UMEWF 10-Q Quarterly Report Dec. 31, 2012 | Alphaminr
ALPHAMINR

UMEWF 10-Q Quarter ended Dec. 31, 2012

Balance Sheet
Cash Flow
Income Statement
10-Q 1 alrx_10q.htm FORM 10-Q alrx_10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended: December 31, 2012
OR

o Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from:________to_________
Commission File Number: 000-030813

AlphaRx, Inc.
(Name of Small Business Issuer in its Charter)
Delaware 98-0416123
(State or other jurisdiction of
incorporated or organization)
(I.R.S. Employer
Identification  No.)
31/F, Tower One, Times Square
1 Matheson Street, Causeway Bay, Hong Kong
(Address of principal executive offices)
Registrant's telephone number, including area code: (852) 2824-8716
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o
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 (§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).   Yes o No x
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 o Accelerated filer o
Non-accelerated filer o (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 Exchange Act). Yes o No x
The number of outstanding shares of registrant's Common Stock on February 22, 2013 was 89,036,000.
ALPHARX, INC .

FORM 10-Q

December 31, 2012


TABLE OF CONTENTS

Part I. Financial Information
Item 1. Financial Statements.
Unaudited Interim Consolidated Balance Sheets as of December 31, 2012 and September 30, 2012 (Audited)
3
Unaudited Interim Consolidated Statements of Operations and Comprehensive Loss for the three months ended December 31, 2012 and 2011
4
Unaudited Interim Consolidated Statements of Changes in Shareholders’ Deficit as of  December 31, 2012 and September 30, 2012
5
Unaudited Interim Consolidated Statements of Cash Flow for the periods ended December 31, 2012 and 2011
6
Condensed Notes to Unaudited Interim Consolidated Financial Statements
7-13
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
14-17
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
17
Item 4.
Controls and Procedures.
18-19
Part II. Other Information
Item 1.
Legal Proceedings.
20
Item 1A.
Risk Factors.
20-28
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
29
Item 3.
Defaults Upon Senior Securities.
29
Item 4.
Mine Safety Disclosures
29
Item 5.
Other Information
29
Item 6.
Exhibits
30
Signatures
31
Certifications
2
PART I.   FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

ALPHARx, INC.
INTERIM CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31, 2012 AND SEPTEMBER 30, 2012
(All amounts in US Dollars)
December 31
2012
September 30
2012
(Unaudited)
(Audited)
CURRENT ASSETS
Cash and Cash Equivalents
$ 55,741 $ 4,342
Accounts Receivable
259,446 108,982
Deposit
19,425,347 19,425,347
Deferred Financing Cost
20,000 20,000
Prepayment
6,768 2,505
TOTAL CURRENT ASSETS
19,767,302 19,561,176
NON-CURRENT ASSETS
Loan Receivable
1,587,475 1,574,654
TOTAL ASSETS
21,354,777 21,135,830
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities
557,810 535,594
TOTAL CURRENT LIABILITIES
557,810 535,594
NON-CURRENT LIABILITIES
Notes Payable (Note 3)
934,438 995,912
TOTAL LIABILITIES
1,492,248 1,531,506
STOCKHOLDERS’ DEFICIENCY
Common Stock: $ 0.0001 par value,
Authorized: 250,000,000 shares; Issued and outstanding
September 30, December 31, 2012: 89,036,000 (Notes 5-7)
8,904 8,904
Additional paid-in capital
38,568,360 38,568,360
Deficit
(18,873,680 ) (19,122,924 )
Accumulated Other Comprehensive Loss
(1,476 ) (5,518 )
Non-controlling Interest
160,421 155,502
TOTAL STOCKHOLDERS’ EQUITY/ (DEFICIENCY)
19,862,529 19,604,324
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY/DEFICIENCY
$ 21,354,777 $ 21,135,830
3

ALPHARx, INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS ENDED December 31, 2012 AND 2011
(UNAUDITED)
(All amounts in US Dollars)

3 months ended
December 31,
2012
3 months ended
December 31,
2011
(Unaudited)
(Unaudited)
License Fees and Royalties
$ 370,329 $ 35,683
Total Revenues
370,329 35,683
General and Administrative Expenses
96,757 90,182
Depreciation
0 654
Gain/(Loss) from Operations
273,572 (55,153 )
OTHER INCOME
Other Income
3,531 0
Interest Income
444 0
OTHER EXPENSES
Interest Expense, net
24,395 24,013
Gain/(Loss) before Income Taxes
253,152 (79,166 )
Income Tax
- -
Net Gain/(Loss)
253,152 (79,166 )
Net Income/(Loss) attributable to Non-controlling interests
(3,908 ) 3,893
Net Gain/(Loss) attributable to AlphaRx Inc. Stockholders
249,244 (75,273 )
Comprehensive Loss
Net Gain/(Loss)
253,152 (79,166 )
Translation Adjustment
5,053 2,608
Comprehensive Gain/(Loss)
258,205 (76,558 )
Less: Comprehensive Loss Attributable to Non-Controlling Interests
(1,011 ) (522 )
Comprehensive Gain/(Loss) Attributable to AlphaRx Inc. Stockholders
257,194 (77,080 )
Per Share Data
Net Loss Per Share, basic and diluted
$ 0.0029 $ (0.001 )
Weighted Average Number of Common Shares Outstanding
89,036,000 95,935,047
4

