(122,518	)
Net (Income) Loss per Share ⁽¹⁾	0.002	(0.001	)	(0.001	)	(0.002	)	(0.01	)	(0.01	)	(0.01	)	(0.00	)

NOTE⁽¹⁾Net Loss per share on a quarterly basis does not equal net Loss per share for the annual periods due to rounding.

RESULTS OF OPERATIONS

Year ended September 30, 2011 as compared to year ended September 30, 2010

Revenues

Revenues totaled $183,503 for the year ended September 30, 2011 as compared to $326,345 generated for the year ended September 30, 2010, a decrease of $142,842 or about 43.77% . Royalties from Indaflex sales in Mexico decreased to $158,166 from $242,309 generated for the same period a year ago based on a decreased in the minimum royalty payment compared to previous year. We also generated $25,337 in consulting revenues related to product research on behalf of one of our customers during the year ended September 30, 2011 as compared to $84,036 generated for the year ended September 30, 2010, a decrease of $58,699 or about 69.85% . We anticipate generating both royalty revenues and consulting revenues in the new fiscal year.

General and Administrative Expenses

General and administrative expenses were $374,676 for the year ended September 30, 2011 as compared to $795,416 incurred for the same period a year ago, a decrease of $420,740 or about 52.90% .

Stock based compensation was $26,540 for the year ended September 30, 2011 as compared to $262,090 in 2010, a decrease of $235,550 or about 89.87% . There are no further amounts remaining to be amortized related to warrants or options as at September 30, 2011. We anticipate issuance of additional options and warrants in the future, which may result in stock based compensation expense and warrant amortization expense.

General and administrative salary and consulting fees totalled $192,000 for the year ended September 30, 2011 as compared to $174,073 incurred for the same period a year ago, an increase of $17,927 or about 10.30% . Head count in the general and administrative category with 2 full time and 1 part time staff.

We incurred $10,480 in investor relations expenses for the year ended September 30, 2011 as compared to $6,777 incurred in the same period a year ago, an increase of $3,703 or about 54.64% .

We realized a foreign exchange gain of $30,440 for the year ended September 30, 2011 as compared to a foreign exchange loss of $27,408 generated during the same period a year ago, an increase of $57,848 between years.

We incurred travel expenses of $60,854 for the year ended September 30, 2011 as compared to $67,037 incurred during the same period a year ago, a decrease of $6,183 or about 9.20% . Increased travel particularly to China because of the expansion to china market.

Research and Development Expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, outsourced clinical and other research activities, consultants, and other costs directly related to research and development of new and existing products. We are incurring research and development expenses in Canada via our wholly owned subsidiary AlphaRx Canada Ltd. and to a lesser degree in China.

We incurred $16,609 in research and development expenses during the year ended September 30, 2011 as compared to $151,165 incurred in the same period a year ago, a decrease of $134,556 or about 89%.

Research and development staff costs and external consulting services totalled $9,902 for the year ended September 30, 2011 as compared to $86,822, a decrease of $76,920 or about 88.59% . Salary reductions and reduced external consulting services served to reduce this expense when compared to prior year.

Finally equipment leasing for research and development activities totalled $352 during the year ended September 30, 2011 as compared to $2,194, a reduction of $1,842 or about 83.96% . All equipment leases have come to the end of their lease term during the year ended September 30, 2010.

During 2009 we focused our research and development efforts on Vancomycin, Idebenone, Mebicar, and Iodoantipyrine. Activities primarily related to formulations, and analytical development and testing.

During 2008 we incurred research and development expenses related to completing animal testing with Zysolin™, as well as continued research and development with Vancomycin, Tobramycin, Gentamycin and Doxycycline.

We anticipate continued spending on research and development in the future. The degree and pace of expenditures will depend primarily on financial resources available to us.

Depreciation Expense

Depreciation expense totalled $33,698 for the year ended September 30, 2011 as compared to $39,503 incurred for the same period a year ago, a decrease of $5,805 or about 14.70% .

Interest Expense

We incurred $103,872 in net interest expense during 2011 as a result of our borrowings and the issuance of promissory notes yielding interest ranging from 10% - 12% per annum. This compares to $92,062 incurred during 2010 an increase of $11,810 or about 12.83% . We will continue to seek funding in the form of Promissory Notes, which will result in ongoing interest expense until more permanent equity or other forms of funding are sourced.

Loss from Continuing Operations and Net Loss

As a result of the above revenues and expenses, we incurred a loss from continuing operations of $262,060 for the year ended September 30, 2011 as compared to $751,801 incurred loss for the same period a year ago, a decrease of $489,741 or about 65.14% . Revenues decreased by $142,842 and expenses decreased by $549,291 in the year ended September 30, 2011 as compared to the previous year.

Cumulative Translation Adjustment and Comprehensive Loss

The cumulative translation adjustment (“CTA”) stems from unrealized foreign exchange gains and losses resulting from translation of foreign currency subsidiaries into U.S. dollars. Although the CTA is reflected in the statement of operations, it is reflected after the net loss and flows into stockholders’ equity/ (deficiency) directly. The CTA was a $3,726 loss for the year ended September 30, 2011 as compared to a gain of $33 for the year ended September 30, 2011. Netting the CTA against the Net Loss for the year results in comprehensive loss of $(265,041) for the year ended September 30, 2011 as compared to a comprehensive loss of $(728,038) incurred for the year ended September 30, 2010.

Liquidity And Capital Resources

At September 30, 2011, we had a working capital deficiency of approximately $1,286,815 as compared to a working capital deficiency of $1,146,910 as at September 30, 2010. We have licensing arrangements with Andromaco which provides our royalty of our products. We also generate certain consulting revenues from time to time in conjunction with our research and development. We continue to seek out licensing and royalty arrangements and distribution arrangements with established and experienced partners in order to expand our revenue base.

Immediate capital needs are sourced via directors’ loans and other private sources. Since inception, we have financed operations primarily from the issuance of Common Stock. We expect to continue Common Stock issuances and issuance of promissory notes to fund our ongoing activities.

We currently do not have sufficient resources to complete the commercialization of all of our proposed products or to carry out our entire business strategy. Therefore, we will need to raise 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 will be dilutive to our existing stockholders, and debt financing, if available, may involve restrictive covenants on our business and also the issuance of warrants or conversion features which may further dilute our existing stockholders.

We expect to continue to spend capital on:

1.	research and development programs;
2.	preclinical studies and clinical trials;
3.	regulatory processes; and
4.	sales and marketing activities related to establishing collaborative, licensing and distribution agreements.

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 licensing and similar marketing arrangements in order to generate royalty and license fee revenues;
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.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are material and which, in our opinion, could become material in the future.

Contractual Obligations and Commitments

Excluding accounts payable and accrued liabilities, the Company is committed to the following contractual obligations and commitments.

		2011		2012		2013	2014	2015
Operating Lease Obligations	$	2,705	$	5,882	$	-	-	-
Notes Payable (1)		856,908		-		-	-	-
Total	$	859,613	$	5,882	$	-	-	-

(1) These notes are unsecured and include accrued interest accruing at rates ranging from 8% -12% per annum.

Certain Factors that may Affect Future Results

Certain of the information contained in this document constitutes “forward-looking statements”, including but not limited to those with respect to the future revenues, our development strategy, involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risks and uncertainties associated with a drug delivery company 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements for the fiscal years ending September 30, 2011 and 2010, required by Item 7 are set forth on pages F-1 through F-21.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On December 16, 2010, Schwartz Levitsky Feldman LLP ("SLF") resigned as the independent accountant of AlphaRx, Inc. (the "Company"). The Board of Directors acting in the capacity of an audit committee approved the dismissal of SLF.

SLF’s reports on the Company’s financial statements for the years ended September 30, 2009 and 2008 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles except that the reports for both years indicated that the Company is under development, has suffered significant operating losses, and is dependent upon its stockholders to provide sufficient working capital to meet its obligations and sustain its operations. Accordingly, such reports indicated that there was substantial doubt as to the Company’s ability to continue as a going concern and that the financial statements did not include any adjustments that might result from the outcome of this uncertainty.

During the years ended September 30, 2009 and 2008 and through December 16, 2010, there were no disagreements with SLF on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of SLF, would have caused it to make reference thereto in connection with its reports on the financial statements for such years. During the years ended September 30, 2009 and 2008 and through December 16, 2010, there were no matters that were either the subject of a disagreement as defined in Item 304(a)(l)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(l)(v) of Regulation S-K.

The Company provided SLF with a copy of the foregoing disclosures and requested SLF to furnish the Company with a letter addressed to the Securities and Exchange Commission stating whether or not SLF agrees with the disclosures.

On December 17, 2010, the Company’s Board of Directors acting in the capacity of an audit committee engaged Albert Wong & Co. ("AWC") as the Company’s new independent accountant to act as the principal accountant to audit the Company’s financial statements. During the Company’s fiscal years ended September 30, 2009 and 2008 and through November 15, 2010, neither the Company, nor anyone acting on its behalf, consulted with AWC regarding the application of accounting principles to a specific completed or proposed transaction or the type of audit opinion that might be rendered on the Company’s financial statements, and no written report or oral advice was provided that AWC concluded was an important factor considered by the Company in reaching a decision as to any such accounting, auditing or financial reporting issue.

ITEM 9A. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined in Rules 13a-15e promulgated under the Exchange Act as of this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report to provide reasonable assurance that material information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

Management is aware that there is a lack of segregation of certain duties at the Company due to the small number of employees with responsibility for general administrative and financial matters. This constitutes a deficiency in financial reporting. However, at this time, management has decided that considering the employees involved and the control procedures in place, the risks associated with such lack of segregation of duties are insignificant and the potential benefits of adding additional employees to clearly segregate duties do not justify the additional expenses associated with such increases. Management will periodically reevaluate this situation. If the volume of business increases and sufficient capital is secured, it is the Company’s intention to further increase staffing to mitigate the current lack of segregation of duties within the general, administrative and financial functions.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f), and for the assessment of the effectiveness of internal control over financial reporting. As defined by the Securities and Exchange Commission, internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles.

Our internal control over financial reporting is supported by policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Management’s Report on Internal Control over Financial Reporting

Management assessed our internal control over financial reporting as of September 30, 2011, the end of our fiscal year. Management based its assessment on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of those controls.

Based on this assessment, management has concluded that as of September 30, 2011, our internal control over financial reporting was ineffective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only Management’s report in this Form 10-K.

Management is aware that we have a lack of segregation of certain duties due to the small number of employees with responsibility for general administrative and financial matters. This constitutes a deficiency in financial controls. However, at this time, management has decided that considering the employees involved and the control procedures in place, the risks associated with such lack of segregation of duties are insignificant and the potential benefits of adding additional employees to clearly segregate duties do not justify the expenses associated with such increases. Management will periodically reevaluate this situation. If the volume of business increases and sufficient capital is secured, it is our intention to further increase staffing to mitigate the current lack of segregation of duties within the general, administrative and financial functions.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Such limitations include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures, such as simple errors or mistakes or intentional circumvention of the established process.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2011, there were no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that was conducted during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the names and ages of our current directors and executive officers, their principal offices and positions and the date each such person became a director or executive officer. Executive officers are elected annually by our Board of Directors. Each executive officer holds his office until he resigns, is removed by the Board or his successor is elected and qualified. Directors are elected annually by our stockholders at the annual meeting. Each director holds his office until his successor is elected and qualified or his earlier resignation or removal.

The following persons are the directors and executive officers of our company:

Name	Age	Position	Term
Michael M. Lee	48	Chairman of the Board of Directors Chief Executive Officer, Chief Financial Officer	since 8/8/1997
Sandro Persia	41	Secretary/Treasurer
Dr. David Milroy	60	Director	since 4/15/2003
Dr. Ford Moore	60	Director	Since 4/15/2003

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. Mr. Lee holds a B.Sc. in Applied Mathematics from the University of Western Ontario. Mr. Lee founded the company in August 1997.

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 Seneca College based in Toronto.

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

Ford Moore, D.D.S. F.R.C.D. (C): Dr. Moore is a certified Oral & Maxillofacial Surgeon, is engaged in a full-time private practice in Newmarket, Ontario that he established in 1981. Dr. Moore graduated from the University of Toronto with a Doctor of Dental Surgery degree in 1976, and completed a hospital Residency in Oral Surgery and Anesthesia at Toronto General Hospital, Toronto Doctor’s Hospital and the University of Toronto in 1980.

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.

Compensation of Directors

Our directors did not receive any compensation for the year ended September 30, 2010 or 2009. 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.

Board of Directors Committees

We were not able to attract an independent director with financial experience to sit on our board. Based on the size of the organization – six full time employees, and 2 part time consultants, effective controls over financial reporting and internal financial controls can still be effectively maintained without an audit committee. The board of directors has not yet established a compensation committee.

Audit Committee

Although its By-laws provide for the appointment of one, the Company is not yet required to have an Audit Committee as a result of the fact that our common stock is not considered a “listed security” as defined in Rule 10A-3 of the Exchange Act. There are currently no audit committee members that meet the criteria of “Financial Expert”, however the company is actively working to appoint a “Financial Expert” in the current year.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires directors, officers and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and change in ownership with the Securities and Exchange Commission. Directors, officers and greater than 10% stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

Based solely upon our review of the copies of such forms that we received during the fiscal year ended September 30, 2010, we believe that each person who at any time during the fiscal year was a director, officer, or beneficial owner of more than ten percent of our Common Stock complied with all Section 16(a) filing requirements during such fiscal year.