ALPHARx, INC.
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
AS OF DECEMBER 31, 2012 AND SEPTEMBER 2012
(UNAUDITED)
(All amounts in US Dollars)
Common Stock
Additional
Accumulated
Other
Total
AlphaRx Inc.
Non-
Total
Number of
Shares
Amount
Paid in
Capital
Comprehensive
Loss
(Deficiency)
Stockholders’
Deficiency
controlling
Interest
Gain/(Deficiency)
Balance as of September 30, 2011
98,935,047 $ 9,594 $ 17,593,112 $ (5,265 ) $ (19,045,635 ) $ (1,448,194 ) $ 171,169 $ (1,277,025 )
Warrants issued for Private Placement
6,558 6,558 6,558
Stock issued for Private Placement
300,000 30 14,970 15,000 15,000
Stock cancelled for settlement
(1,060,000 ) (106 ) (52,894 ) (53,000 ) (53,000 )
Reverse Split
(76,139,047 ) (7,614 ) 7,614 - 0
Stock Issued for Acquisition
70,000,000 7,000 20,999,000 21,006,000 21,006,000
Foreign Currency Translation
(253 ) (253 ) (63 ) (316 )
Non-controlling interest
(15,604 ) (15,604 )
Net Loss for the period
(77,289 ) (77,289 ) (77,289 )
Balance as of September 30, 2012
89,036,000 $ 8,904 $ 38,568,360 $ (5,518 ) $ (19,122,924 ) $ 19,448,822 $ 155,502 $ 19,604,324
Foreign Currency Translation
4,042 4,042 1,011 5,053
Non-controlling interest
3,908 3,908
Net Gain/(Loss) for the period
249,244 249,244 249,244
Balance as of December 31, 2012
89,036,000 $ 8,904 $ 38,568,360 $ (1,476 ) $ (18,873,680 ) $ 19,702,108 $ 160,421 $ 19,862,529
5
ALPHARx, INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2012 AND 2011
(UNAUDITED)
3 months ended
December 31, 2012
3 months ended
December 31, 2011
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Gain/(Loss) $ 253,152 $ (79,166 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 0 654
Changes in assets and liabilities:
Prepaid (4,262 ) 1,257
Deferred Financing Cost 0 0
Decrease/(Increase) in Accounts Receivable (150,474 ) 34,570
Decrease/(Increase) in Loan Receivable (12,821 )
(Decrease) Increase in Accounts Payable and Accrued Liabilities 22,215 1,101
(Decrease) Increase in Accrued Interest on Notes Payable 4,470 46,220
Machinery & Equipment written off 0 3,402
Non-Controlling Interest 1,145 (1,285 )
NET CASH USED IN OPERATING ACTIVITIES 113,425 6,753
CASH FLOWS FROM INVESTING ACTIVITIES
Sold of Machinery and Equipment 0 0
NET CASH USED IN INVESTING ACTIVITIES 0 0
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment) of Notes Payable, net (67,395 ) (26,842 )
NET CASH PROVIDED BY FINANCING ACTIVITIES (67,395 ) (26,842 )
Effect of exchange rate changes on cash and cash equivalents 5,369 3,893
NET INCREASE (DECREASE) IN CASH 51,399 (16,196 )
CASH and cash equivalents, beginning of year 4,342 30,386
CASH and cash equivalents, end of year $ 55,741 $ 14,190
SUPPLEMENTARY DISCLOSURE :
Income Tax Paid $ - $ -
Interest Paid $ 11,683 $ -

(All amounts in US Dollars)
6

ALPHARX INC.
CONDENSED NOTES TO UNADUDTED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2012
(UNAUDITED)
NOTE 1. NOTES TO INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying interim unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of all recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended September 30, 2013.  Interim unaudited consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements for the year ended September 30, 2012 filed with SEC on Form 10K.