CODE OF ETHICS

We have not adopted a formal code of ethics at this time, as our focus has been on our product development and enhancement. We do follow what are considered proper business ethics and labour law in Canada ensures that our employees are treated with a minimum standard of care and consideration.

ITEM 11. 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, 2011, 2010 and 2009 and each other executive officer of the Company who received compensation in excess of $40,000 for services rendered during any of those years ("named executive officers").

				LONG TERM
NAME AND				COMPENSATION
PRINCIPAL POSITION	YEAR	SALARY ($)	BONUS ($)	SECURITIES
				UNDERLYING
				OPTION (#)
Michael M. Lee President & C.E.O.	2011	120,000	0	0
	2010	120,000	0	0
	2009	50,504	0	0

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, 2011 by the named executive officers. Value of unexercised options is considered to be the difference between exercise price and market price of $0.06 per share on September 30, 2011. No options were exercised by the named executive officers during fiscal 2011.

				Value of Unexercised
			Number of Exercisable	In-The-Money Options
			Options at Fiscal Year-	at
			End (#)	Fiscal Year-End ($)
	Shares acquired on	Value Realized (1)	Exercisable/	Exercisable/
Name	exercise (#)	($)	Unexercisable	Unexercisable
Michael M. Lee	-	-	7,000,000/0	0/0

1. The value realized is the difference between Fair Market Value of the underlying stock at the time of exercise and the exercise price.

2000 and 2003 Stock Option Plans - cancelled

After the exercising of options to purchase 700,000 shares of Common Stock on December 27, 2007 at an exercise price of $0.10, the 2000 Stock Option Plan was cancelled with the agreement of the option holders. Similarly the 2003 Stock Option Plan was cancelled in December 2007 with the agreement of the option holders. A total of 1,020,000 options to purchase Common Stock were cancelled under these plans.

2004 and 2006 Stock Option Plans - combined into the 2008 Stock Option Plan

The 2004 and 2006 Plans are administered by the board of directors, which determines which directors, officers, employees, consultants, scientific advisors and independent contractors of the Company are to be granted options, the number of shares subject to the options granted, the exercise price of the options, and certain terms and conditions of the options. The board of directors may delegate administration of the 2004 and 2006 Plans, including the power to grant options to persons who are not officers or directors of the Corporation, to a Stock Option Committee, composed of members of the board of directors. The board of directors, in its sole discretion, may amend, modify or terminate the 2004 and 2006 Plans at any time without restriction. However, no amendment may, without stockholder approval, increase the total number of shares of stock, which may be issued under the 2004 and 2006 Plans (other than increases to reflect stock dividends, stock splits or other relevant capitalization changes). There were 26,000,000 authorized shares of our Common Stock that are not issued or outstanding, reserved for implementation of the 2004 and 2006 Plans.

Options to purchase 2,730,000 shares of Common Stock were exercised on December 27, 2007 at an exercise price of $0.075. Immediately thereafter 6,640,000 options to purchase shares of Common Stock were cancelled with the agreement of the option holders.

2008 Stock Option Plan

At the Annual General Meeting of Stockholders held November 26, 2008 a majority of stockholders approved the amendment of our Stock Option Plans. The key changes reflected in the 2008 Plan: (i) combine the 2004 and 2006 Plans (the only remaining plans) into one plan for ease of administration; (ii) provide for a cap for the number of options allowed to be issued at 22,000,000; (iii) provide guidelines for exercise prices such that the exercise price of any newly granted option is never less than market value or in the case of any 10% holder, never less than 110% of market value on the day of grant; (iv) provide for a maximum term of 5 years for any option granted; (v) provide for a vesting schedule whereby vesting must occur over at least 18 months with no more than 1/6^th of the options granted vesting in any 3 month period; (vi) provide for a maximum number of options to be granted to any one individual in any 12 month period to be no more than 5% of the issued and outstanding common stock; and (vii) provide for a maximum number of options to be granted to any Investor Relations party to be no more than 2% of the issued and outstanding common stock.

These changes provide for more restrictions as to the issuance of stock options than exist under the present 2004 and 2006 Plans. Secondly the combination of the two existing plans will result in less administration effort and fewer administrative costs. The above summary of the 2008 Plan is qualified in all respects by reference to the full text of the 2008 Plan, which was filed together with our Proxy Statement on or about October 1, 2008.

Equity Compensation Plan Information

			Number of securities remaining
			available
	Number of Securities to be issued	Weighted- Average Exercise	for future issuance under equity
	upon exercise of	Price of	compensation plans
	outstanding options, warrants, and	outstanding options, warrants,	(excluding securities reflected in
	rights	and rights	the first two columns

Equity Compensation Plans Approved by Security Holders	7,940,000	$0.155	4,310,000 *
Equity Compensation Plans Not Approved by Security Holders	None	None	None
Total**	7,940,000	$0.155	4,310,000

* This amount represents options made available to management, employees and consultants as approved by stockholders at the Annual General Meeting held November 26, 2008. None of these options have been granted to date.

** The total number of shares of Common Stock that may be issued equals 18,570,000, which is less than the 22,000,000 maximum number that may be issued in accordance with the 2008 Plan. Once options have been exercised the maximum allowed to be issued is reduced accordingly. (22,000,000 less 3,430,000 exercised during fiscal 2008 = 18,570,000)

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

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 5% of the Company’s Common Stock. The total number of shares authorized is 250,000,000 shares of Common Stock, each of which has a par value of $0.0001. As of September 30, 2011 there were 95,935,047 shares of Common Stock issued and outstanding.

Name and Address	Amount and Nature of	Percent of
Of Owner	Beneficial Owner	Class
Michael Lee ⁽¹⁾	19,089,689 shares	19.90%
Ford Moore ⁽³⁾	4,558,179 shares	4.75%
David Milroy ⁽³⁾	2,956,933 shares	3.08%
Sandro Persia ⁽²⁾	18,000 shares	0.02%
All directors and officers as a group (4 persons)	26,622,801 shares	27.75%

⁽¹⁾Director and Officer; ⁽²⁾Officer; ⁽³⁾Director

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Mr. Lee, CEO and director loaned us $9,540 during the year ended September 30, 2011. Interest accrued on all loans outstanding to Mr. Lee totalled $17,509 as of September 30, 2011. The Company also repaid $3,816 in principal to extinguish one of the Promissory Notes owing to Mr. Lee during fiscal 2011.

Except as disclosed above, during the past two years, there have been no other material transactions, series of similar transactions or currently proposed transactions, to which the Company was or is to be a party, 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 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees: For the year ended September 30, 2011 we incurred $14,000 in external audit fees, and quarterly reviews in connection with statutory and regulatory filings to our principal accountants as compared to approximately $22,600 for the year ended September 30, 2010.

Audit-Related Fees: For the years ended September 30, 2011 and 2010 we incurred no fees for assurance and related services by the principal accountant.