NOTE 2. NATURE OF BUSINESS AND GOING CONCERN

ALPHARx, INC. (the “Company”) was incorporated under the laws of the State of Delaware on August 7, 1997. The Company was engaged in the development of proven therapies by reformulating FDA approved and marketed drugs using its proprietary drug delivery technology. On November 4, 2011 the Company expanded its business operation to digital media with an intense focus on China.
The interim unaudited consolidated financial statements reflect the activities of AlphaRx Inc., 100% of AlphaRx Canada Limited and 80% of AlphaRx International Holdings Limited and AlphaRx Life Sciences Ltd. (AIH’s wholly owned subsidiary) collectively the “Company”.  All material inter-company accounts and transactions have been eliminated.
The accompanying interim unaudited 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. Continuance of the Company as a going concern is dependent on its future profitability and on the on-going support of its shareholders, affiliates and creditors. Factors relating to going concern issues include working capital deficiencies, operating losses, shareholders’ deficits, and continued reliance on external funding sources. 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.
NOTE 3. NOTES PAYABLE

The Company repaid $38,317 in promissory notes during the three months ended December 31, 2012. These notes bear interest at 12% per annum and are repayable on the first anniversary date of issuance. Previously issued promissory notes bear interest at rates of 8% - 12% per annum. Prepayment of these notes prior to the first anniversary date is permitted.

See also note 8 – Related Party Transactions.
7

NOTE 4. NON-CONTROLLING INTEREST

Effective June 22, 2006, AlphaRx International Holdings Ltd. (“AIH”) issued 1,500 shares of its common stock to New Super Limited (“NSL”) at a price of approximately $HK 6,667 per share or $HK 10 million in cash (USD $1,288,826). There were 10,000 common shares outstanding of which 8,500 or 85% belong to the Company. With the consolidation of only 85% of AIH, a non-controlling interest was established, representing net amounts owing to the non-controlling shareholder. The capital infusion into AIH is accounted for as additional paid in capital on the interim consolidated financial statements of the Company.

On May 18, 2010, AlphaRx International Holdings Ltd. (“AIH”) issued 625 shares of its common stock to New Super Limited (“NSL”) at a price of approximately $HK 2,166 per share, or $HK1,353,750 in cash  (USD$173,292), representing a further 5% non-controlling interest and increasing the total of the non-controlling interest to 20% after the infusion.

NOTE 5. COMMON STOCK

The Company is authorized to issue 250,000,000 shares of common stock.  As of December 31, 2012 there were 89,036,000 shares of Common Stock issued and outstanding with a stated par value of $0.0001 per share.

NOTE 6. STOCK OPTION PLANS
No options were granted nor were any exercised during the 3 months ended December 31, 2012. There remains 0 options to purchase shares of Common Stock as of December 31, 2012.
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 December 31, 2012.
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 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.
8
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.
During the three months ended December 31, 2012, no options were granted and no options were exercised. Additional details of the 2008 Plan, as at December 31, 2012 are as follows:

2008 Stock
Option Plan
Number Granted,
Exercised, Expired
or Cancelled
Issue Date
Exercise
Price $
Share Price
on Grant Date $
Expiry Date
Remaining
Contractual
Life (Years)
Inception
0
Granted
12,720,000
15/11/2004
0.15
0.11
6/30/2012
0.5
Granted
500,000
15/11/2004
0.40 – 0.50
0.11
6/30/2012
0.5
Granted
7,000,000
10/1/2005
0.16
0.14
6/30/2012
0.5
Granted
390,000
8/2/2005
0.15
0.14
6/30/2012
0.5
Granted
100,000
5/25/2005
0.13
0.13
6/30/2012
0.5
Granted
3,290,000
10/17/2005
0.075
0.08
6/30/2012
0.5
Total
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
0.008
Cancelled
(6,320,000)
9/30/2011
-
-
-
-
Expired
90,000
1/3/2007
Expired
700,000
11/15/2004
Expired
7,000,000
1/10/2005
Expired
50,000
2/8/2005
Expired
100,000
5/25/2005
Total
0
As at December 31, 2012
Weighted Average Exercise Price and Contractual Life of Options Remaining in Years
$0
0.00
9
NOTE 7. WARRANTS

On January 9, 2012, the Company issued 150,000 warrants to purchase 150,000 shares of Common Stock at $0.075 per share expiring on June 30, 2014. 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 December 31, 2012 there were 1,508,030 (were 7,540,150 before 1 for 5 reverse split) warrants issued and outstanding. Additional details regarding warrant activity and warrants outstanding as of December 31, 2012 are seen in the table below.
Outstanding
as at
December 31, 2012
Issue
Date
Exercise
Price $
Share Price
on
Grant Date $
Expiry Date
Remaining
Contractual
Life (Years)
Reason for Issuance
3,000,000
4/1/2009
0.03
0.03
3/31/2014
1.25
Issued in exchange for financial advisory services.
3,740,150
4/12/2010
0.085
0.085
4/11/2015
2.28
Issued in exchange for financial advisory services.
400,000
8/3/2011
0.075
0.04
6/30/2014
1.50
Issued in exchange for Private Placement.
250,000
9/13/2011
0.075
0.05
6/30/2014
1.50
Issued in exchange for Private Placement
150,000
1/9/2012
0.075
0.05
6/30/2014
1.50
Issued in exchange for Private Placement
Total
Weighted
Average
Exercise
Price
Weighted Average
Contractual
Life (Years)
7,540,150
$ 0.06
1.787

NOTE 8. RELATED PARTY TRANSACTIONS

The Company sources some of its funding in the form of promissory notes from Michael Lee – President and CEO. The Company is indebted to Mr. Lee in the amount of $76,820 including accrued interest of $26,061 as of December 31, 2012. The directors did not loan any funds to the Company during the three months ended December 31, 2012. These promissory notes bear interest at 12% per annum and are unsecured.
10
NOTE 9. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB updated FASB ASC Subtopic 810-10, Consolidation (formerly SFAS No. 160). This guidance establishes accounting and reporting standards for non-controlling interests in subsidiaries. The guidance clarifies that a non-controlling interest in a subsidiary be accounted for as a component of equity, but separate from the parent’s equity. Furthermore, the amount of consolidated net income attributable to the parent and the non-controlling interest must be clearly identified and presented on the face of the Consolidated Statements of Operations. The Company adopted the provisions of the guidance effective October 1, 2009 and the provisions are being applied prospectively, except for the presentation and disclosure requirements, which have been applied retrospectively. The adoption did not have a material impact on our consolidated financial statements.
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.
11
In July 2012, the FASB has issued Accounting Standards Update (ASU) No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU states that an entity has the option first to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Codification Subtopic 350-30, Intangibles—Goodwill and Other, General Intangibles Other than Goodwill.

Under the guidance in this ASU, an entity also has the option to bypass the qualitative assessment for any indefinite-lived intangible asset in any period and proceed directly to performing the quantitative impairment test. An entity will be able to resume performing the qualitative assessment in any subsequent period. The amendments in this ASU are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public 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.

In August 2012, the FASB has released Accounting Standards Update (ASU) No. 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22. This ASU amends various SEC paragraphs: (a) pursuant to the issuance of Staff Accounting Bulletin No. 114; (b) pursuant to the issuance of the SEC’s Final Rule, Technical Amendments to Commission Rules and Forms Related to the FASB’s Accounting Standards Codification, Release Nos. 33-9250, 34-65052, and IC-29748 August 8, 2011; and (c) related to ASU No. 2010-22, Accounting for Various Topics.

NOTE 10. TRANSACTION ADJUSTMENTS

Additional accumulated differences derived from the beginning balances of Non-controlling Interest and Additional-paid-in capital carryover from previous periods is adjusted to reflect the correct balancing figures. This adjustment is a change of accounting estimation on applicable foreign exchange rate on various transactions and its carryover effects. This change of estimation is not material and has no impact on current period statement of income or operation results.
12
NOTE 11. RECLASSIFICATIONS
Certain amounts from prior year have been reclassified to conform to current year’s presentation.
NOTE 12. SUBSEQUENT EVENTS
The Company has evaluated all other subsequent events through February 22, 2013, the date these consolidated financial statements were issued and determined that there were no other subsequent events or transactions that require recognition or disclosures in the financial statements except the acquisition of UMeLook on August 30, 2012 which will contain a British Virgin Islands holding company, a Hong Kong intermediate-holding company, a People’s Republic of China (“PRC”) wholly foreign owned enterprise (“WFOE”) subsidiary and a PRC operation company which will hold the web license while under the financial control of the WFOE in a Variable Interest Entity (“VIE”) structure. This set-up is not yet completed. Therefore, part of the acquisition becomes a deposit which is pending on the completion of the corporate structure to determine the final value allocation on the consideration of the acquisition.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

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, 2012. 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 Quarterly 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 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. On April 20, 2012, the Company effected a consolidation of its share capital on the ratio of one new share for five old shares and began trading on a split-adjusted basis on May 29, 2012. On July 23, 2012 AlphaRx Inc. Common Stock ceased trading on the OTCBB and began trading on the OTCQB Marketplace under the same symbol “ALRX” on account of its ineligibility for quotation on OTCBB due to quoting inactivity under SEC Rule 15c2-11. All references to AlphaRx Inc. Common Stock have been retroactively restated.

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Recent Developments

AlphaRx is a specialty pharmaceutical company dedicated to developing therapies to treat and manage pain. Prior to November, 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 Indaflex and ARX 8203 for the pain market. On November 4, 2011 the Company adopted a new corporate development strategy that expanded the business operation of the Company to digital media with an intense focus on China. On August 30, 2012, the Company acquired all of the issued and outstanding shares of UMeLook Holdings Limited (“UMeLook”), a digital media startup with an intense focus on China. The acquisition of UMeLook was completed as a share exchange through the issuance of 70,000,000 common shares of AlphaRx Inc. to the shareholders of UMeLook at a deemed price of $0.30 per share in exchange for all of the issued and outstanding shares in the capital of UMeLook. There were no change of control of our officers and Board of Directors as a result of the Transaction. The acquisition of UMeLook will contain a British Virgin Islands holding company, a Hong Kong intermediate-holding company, a People’s Republic of China (“PRC”) wholly foreign owned enterprise (“WFOE”) subsidiary and a PRC operation company which will hold the web license while under the financial control of the WFOE in a Variable Interest Entity (“VIE”) structure. This set-up is not completed yet. Therefore, part of the acquisition becomes a deposit which is pending on the completion of the corporate structure to determine the final value allocation on the consideration of the acquisition.