Tax Fees: For the year ended September 30, 2011 and September 30, 2010 we incurred NIL tax fees with our principal accountants.

All Other Fees: For the year ended September 30, 2011 we incurred NIL in other fees with our principal accountants related to our application to the Toronto Stock Exchange – Venture market (for the year ended September 30, 2009 we incurred $1,613).

Audit Committee’s Pre-Approval Policies and Procedures: The Company currently does not have a designated Audit Committee, and accordingly, the Company’s Board of Directors policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. The independent auditors and management are required to periodically report to the Company’s Board of Directors regarding the extent of the services to be provided. Pre-approval is generally provided prior to the service commencing.

PART IV

ITEM 15. EXHIBITS

Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits beginning after Item 14 of this Form 10-K, which is incorporated herein by reference.

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: December 9, 2011

ALPHARx, INC.

By: /s/ Michael M. Lee
Michael M. Lee, President and
Chief Executive Officer

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

DATED: December 9, 2011

ALPHARx, INC.

Directors:

/s/ Michael M. Lee
Michael M. Lee, Director and
Chairman of the Board

/s/ David Milroy
David Milroy, Director

/s/ Ford Moore
Ford Moore, Director

INDEX TO EXHIBITS

EXHIBIT NO.	DESCRIPTION

3(i)(a)	Certificate of Incorporation dated August 8, 1997 (incorporated by reference to the Form 10-KSB filed on June 16, 2000).
3(i)(b)	Amendment to Certificate of Incorporation dated January 26, 2000 (incorporated by reference to the Form 10- KSB filed on June 16, 2000).
3(i)(c)	Amended and Restated Certificate of Incorporation dated July 20, 2000 (incorporated by reference to the Form 10-KSB filed on December 31, 2001).
3(ii)	Bylaws dated August 11, 1997 (incorporated by reference to the Form 10-KSB filed on June 16, 2000).
10.1	2000 Stock Option Plan adopted June 20, 2000 (incorporated by reference to the Form 10-KSB filed on December 31, 2001).
10.2	Manufacturing and Distribution License Agreement with Industria Farmaceutica Andromaco, S.A. de C.V. (incorporated by reference to the Form 10KSB filed on July 8, 2005).
10.3	2004 Stock Option Plan adopted March 29, 2005 (incorporated by reference to the 10KSB filed on December 29, 2005)
10.4	2006 Stock Option Plan adopted March 29, 2006 (incorporated by reference to the 10KSB filed on December 21, 2006)
10.5	2008 Stock Option Plan adopted November 26, 2008 (incorporated by reference to the 10K filed on December 22, 2008)
31.1	Certification of C.E.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Interim C.F.O. Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Michael Lee pursuant to Section 1350 of Chapter 63 of Title 18 United States Code.
32.2	Certification of Michael Lee pursuant to Section 1350 of Chapter 63 of Title 18 United States Code.

ALPHARx, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND 2010

TABLE OF CONTENTS

CONSOLIDATED FINANCIAL STATEMENTS FOR 2011 AND 2010	PAGE (S)

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS	F-2
CONSOLIDATED BALANCE SHEETS FOR 2011 AND 2010	F-3
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS FOR 2011 AND 2010	F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY FOR 2011 AND 2010	F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR 2011 AND 2010	F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	F-7-18

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of AlphaRx, Inc. (incorporated in the State of Delaware) as at September 30, 2011 and the related consolidated statements of operations and comprehensive loss, cash flows and stockholders’ deficiency for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AlphaRx, Inc. as at September 30, 2011 and the results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles in the United States of America.

The company is not required to have nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal controls over financial reporting. Accordingly, we express no such opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Should the Company be unable to continue as a going concern, certain assets and liabilities will have to be adjusted to their liquidation values.

	ALBERT WONG & CO
Hong Kong, China	Certified Public Accountants
December 9, 2011

F - 2

ALPHARx, INC.
CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 2011 AND, 2010
(All amounts in US Dollars)

		2011			2010
CURRENT ASSETS
Cash and Cash Equivalents	$	30,386		$	16,264
Accounts Receivable (Note 3)		44,741			147,839
Deferred Financing Cost		25,000			0
Prepayment		1,942			0
TOTAL CURRENT ASSETS		102,069			164,103

PROPERTY, PLANT and EQUIPMENT, net (Note 4)		9,790			43,078

TOTAL ASSETS		111,859			207,181

CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities (Note 5)		531,975			520,342
Notes Payable (Note 6)		856,909			790,671
Deferred Revenue		0			0
TOTAL CURRENT LIABILITIES		1,388,884			1,311,013

Going Concern (Note 1)
Commitments (Note 8)
Related Party Transactions (Note 13)

STOCKHOLDERS’ DEFICIENCY
Common Stock: $ 0.0001 par value, Authorized: 250,000,000 shares; Issued and outstanding September 30, 2011: 95,935,047 and 2010: 94,635,047(Notes 9,11,12)		9,594			9,464
Additional paid-in capital		17,593,112			17,500,855
Deficit		(19,045,635	)		(18,789,891	)
Accumulated Other Comprehensive Loss		(5,265	)		(2,284	)
Non-controlling Interest (Note 7)		171,169			178,024

TOTAL DEFICIENCY		(1,277,025	)		(1,103,832	)

TOTAL LIABILITIES AND DEFICIENCY	$	111,859		$	207,181


Signed: Michael Lee		Signed: Dr. Ford Moore
Director		Director

The accompanying notes are an integral part of these consolidated financial statements

F - 3

ALPHARx, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010
(All amounts in US Dollars)

		2011			2010
License Fees and Royalties	$	158,166		$	242,309
Consulting Revenues		25,337			84,036
TOTAL REVENUES		183,503			326,345
General and Administrative Expenses		374,676			795,416
Research and Development Expenses		16,609			151,165
Depreciation		33,698			39,503
LOSS FROM OPERATIONS		(241,480	)		(659,739	)
OTHER INCOME
Other Income		83,292			-
OTHER EXPENSES
Interest Expense, net		(103,872	)		(92,062	)
LOSS BEFORE INCOME TAXES		(262,060	)		(751,801	)
Income Tax (Note 10)		-			-
Net Loss		(262,060	)		(751,801	)
Translation Adjustment		(3,726	)		33
Comprehensive Loss		(265,786	)		(751,768	)
Less: Comprehensive Loss attributable to Non-Controlling Interests		(745	)		23,730
Comprehensive Loss Attributable to AlphaRx Inc. Stockholders		(266,531	)		(728,038	)
Per Share Data
Net Loss Per Share, basic and diluted	$	(0.003	)	$	(0.008	)
Weighted Average Number of Common Shares Outstanding		94,802,444			94,635,047

The accompanying notes are an integral part of these consolidated financial statements

F - 4

ALPHARx, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010
(All amounts in US Dollars)

	Common Stock
							Accumulated						Total
					Additional		Other						AlphaRx Inc.			Non-
	Number of				Paid in		Comprehensive						Stockholders’			controlling			Total
	Shares		Amount		Capital		Loss			Deficiency			Deficiency			Interest			Deficiency
Balance as of September 30, 2010	94,635,047	$	9,464	$	17,500,855	$	(2,284	)	$	(18,789,891	)	$	(1,281,856	)	$	178,024		$	(1,103,832	)
Share based compensation					26,540								26,540						26,540
Stock issued	1,300,000		130		64,870								65,000						65,000
Foreign Currency Translation							(2,981	)					(2,981	)		(745	)		(3,726	)
Non- controlling interest																(15,542	)		(15,542	)
Net Loss for the period										(246,518	)		(246,518	)					(246,518	)
Translation adjustment					847					(9,226	)		(8,379	)		9,432			1,053
Balance as of September 30, 2011	95,935,047	$	9,594	$	17,593,112	$	(5,265	)	$	(19,045,635	)	$	(1,448,194	)	$	171,169		$	(1,277,025	)

The accompanying notes are an integral part of these consolidated financial statements

F - 5

ALPHARx, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2011 AND 2010
(All amounts in US Dollars)

		2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$	(262,060	)	$	(751,801	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		33,698			39,503
Stock based compensation		26,540			262,090
Changes in assets and liabilities:
Prepaid		(1,941	)		-
Deferred Financing Cost		(25,000	)		-
Decrease/(Increase) in Accounts Receivable		103,098			(105,509	)
(Decrease) Increase in Accounts Payable and Accrued Liabilities		11,633			105,473
Accrued Interest on Notes Payable		152,377
Increase (Decrease) in Deferred Revenue		-			(35,000	)
Non-Controlling Interest		(6,855	)		99,511
NET CASH USED IN OPERATING ACTIVITIES		31,490			(385,733	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Machinery and Equipment		(409	)		(4,344	)

NET CASH USED IN INVESTING ACTIVITIES		(409	)		(4,344	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock		64,870			186,916
Additional Paid-In Capital		847
Issuance (repayment) of Notes Payable, net		(86,138	)		205,387

NET CASH PROVIDED BY FINANCING ACTIVITIES		(20,421	)		392,303

Effect of exchange rate changes on cash and cash equivalents		3,462			32
NET INCREASE (DECREASE) IN CASH		14,122			2,258
CASH and cash equivalents, beginning of year		16,264			14,006

CASH and cash equivalents, end of year	$	30,386		$	16,264

SUPPLEMENTARY DISCLOSURE:

Income Tax Paid	$	-		$	-
Interest Paid	$	754		$	2,119

The accompanying notes are an integral part of these consolidated financial statements

F - 6

ALPHARX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2011 AND 2010
(All amounts in US Dollars)

NOTE 1. NATURE OF BUSINESS AND GOING CONCERN

ALPHARX, INC. (the “Company”) was incorporated under the laws of the State of Delaware on August 8, 1997. AlphaRx Inc. is an emerging pharmaceutical company specializing in the formulation of therapeutic products using proprietary drug delivery technologies.

Effective June 30, 2006, AlphaRx International Holdings Limited (a British Virgin Island company and an 80% owned subsidiary of AlphaRx Inc.) (“AIH”) acquired 100% of Alpha Life Sciences Ltd. (“ALS”) for a nominal amount and the assumption of approximately $63,000 of related party liabilities. ALS is primarily involved in research and development of drugs in the Asian market.

Effective June 22, 2006, New Super Limited, an independent Hong Kong based corporation, subscribed for 1,500 shares of Common Stock of AIH, previously a wholly-owned subsidiary of the Company.

The consolidated financial statements reflect the activities of the Company, 100% of AlphaRx Canada Limited and 85% of AIH and ALS (AIH’s wholly-owned subsidiary) accounted for on a self-sustained basis. All material inter-company accounts and transactions have been eliminated. Where the Company owns less than 100% of a consolidated entity the net assets belonging to the minority owners are accounted for as a non-controlling interest.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, they do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Factors relating to going concern issues include working capital deficiency, operating losses, stockholders’ deficit, and continued reliance on external funding sources. Continuance of the Company as a going concern is dependent on its future profitability and on the on-going support of its stockholders, affiliates and creditors. In order to mitigate the going concern issues, the Company is constantly pursuing new business arrangements and striving to achieve profitability, and seeking capital funding on an ongoing basis via the issuance of Promissory Notes, and private placements. The Company has contracted with several parties for research and development consulting services that could also result in future license fees and royalties. The Company has one licensee that provides an ongoing royalty stream for its Indaflex product. The Company is constantly seeking out collaborative arrangements with third parties in anticipation of license fees, royalties, milestone payments and consulting services.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies is presented to assist in understanding the Company’s consolidated financial statements. The consolidated 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 in the United States of America and have been consistently applied in the preparation of the consolidated financial statements.

F - 7

Cash and Cash Equivalents

Cash includes cash on hand, and amounts on deposit with banks. Cash equivalents include any other highly liquid cash investments purchased with maturity of three months or less which are readily convertible to cash. The carrying amount approximates fair value because of the immediate liquidity or short maturity of these instruments. As at September 30, 2011 and 2010 the Company had only cash on deposit and petty cash on hand.

Accounts Receivable

The Company segregates trade receivables resulting from revenues generated from non-trade or other receivables. An allowance for bad debts is estimated for each type of receivable on a periodic basis based on experience with the respective parties.

Financial Instruments

a) Fair Value

Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of judgement, they cannot be determined with complete accuracy. Changes in assumptions can significantly affect estimated fair values. The carrying values of cash, accounts receivable, notes payable, accounts payable, and accrued liabilities approximate their fair values because of the short-term nature of these instruments.

b) Interest rate, currency and credit risk

The Company is not subject to significant credit and interest risks arising from these financial instruments. The Company may be subject to significant currency risk as some of the external promissory notes are denominated in Canadian dollars or Hong Kong dollars.

Long-Term Financial Instruments

The fair value of each of the Company’s long-term financial assets is based on the amount of future cash flows associated with each instrument discounted using an estimate of what the Company’s current borrowing rate for similar instruments of comparable maturity would be.

It is of the management’s opinion that the Company is not exposed to significant interest rate risk, credit risk or currency risks arising from these financial instruments.

Foreign Currency Translation

The Company maintains the books and records of AlphaRx Canada Ltd. in Canadian dollars, and the books and records of Alpha Life Sciences Ltd. and AlphaRx International Holdings Ltd. in Hong Kong dollars, their respective functional currencies. The records of these companies are converted to US dollars, the reporting currency. The translation method used is the current rate method. Under the current rate method all assets and liabilities are translated at the current rate, stockholders’ equity accounts are translated at historical rates and revenues and expenses are translated at average rates for the year. Cumulative net translation adjustments related to equity accounts are included as a separate component of stockholders’ deficiency.