Overview of Results of Operations

Three Months Ended
Dec 31
2012
$
Sep 30
2012
$
Jun 30
2012
$
Mar 31
2012
$
Dec 31
2011
$
Sep 30
2011
$
Jun 30
2011
$
Mar 31
2011
$
Net Sales
370,329 69,659 30,513 30,948 35,683 77,417 31,866 51,390
Net Income (Loss)
253,152 (69,409 ) (31,457 ) 87,140 (79,166 ) (150,078 ) (106,655 ) (113,657 )
Net Income (Loss) per Share (1)
0.0029 (0.0016 ) (0.0016 ) 0.0009 (0.001 ) (0.002 ) (0.001 ) (0.001 )

NOTE (1) Net Loss per share on a quarterly basis does not equal net Loss per share for the annual periods due to rounding.
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RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2012, AS COMPARED TO THE THREE MONTHS ENDED DECEMBER 31, 2011

The Company incurred a net gain of $253,152 for the three month period ended December 31, 2012 as compared to a net loss of $79,166 incurred for the same period a year ago, an increase of $332,318.  Revenues during the three months ended December 31, 2012 were about $334,646 more than in the previous period; general and administrative expenses were about $6,575 more than in previous period respectively.

Revenues

Total revenues for the three-month period ended December 31, 2012 were $370,329 as compared to $35,683 generated for the same period a year ago, an increase of  $334,646 or about 937%. The increase is due to the outright sale of Indaflex Mexican right to our licensee Andromaco.

General and Administrative Expenses

General and Administrative expenses consist primarily of personnel costs related to general management functions, finance, office overheads, as well as insurance costs and professional fees related to legal, audit and tax matters.

General and Administrative expenses were $96,757 for the three month period ended December 31, 2012 as compared to $90,182 incurred for the same period a year ago, an increase of $6,575 or about 7.3%.

Research and Development Expenses

Research and development expenses include costs for scientific personnel, supplies, equipment, and outsourced clinical and other research activities.

Research and development expenses for the three months ended December 31, 2012 and December 31, 2011 were $0. The Company does not foresee any substantial R&D expenses in the near future.

Depreciation

Depreciation totalled $0 for the three months ended December 31, 2012 as compared to $654 incurred during the same period a year ago, a decrease of $654 or about 100%.  Our capital asset purchases were minimized during the last fiscal year. Certain assets are now fully depreciated resulting in decreasing depreciation expense.  Should any assets become permanently impaired they are written off to income as determined.

Gain/(Loss) from Operations

Gain from operations were $273,572 for the three months ended December 31, 2012 as compared to a net loss of $55,153 incurred for the same period a year ago. The gain is due to the outright sale of Indaflex Mexican right to our licensee Andromaco.

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Interest Expense

Interest expense for the three months ended December 31, 2012 was $24,395 as compared to interest expense of $24,013 generated during the same period a year ago.
Non-Controlling interest in gain/(loss) of Consolidated Subsidiaries
We reflected a non-controlling interest income of $1,011 for the three months ended December 31, 2012 as compared to a non-controlling interest loss of $522 for the same period a year ago. Non-Controlling interest represents our minority shareholder’s proportionate interest (which is 20%) in our 80% owned subsidiary – AIH.  The non-controlling interest resulted in the investment in our subsidiary AlphaRx International Holdings Ltd. by an independent third party – New Super Ltd. during June 2006.  On 5/18/2010, New Super Ltd. had infused an additional $173,237 in exchange of an additional 5% ownership of our subsidiary AlphaRx International Holdings Ltd.

Net Gain/(Loss)

As a result of the above mentioned revenue and expense items, we incurred a net gain of $253,152 for the three months ended December 31, 2012 as compared to a net loss of $79,166 generated in the same period a year ago. The gain is due to the outright sale of Indaflex Mexican right to our licensee Andromaco.