F - 8

Earnings or Loss Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus Common Stock equivalents (if dilutive) related to stock options and warrants for each year.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statement or tax returns. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities.

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

Property Plant and Equipment

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

	Furniture and Fixtures	7 years
	Machinery and Equipment	3 - 7 years
	Leasehold Improvements	10 years

The Company capitalizes expenditures that materially increase assets’ lives and expenses ordinary repairs and maintenance to operations as incurred. When assets are sold or disposed or otherwise fully depreciated, the cost and related accumulated depreciation is removed from the accounts and any gain or loss is included in the statement of income and retained earnings.

Research and Development

All research and development costs are charged to expense as incurred. These costs include in house and contracted research and development, travel to explore and evaluate new product candidates, raw materials, lab supplies and other costs related directly to research and development of new and existing drug product candidates.

Revenue Recognition

Revenues related to license fees and royalties are recognized when persuasive evidence of an arrangement exists, the fee is fixed or determinable, and collectability is probable. Should there be any future obligations or deliverables related to the license fees, revenue is deferred and recognized only when those obligations and or deliverables have been satisfied. Any advance payments or deposits received in relation to license fees and other fees are deferred until those obligations or deliverables have been satisfied. Royalty payments are not received in advance but rather, are paid to the Company based on previous period sales by licensees. Royalty revenue is accrued in the period earned based on estimates or actual licensed sales during the period in question. Consulting revenues are recognized as the services are rendered to the customer, and invoiced a periodic basis or upon completion of the consulting services depending on contract terms and conditions.

F - 9

Sales represent the invoiced value of goods supplied to customers. Revenues are recognized upon the passage of title to the customers, provided that the collection of the proceeds from sales is reasonably assured. A reserve for returns is considered periodically based on actual or anticipated returns from customers. The Company no longer sells any products directly to end-users.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates in amounts than may be material to the consolidated financial statements. Management believes that these estimates and assumptions used are reasonable. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known. Estimates were used in determining the amounts of accrued liabilities, useful lives of property plant and equipment, stock based compensation, and valuation allowances.

Long-Lived Assets

The Company reviews long-lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During the year management determined that an impairment test was necessary and used its best estimate of the undiscounted cash flows to evaluate the carrying amount and have determined that no impairment has occurred.

Concentrations of Credit Risks and Revenues

The Company’s receivables are unsecured and are generally due in 30 Days. Reserves for uncollectible receivables are determined by the Company periodically based on best estimates available and historical data, as well as the economic and financial status of its debtors. Investment in marketable securities carry normal market risk of fluctuation in the price of securities traded on recognized stock exchanges as well as liquidity and foreign exchange risks.

Currently, the Company does not have a diverse customer base. The Company relies on one licensee for all of its royalty revenues and has another licensee attempting to commercialize one of its product candidates. Should these licensees discontinue sales of our products, or should commercialization efforts of our product candidates be curtailed, our revenues could be adversely impacted.

Investment in Joint Venture

The Company holds an indirect 42.5% interest in AlphaAP Inc. (“AAP”), a joint venture established between the Company (via its AIH subsidiary) and Basin Industrial Limited (an independent third party). As the Company contributes no funds, and does not provide management or direction to the joint venture, the Company’s interest in the joint venture is not consolidated into the financial statements. AIH will receive a 5% royalty on all revenues generated by AAP. This joint venture is currently inactive.

Stock Based Compensation

The Company recognizes compensation cost for third party and employee services rendered in exchange for an equity instrument award based on the fair value of the award on the date of grant. The Company uses the Black-Sholes option-pricing model in determining the fair value of options and warrants. In determining the expected volatility, the Company bases this assumption on the historical volatilities of the Company’s common stock over the expected life of the stock acquisition rights.

F -10

Comprehensive Income

Comprehensive income is net income plus certain items that are recorded directly to stockholders’ equity, bypassing net income. With the exception of foreign exchange gains and losses, the Company has no other components in its comprehensive income (loss) accounts.

Recent Issued Standards

In April 2011, the FASB issued ASU 2011-03, Consideration of Effective Control on Repurchase Agreements, which deals with the accounting for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. ASU 2011-03 changes the rules for determining when these transactions should be accounted for as financings, as opposed to sales. The guidance in ASU 2011-03 is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not expected to have a material impact on the Company’s financial condition or results of operation.

In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU 2011-04 clarifies some existing concepts, eliminates wording differences between U.S. GAAP and IFRS, and in some limited cases, changes some principles to achieve convergence between U.S. GAAP and IFRS. ASU 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS. ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. ASU 2011-04 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-04 to have a material effect on its operating results or financial position.

In June 2011, the Financial Accounting Standard Board (“FASB”) issued Accounting Standard Update (“ASU”) 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 will be effective for the Company beginning after December 15, 2011. The Company does not expect the adoption of ASU 2011-05 to have a material effect on its operating results or financial position. However, it will impact the presentation of comprehensive income.

In September 2011, the FASB has issued Accounting Standards Update (ASU) No. 2011-08, Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment. ASU 2011-08 is intended to simplify how entities, both public and nonpublic, test goodwill for impairment. ASU 2011-08 permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350, Intangibles-Goodwill and Other. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU 2011-08 is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance.

F -11

NOTE 3. ACCOUNTS RECEIVABLE

		2011		2010
Trade Accounts Receivable	$	43,470	$	142,611
Other Accounts Receivable		1,271		5,228
	$	44,741	$	147,839

The Company carries accounts receivable at the amounts it deems to be collectible. Accordingly, the Company provides allowances for accounts receivable it deems to be uncollectible based on management’s best estimates. Recoveries are recognized in the period they are received. The ultimate amount of accounts receivable that becomes uncollectible could differ from those estimated. No reserve for bad debts was established as at September 30, 2011 and 2010 as all amounts were deemed collectible.

NOTE 4. PROPERTY, PLANT & EQUIPMENT

		2011		2010
Leasehold Improvements	$	-	$	-
Furniture and Fixtures		-		10,870
Machinery and Equipment		18,075		181,060
COST		18,075		191,930
Less: Accumulated depreciation/amortization
Leasehold Improvements		-		-
Furniture and Fixtures		-		10,093
Machinery and Equipment		8,285		138,759
		8,285		148,852
NET	$	9,790	$	43,078

NOTE 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are comprised of the following:

		2011		2010
Accounts Payable	$	491,392	$	474,236
Accrued Liabilities for services rendered but not invoiced as of September 30, 2011 and 2010:
Professional services (legal, audit, financial)		40,583		46,106
Management Salary		-		-
Other		-		-
	$	531,975	$	520,342

NOTE 6. NOTES PAYABLE

The Company and its subsidiaries issued $1,908 and $191,749 in promissory notes, net of repayments during the year ended September 30, 2011 and 2010 respectively. The newly issued and existing promissory notes bear interest at rates of 8% - 12% per annum and are repayable on or before the first anniversary date of issuance. Included in Promissory Notes payable are $65,687 in Notes Payable including accrued interest of $17,509 to Michael Lee – CEO at September 30, 2011.

F -12

(As at September 30, 2010 Notes Payable plus accrued interest of $12,198 owing to Mr. Lee totalled $43,246). See also Related Party Transactions Note 14.

September 30,		2011		2010	2009
Promissory Notes Issued and outstanding,	$	654,305	$	663,765	520,551
net of repayments and conversions:
Interest accrued		202,604		126,906	64,733
Promissory Notes Payable	$	856,909	$	790,671	585,284

NOTE 7. NON-CONTROLLING INTEREST

On June 22, 2006, AlphaRx International Holdings Ltd. (“AIH”), previously a wholly-owned subsidiary of the Company issued 1,500 shares of its Common Stock to New Super Limited (“NSL”), an independent Hong Kong based corporation, at a price of approximately $HK 6,667 per share or $HK 10 million in cash. (US $1,288,826). As a result AIH’s issued and outstanding shares were increased to 10,000 and the Company’s interest in AIH was reduced to 85%. With the consolidation of only 85% of AIH, a non-controlling interest was established, representing amounts owing to the minority shareholder. The capital infusion into AIH is accounted for as additional paid in capital on the consolidated financial statements of the Company.

NOTE 8. COMMITMENTS

The Company leases scientific research and development equipment, its main premises on a month-to-month basis and an automobile all on an operating lease basis. The aggregate minimum annual and total payments due under these operating leases are as follows:

As of September 30,		2011		2010	2009
2010	$	-		6,431	23,923
2011		2,705		14,313	10,911
2012		5,882		-	-
TOTAL	$	8,587	$	20,744	34,834

NOTE 9. COMMON STOCK

The Company is authorized to issue up to 250,000,000 shares of Common Stock. As of September 30, 2011, there were 95,935,047 shares of Common Stock issued and outstanding, with a stated par value of $0.0001 per share.

On September 30, 2011, the Company issued 1,300,000 shares of Common Stock to Mr. Ford Moore, Mr. David Milroy, and Mr. Paul Dowell as private placement subscription for the 2011 fiscal. During the year ended September 30, 2010 the Company issued 2,263,855 shares of Common Stock to President & CEO, Mr. Michael Lee as compensation for the 2010 fiscal.

Net Loss per share of Common Stock is not based on diluted shares since the effect would be anti-dilutive. The Company has warrants outstanding to purchase 7,390,150 shares of Common Stock and options outstanding to purchase 7,940,000 shares of Common Stock as at September 30, 2011. On a fully diluted basis there would be 111,265,197 shares of Common Stock issued and outstanding if all warrants and all options were to be exercised. Refer to Notes 12 and 13 respectively for more details on options and warrants. (As at September 30, 2010 there would have been 115,635,197 shares outstanding on a diluted basis if all outstanding warrants and options were exercised).

F -13

NOTE 10. INCOME TAXES

The regional sources of tax losses for the years ended September 30, 2011 and 2010 were as follows:

		2011			2010
North America	$	(262,060	)	$	(532,047	)
Outside North America		-			(27,267	)
	$	(262,060	)	$	(559,314	)

Tax losses by year of origin and year of expiry are as follows:

Year of		United	Year of				Year of		Outside	Year of
Origin		States	Expiry		Canada		Expiry		North	Expiry
									America
1998	$	212,899	2018
1999		795,878	2019
2000		6,179	2020
2001		292,351	2021
2002		1,017,792	2022
2003		1,189,476	2023
2004		790,108	2024
2005		2,166,634	2025		732,448		2015
2006		1,764,202	2026		682,619		2016		205,123	2013
2007		1,530,976	2027						293,528	2014
2008		1,266,180	2028						99,852	2015
2009		208,940	2029		97,040		2019		78,953	2016
2010		477,350	2030		54,697		2020		27,267	2017
2011		77,922	2031		184,138		2021		-
TOTAL	$	11,796,887		$	1,750,942			$	704,723

CONSOLIDATED TAX LOSSES						$	14,252,552

The tax effect of material temporary differences representing deferred tax assets is estimated as follows:

		2011			2010
Deferred tax assets:
North America	$	4,674,001		$	5,124,138
Outside North America		105,708			105,708
Sub-total		4,779,709			5,229,846
Less Valuation allowance		(4,779,709	)		(5,229,846	)
Net deferred tax assets		-			-

The valuation allowance as of September 30, 2011 and 2010 totalled $4,779,709 and $5,229,846 respectively which consisted primarily of established reserves for deferred tax assets on non-capital operating loss carry forwards for our entities in United States and our foreign entities. The tax rates being used to determine deferred tax assets are estimated at 34.5% for North America and 15% for outside North America.

F -14

The consolidated effective tax (benefit) rate as a percentage of income (loss) before income taxes is as follows:

	2011		2010
Combined Statutory Rates	31.3%		31.3%
Non-deductible expenses	(9	)	(9	)
Change in valuation allowance	(22.3	)	(22.3	)
Effective tax rate	0%		0%

As of September 30, 2011 and 2010 the Company had no unrecognized tax benefits and as such required no adjustments to the financial statements. The Company records any interest and penalties related to tax matters within general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. These amounts are not material to the consolidated financial statements for the periods presented. The Company’s US and Canadian tax returns are subject to examination by respective tax authorities. Generally tax years 2007 – 2010 remain open to examination by those respective tax authorities. (IRS in the United States and Canada Customs and Revenue Agency in Canada).

NOTE 11. STOCK OPTION PLANS

No options were granted nor were any exercised during the year ended September 30, 2011. There remains 7,940,000 options to purchase shares of Common Stock as of September 30, 2011.

During fiscal 2009 employees, officers and consultants exercised a total of 3,430,000 options at an average exercise price of approximately $0.08 per share and resulting in $274,750 in cash proceeds to the Company. Of these options 700,000 were from the 2000 Plan and had a weighted remaining contractual life of 2.5 years when exercised and 2,730,000 were from the 2004 Plan and had a weighted remaining contractual life of 7.8 years when exercised. Immediately thereafter the remaining options in the 2000 Plan and 2003 Plan were cancelled, with the agreement of the option holders. In addition, and pursuant to an application for listing on the Toronto Venture Exchange, the Company cancelled a total of 7,660,000 options with the agreement of the option holders during fiscal 2008.

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 seen in the table below. The weighted average exercise price and remaining contractual life for all options seen at the bottom of the table was calculated by multiplying the number of options by the exercise prices or remaining lives and dividing the result by the total number of options. During fiscal 2008, with the agreement of the option holders, the option expiry date for all remaining 2004 Plan options was accelerated to June 30, 2012. All options now expire on or before June 30, 2012. The table below reflects remaining contractual life of the options as of September 30, 2011.