LIQUIDITY AND CAPITAL RESOURCES

As at December 31, 2012 the Company had a working capital of $19,209,492 as compared to a working capital of $19,025,582 as at September 30, 2012. The Company has also increased its stockholders’ gain to $19,862,529 as at December 31, 2012 compared to a stockholders’ gain of $19,604,324 as at September 30, 2012. We did not issue any stock during the three months ended December 31, 2012.
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 our drug 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.
marketing and brand promotion of UMeLook; and
2.
sales and marketing activities related to establishing collaborative, licensing and distribution agreements for our drug products.
The inability to raise capital would have a material adverse effect on the Company.
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 which has not successfully commercialized our first product, including a history of net losses, unproven technology, lack of manufacturing experience, current and potential competitors with significant technical and marketing resources, need for future capital and dependence on collaborative partners and on key personnel.  Additionally, we are subject to the risks and uncertainties associated with all drug delivery companies, including compliance with government regulations and the possibility of patent infringement litigation, as well as those factors disclosed in our documents filed from time to time with the United States Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.
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ITEM 4. 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 re-evaluate 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.
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Changes in Internal Controls

Management has evaluated the effectiveness of the disclosure controls and procedures as of December 31, 2012. Based on such evaluation, management has concluded that the disclosure controls and procedures were ineffective for their intended purpose described above. There were no changes to the internal controls during the quarter ended December 31, 2012 that have materially affected or that are reasonably likely to affect the internal controls.

Limitation on the Effectiveness of Controls

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.
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PART II.  OTHER INFORMATION

ITEM 1 – 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. The Claim was settled on January 11, 2012.
ITEM 1A – RISK FACTORS

The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements that we make in this Report and elsewhere (including oral statements) from time to time. Any of the following risks could materially and adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Report.

Risks Related to Our Drug Business

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. 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 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.

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.
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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 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-2014. 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.

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.
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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.

Risks Related to Our Digital Media Business

We have a short operating history in a new and unproven market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We entered the online video business in August 2012 when we acquired UMeLook Holdings Limited. However, UMeLook only have a short operating history in this new and unproven market that may not develop as expected, if at all. This short operating history makes it difficult to effectively assess our future prospects. You should consider our business and prospects in light of the risks and difficulties we encounter in this rapidly evolving market.
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We operate in a highly competitive market and we may not be able to compete successfully against our competitors.

We face significant competition, primarily from those companies that operate online video websites in China, which our management estimates to currently number over one hundred. A large number of independent online video sites, such as Youku.com and Tudou.com, compete against us. In addition, Chinese Internet portals, including Sina.com, Sohu.com and Baidu.com, and some of China’s major TV networks, such as China Central Television, or CCTV, Phoenix Satellite TV and Hunan Satellite TV, which have longer operating histories and more experience in attracting and retaining users and managing customers than we do, have launched their own video businesses. We also face competition from Internet video streaming platforms based on the P2P technology, such as PPS and PPTV. We compete with these companies for users and advertisers. Our competitors may compete with us in a variety of ways, including by conducting brand promotions and other marketing activities and making acquisitions. In addition, certain online video websites may continue to derive their revenues from providing content that infringes third-party copyright and may not monitor their websites for any such infringing content. As a result, we may be placed at a disadvantage to some of these websites that do not incur similar costs as we do with respect to content monitoring. Some of our competitors have a longer operating history and significantly greater financial resources than we do, and in turn may be able to attract and retain more users and advertisers. If any of our competitors achieves greater market acceptance than we do or is able to offer more attractive online video content, our user traffic may decrease and our market share may decrease, which may result in a loss of advertisers and have a material and adverse effect on our business, financial condition and results of operations.

In addition, Internet streaming of content represents only one of many existing and potential new technologies for viewing video. Many users maintain simultaneous relationships with multiple video providers and can easily shift from one provider to another. For example, users may subscribe to cable, buy a DVD, and download a movie from Apple iTunes or other sources, or some combination thereof. New competitors may be able to launch new businesses at a relatively low cost.

We also face competition from other types of advertising media, such as newspapers, magazines, yellow pages, billboards and other forms of outdoor media, television and radio. Most large companies in China allocate, and will likely continue to allocate, most of their marketing budgets to traditional advertising media and only a small portion of their budgets to online marketing and other forms of advertising media. If these companies do not devote a larger portion of their marketing budgets to online marketing services provided by our online video business, or if our existing customers reduce the amount they spend on online marketing, our results of operations and future growth prospects could be adversely affected.

The online video industry in China and user acceptance of our online video content may not grow as quickly as expected, which may adversely affect our revenues and business prospects.

Our business prospects depend on the continuing development of the online video industry in China. As an emerging industry, China’s online video industry has experienced substantial growth in recent years in terms of both users and content. We cannot assure you, however, that the online video industry will continue to grow as rapidly as it has in the past. With the development of technology, new forms of media may emerge and render online video websites less attractive to users. Growth of the online video industry is affected by numerous factors, such as users’ general online video experience, technological innovations, development of Internet and Internet-based services, regulatory changes, especially regulations affecting copyrights, and the macroeconomic environment. If the online video industry in China does not grow as quickly as expected or if we fail to benefit from such growth by successfully implementing our business strategies, our user traffic may decrease and our business and prospects may be adversely affected.
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We operate in a rapidly evolving industry. If we fail to keep up with the technological developments and users’ changing requirements, our business, results of operations and prospects may be materially and adversely affected.