At the Company’s Annual General Meeting held November 26, 2008 a majority of stockholders approved amendments to the existing Stock Incentive Plans including, among others: (i) combining the 2004 and 2006 Plans into one “2008 Stock Incentive Plan” for ease of administration; (ii) providing a cap for the number of options to be issued at 22,000,000; (iii) providing guidelines for exercise prices such that the exercise price of any newly granted option is never less than the market value or in the case of a 10%+ holder, never less than 110% of the market value on the date of grant; (iv) providing for a maximum term of 5 years for any option granted; (v) provide for a vesting schedule whereby vesting must occur over at least 18 months with no more than 1/6^thof the options granted vesting in any 3 month period; (vi) providing for the maximum number of options to be granted to any one individual in any 12 month period to be no more than 5% of the issued and outstanding common stock, and (vii) providing for a maximum number of options to be granted to any Investor Relations party to be no more than 2% of the issued and outstanding common stock.

F -15

As a result of the new terms governing the Company’s Stock Incentive Plan, the maximum number of options that can still be issued totals 4,310,000 regardless of how many are exercised or expire.

	Number				Share
2008 Stock	Granted,				Price on		Remaining
Incentive Plan	(exercised),			Exercise	Date of	Expiry	Contractual
	(cancelled) or		Date	Price $	Grant $	Date	Life (Years)
	(expired)
	12,720,000		15/11/2004	0.15	0.11	6/30/2012	0.75
	500,000		15/11/2004	0.40 – 0.50	0.11	6/30/2012	0.75
	7,000,000		10/1/2005	0.16	0.14	6/30/2012	0.75
	390,000		8/2/2005	0.15	0.14	6/30/2012	0.75
	100,000		5/25/2005	0.13	0.13	6/30/2012	0.75
	3,290,000		10/17/2005	0.075	0.08	6/30/2012	0.75
Total Grant	24,000,000
Exercised	(2,730,000	)	12/27/2007	0.075	-	-	-
Cancelled	(6,640,000	)	12/28/2007	-	-	-	-
Expired	(460,000	)	2/10/2008	-	-	-	-
Remaining	14,170,000
Granted	90,000		1/3/2007	0.10	0.10	1/3/2012	0.26
Cancelled	6,320,000		9/30/2011	-	-	-	-
Total	7,940,000
Weighted Average of Options Remaining				0.15			0.74

NOTE 12. WARRANTS

On August 3, 2011, the Company issued 400,000 warrants to purchase 400,000 shares of Common Stock at $0.075 per share expiring on June 30, 2014, and on September 13, 2011, the Company issued 250,000 warrants to purchase 250,000 shares of Common Stock at $0.075 per share expiring on June 30, 2014.

On April 12, 2010, the Company issued 3,740,150 warrants to purchase 3,740,150 shares of Common Stock at $0.085 per share expiring on April 11, 2015. The warrants were issued in exchange for financial advisory services to be provided from the period from April 11, 2010 until Sep 30, 2010. The total fair value of the warrants has been estimated to be $262,090 using Black-Scholes option pricing model based on the following assumptions: dividend yield of 0%, expected volatility of 103.86%, risk-free interest rate of 3%, and an expected life of 5 years. The company recorded $262,090 in stock based compensation for the year ended September 30, 2010 (2009- $73,725). No income tax benefit has been realized as a result of warrant amortization expenses during 2010 and 2009. Stock based compensation is included in general and administrative expenses seen on the consolidated statement of operations and comprehensive loss.

As at September 30, 2011 there were 7,390,150 warrants issued and outstanding. Additional details regarding warrant activity and warrants outstanding as of September 30, 2011 and 2010 are seen in the table below.

F -16

Outstanding	Weighted	Weighted
as at	Average	Average
September	Exercise	Contractual
30, 2008	Price	Life (Years)
7,260,000	$ 0.1	0.75
Activity during fiscal 2009 and 2010
(2,260,000)	Expired during fiscal 2009
3,000,000	Granted in exchange for advisory services April 1, 2009 @ $0.03 per share
8,000,000	Balance September 30, 2009
(5,000,000)	Expired during fiscal 2010
3,740,150	Granted in exchange for advisory services April 12, 2010 @ $0.085 per share
6,740,150	Balance September 30, 2010
650,000	Granted in Private Placement @ 0.075 per share
7,390,150	Balance September 30, 2011

Share

Outstanding

Price

as at

Remaining

September

Exercise

Grant

Expiry

Contractual

30, 2011

Issue Date

Price $

Date $

Date

Life (Years)

Reason for Issuance

400,000

8/3/2011

0.075

0.04

6/30/2014

2.75

Issued in exchange for Private Placement.

250,000

9/13/2011

0.075

0.05

6/30/2014

2.75

Issued in exchange for Private Placement.

	Weighted	Weighted
	Average	Average
	Exercise	Contractual
Total	Price	Life (Years)
7,390,150	0.06	3.043

NOTE 13. RELATED PARTY TRANSACTIONS

The Company sourced some of its funding during the year from one director. Mr. Lee, CEO and director loaned the Company $9,540 during the year ended September 30, 2011. Interest accrued on all loans outstanding to Mr. Lee (the only loans remaining from directors) totalled $17,509 as of September 30, 2011. The Company also repaid $3,816 in principal to extinguish one of the Promissory Notes owing to Mr. Lee during fiscal 2011. The total loan amounts including accrued interest owing to Mr. Lee as of September 30, 2011 was $65,687.

NOTE 14. SEGMENTED INFORMATION

The Company operates in one business segment, namely human therapeutics. Results of operations are reported on a consolidated basis for segment reporting purposes. Consolidated disclosures about revenue streams and long-lived assets by geographic area are seen below.

F -17

Revenues

The Company derived revenues from royalties and from consulting services for the year ended September 30, 2011 and 2010.

		Years ended September 30,
Revenue Stream		2011		2010
Third Party Royalties (Mexico)		158,166		242,309
Consulting Fees (North America)		25,337		84,036
Total Revenues	$	183,503	$	326,345

Long Lived Assets

		Years ended September 30,
Long Lived Assets		2011		2010
North America	$	9,790	$	43,079
Asia				-
Total Long Lived Assets	$	9,790	$	43,079

NOTE 15. RECLASSIFICATIONS

Certain amounts from prior year have been reclassified to conform to current year’s presentation.

NOTE 16. SUBSEQUENT EVENTS

Management has reviewed subsequent events through the date of filing the Annual Report on Form 10-K that includes these consolidated financial statements with the US Securities and Exchange Commission. There were no material subsequent events since December 9, 2011(audit completion date) that would require recognition or note disclosure in these financial statements.

F -18

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