The online video industry is rapidly evolving and subject to continuous technological changes and changes in industry standards. Our success will depend on our ability to keep up with the changes in technology and user behavior resulting from the technological developments. For example, the development of broadband enabled the enjoyment of high definition videos online. In addition, the number of people accessing the Internet via devices other than personal computers, including mobile phones and other hand-held devices, has increased in recent years. With the introduction of 3G mobile services by all three mobile carriers in China in 2009, we expect this trend to continue. If we do not adapt our products and services to such changes in an effective and timely manner, we may suffer from a decreased user traffic, which may result in a reduced number of advertisers using our online advertising services. Furthermore, changes in technologies may require substantial capital expenditures in product development as well as in modification of products, services or infrastructure. Failure in keeping up with technological development may result in our products and services being less attractive, which in turn, may materially and adversely affect our business, results of operations and prospects.

If we fail to continue to anticipate user preferences and provide products and services to attract and retain users, we may not be able to generate sufficient user traffic to remain competitive.

Our success depends on our ability to generate sufficient user traffic through provision of attractive products and services. To attract and retain users and compete against our competitors, we must continue to offer high-quality content that provides our users with a satisfactory online video experience. To this end, we must continue to produce new in-house content and encourage more UGC, while balancing the value of each type of content to our advertising services. For example, with UGC, users can upload and share their own videos and spend a longer time on our website, and a “community-like” environment enhances users’ loyalty to our website and such network effect broadens advertisers’ reach of audience; and with our in-house productions, we tailor such content to users’ preferences based on our industry experience and combine these productions with targeted advertising services such as product placements, which benefits both the users and our advertisers.

Based on the feedback on our website design and our statistics regarding users’ watching behavior, we keep developing new website features that appeal to users, such as designing more user-friendly content searching tools, creating additional interactive social functions or offering better website compatibility with new Internet-enabled devices. We need to continuously anticipate user preferences and industry changes and respond to such changes in a timely and effective manner. If we fail to cater to the needs and preferences of our users and, as a result, fail to deliver satisfactory user experience, we may suffer from reduced user traffic and our business and results of operations may be materially and adversely affected.

The success of our business depends on our ability to maintain and enhance our brand.

We believe that maintaining and enhancing our UMeLook brand is of significant importance to the success of our business. Since the online video market is highly competitive, a well-recognized brand is critical to increasing our user base and, in turn, enhancing our attractiveness to advertisers. We believe that the importance of brand recognition will increase as the number of Internet users in China grows. In order to attract and retain Internet users and advertisers, we may need to substantially increase our expenditures for creating and maintaining brand loyalty. Our success in promoting and enhancing our brand, as well as our ability to remain competitive, will also depend on our success in offering high-quality content, features and functionality. If we fail to promote our brand successfully or if visitors to our website or advertisers do not perceive our content and services to be of high quality, we may not be able to continue growing our business and attracting users and advertisers.
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Disruption or failure of our systems could impair our users’ online video experience and adversely affect our reputation.

Our ability to provide users with a high-quality online video experience depends on the continuous and reliable operation of our systems. We cannot assure you that we will be able to procure sufficient bandwidth in a timely manner or on acceptable terms or at all. Failure to do so may significantly impair user experience on our website and decrease the overall effectiveness of our website to both users and advertisers. Disruptions, failures, unscheduled service interruptions or a decrease in connection speeds could hurt user experience and our reputation, causing our users and advertisers to switch to our competitors’ websites. Our systems and video content delivery network, or CDN, are vulnerable to damage or interruption as a result of fires, floods, earthquakes, power losses, telecommunications failures, undetected errors in software, computer viruses, hacking and other attempts to harm our systems.. Since we host our servers at third-party Internet data centers, any natural disaster or unexpected closure of Internet data centers operated by third-party providers may result in lengthy service interruptions.  If we experience frequent or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our users’ experience may be negatively affected, which in turn, may have a material and adverse effect on our reputation. We cannot assure you that we will be successful in minimizing the frequency or duration of service interruptions

Undetected programming errors could adversely affect user experience and the market acceptance of our video programs, which may materially and adversely affect our business and results of operations.

The video programs on our website may contain programming errors that may only become apparent after their release. We receive user feedback in connection with programming errors affecting their user experience from time to time, and such errors may also come to our attention during our monitoring process. We generally have been able to resolve such programming errors in a timely manner. However, we cannot assure you that we will be able to detect and resolve all these programming errors effectively. Undetected audio or video programming errors or defects may adversely affect user experience and cause our advertisers to reduce their use of our services, any of which could materially and adversely affect our business and results of operations.

We may be exposed to intellectual property infringement and other claims, including claims based on content posted on our website, which could be time-consuming and costly to defend and may result in substantial damage awards and/or court orders that may prevent us from continuing to provide certain of our existing services.

Our success depends, in large part, on our ability to operate our business without infringing third-party rights, including third-party intellectual property rights. Internet companies, technology and media industries own, and are seeking to obtain, a large number of patents, copyrights, trademarks and trade secrets, and they are frequently involved in litigation based on allegations of infringement or other violations of intellectual property rights or other related legal rights. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. We may be subject to claims for defamation, negligence, infringement of third-party copyright and other rights, such as privacy and image rights, or other claims based on the nature or content of videos or our users on our websites. Such claims, with or without merit, may cause us to incur significant costs and liabilities and could materially and adversely affect our business, and also result in diversion of the attention of our management and our financial resources and negative publicity on our brand and reputation. In addition, third parties may make claims against us for losses incurred in reliance on the information on our websites. We do not carry any liability insurance covering such risks. Due to the significant number of videos uploaded by users, we may not be able to identify all content that may infringe on third-party rights. Thus, our failure to identify unauthorized videos posted on our website may subject us to, and may continue to subject us to, claims of infringement on third-party intellectual property rights or other rights.
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Regulation and censorship of information disseminated over the Internet in China may adversely affect our business and subject us to liability for information displayed on or linked to our websites.

The PRC government has adopted regulations governing Internet access and the distribution of news and other information over the Internet. Under these regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Furthermore, Internet content providers are also prohibited from displaying content that may be deemed by relevant government authorities as “socially destabilizing” or leaking “state secrets” of the PRC. Failure to comply with such requirements has resulted in the closure of certain websites.

Although we attempt to monitor the content in our websites, we are not able to control or restrict the content of other Internet content providers linked to or accessible through our websites, or content generated or placed on our websites by our users. To the extent that PRC regulatory authorities find any content displayed on our websites objectionable, they may require us to limit or eliminate the dissemination of such information on our websites. If third-party websites linked to or accessible through our website operate unlawful activities such as online gambling on their websites, PRC regulatory authorities may require us to report such unlawful activities to relevant authorities and to remove the links to such websites, or they may suspend or shut down the operation of such websites. PRC regulatory authorities may also temporarily block access to certain websites for a period of time for reasons beyond our control. Any of these actions may reduce our user traffic and adversely affect our business.

Other Risks Related to Our Business

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

We have incurred annual operating losses since our inception, our revenues have not been sufficient to sustain our operations. 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. Our ability to achieve profitability is affected by various factors, including:

-
growth of the online video industry and the online advertising market;
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the transition from long-form professional content to short-form user-generated content, or UGC;
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the continued growth and maintenance of our user base;
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our efforts to sell and market our products through licensees, distributors and other partners;
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our ability to establish corporate partnerships and licensing arrangements;
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the time and costs involved in obtaining regulatory approvals;
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our ability to control our costs and expenses; and
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the continued ability to source investments from our investors.
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Many of these factors are beyond our control. We may continue to incur net losses in the future due to our continued investments in content, bandwidth and technology. If we cannot successfully offset our increased costs with an increase in net revenues, our gross margin, financial condition and results of operations could be materially and adversely affected. We may also continue to incur net losses in the future due to changes in the macroeconomic and regulatory environment, competitive dynamics and our inability to respond to these changes in a timely and effective manner.

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 December 31, 2012:

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 dollar and Chinese Yuan related to our Far East subsidiaries. The fluctuation of the Canadian dollar, Hong Kong dollar and Chinese Yuan vis a vis the U.S. dollar could materially impact our operating results and financial position.

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 and marketing 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.
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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 5.98% 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. As of December 31, 2012, Vago International Limited controlled by Yee Chu beneficially owned approximately 62.90% of our outstanding capital stock. Chu therefore has significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This concentrated control limits or severely restricts our stockholders’ ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. As a result, the market price of our common stock could be adversely affected.

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ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

We did not issue nor sell any equity securities during the three months ended December 31, 2012.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

Not Applicable

ITEM 4 – MINE SAFETY DISCLOSURES

Not Applicable

ITEM 5 – OTHER INFORMATION

Not Applicable
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ITEM 6 – EXHIBITS
(a) Exhibit index
31.1 Certification of Chief Executive and Interim Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1 Certification of Chief Executive Officer and Interim Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) under the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS **
XBRL Instance Document
101.SCH **
XBRL Taxonomy Extension Schema Document
101.CAL **
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF **
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB **
XBRL Taxonomy Extension Label Linkbase Document
101.PRE **
XBRL Taxonomy Extension Presentation Linkbase Document

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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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.
ALPHARx INC.
DATED: February 22, 2013
By:
/s/ Michael M. Lee
Michael M. Lee,
Chief Executive Officer
Directors:
By: /s/ Michael M. Lee
Michael M. Lee,
Director
By: /s/ David Milroy
Dr. David Milroy,
Director
By: /s/ Ford Moore
Dr. Ford Moore,
Director
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