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 Quarter Ended June 30, 1999


                         Commission file number 1-12584


                         SHEFFIELD PHARMACEUTICALS, INC.
             (Exact name of registrant as specified in its Charter)


        DELAWARE                                           13-3808303
(State of Incorporation)                    (IRS Employee Identification Number)


425 SOUTH WOODSMILL ROAD                    63017          (314) 579-9899
ST. LOUIS, MISSOURI                       (Zip Code)    (Registrant's telephone,
(Address of principal executive offices)                 including area code)


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

     Title of Class                    Name of each exchange on which registered
Common Stock. $.01 par value                      American Stock Exchange


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

                                      None


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
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. /X/Yes / / No


The number of shares outstanding of the Registrant's  Common Stock is 27,296,346
shares of Common Stock as of August 6, 1999.


<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)


                                    Form 10-Q
                       For the Quarter Ended June 30, 1999

                                Table of Contents


                                                                            Page
                                                                            ----

                                     PART I

Item 1.  Financial Statements

Consolidated Balance Sheets as of June 30, 1999
   and December 31, 1998..................................................     3

Consolidated Statements of Operations
  for the three and six months ended June 30, 1999
  and 1998 and for the period from October 17, 1986
  (inception) to June 30, 1999 ...........................................     4

Consolidated Statements of Cash Flows
  for the six months ended June 30, 1999 and 1998 and
  for the period from  October 17, 1986 (inception)
  to June 30, 1999.......................................................      5

Consolidated Statements of Stockholders' Equity
  (Net Capital Deficiency) for the period from
   October 17, 1986 (inception) to June 30, 1999 ........................      6

Notes to Consolidated Financial Statements ..............................      8

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations....................................      9

                                    PART II

Item 2.  Changes in Securities...........................................     12

Item 4.  Submission of Matters to a Vote of Security Holders.............     12

Item 6.  Exhibits and Reports on Form 8-K................................     12

Signatures...............................................................     13

                                      -2-

<PAGE>

PART I:  FINANCIAL INFORMATION
Item 1.  Financial Statements
         ---------------------

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                           Consolidated Balance Sheets

                         Assets
<TABLE>
<CAPTION>
                                                                                      June 30,         December 31,
                                                                                        1999               1998
                                                                                        ----               ----
                                                                                    (unaudited)
<S>                                                                              <C>                <C>
Current assets:
       Cash and cash equivalents................................................   $  1,259,022        $  2,456,290
       Marketable equity security...............................................        191,359             127,774
       Prepaid expenses and other current assets................................        124,814              39,035
                                                                                   ------------        ------------
                         Total current assets...................................      1,575,195           2,623,099
                                                                                   ------------        ------------

Property and equipment:
       Laboratory equipment.....................................................        331,311             317,032
       Office equipment.........................................................        165,191             175,062
       Leasehold improvements...................................................         16,323               1,323
                                                                                   ------------        ------------
                         Total at cost..........................................        512,825             493,417
       Less accumulated depreciation and amortization                                  (267,554)           (253,995)
                                                                                   ------------        ------------
                         Property and equipment, net                                    245,271             239,422
                                                                                   ------------        ------------

Other assets....................................................................         15,642                --
                                                                                   ------------        ------------
                  Total assets                                                     $  1,836,108        $  2,862,521
                                                                                   ============        ============
         Liabilities and Stockholders' Equity (Net Capital Deficiency)

Current liabilities:
       Accounts payable and accrued liabilities.................................   $    533,061        $    615,138
       Sponsored research payable...............................................        449,805             449,805
       Note payable - related party.............................................           --               101,323
                                                                                   ------------        ------------
                         Total current liabilities..............................        982,866           1,166,266

Unearned revenue................................................................      1,000,000                --
Convertible promissory note.....................................................      1,500,000           1,000,000
Other long-term liabilities.....................................................         95,088              41,050
Commitments and contingencies...................................................           --                  --
                                                                                   ------------        ------------
                  Total liabilities.............................................      3,577,954           2,207,316

Stockholders' equity (net capital deficiency):
        Preferred stock, $.01 par value, authorized 3,000,0000 shares:
          Series C cumulative convertible preferred stock, authorized
          23,000 shares; 12,336 and 11,914 shares issued and outstanding at
          June 30, 1999 and December 31, 1998, respectively.....................            123                 119
        Common stock, $.01 par value, authorized 60,000,000 shares at June 30,
        1999 and 50,000,000 at December 31, 1998; issued and outstanding 27,296,
        346 and 27,058,419 shares at June 30,  1999 and December 31, 1998,
        respectively............................................................        271,134             270,584
        Notes receivable in connection with sale of stock.......................             --             (10,000)
        Additional paid-in capital..............................................     56,374,954          55,773,491
        Other comprehensive income (loss).......................................       (158,641)           (222,226)
        Deficit accumulated during development stage............................    (58,229,416)        (55,156,763)
                                                                                   ------------        ------------
                  Total stockholders' equity (net capital deficiency)...........     (1,741,846)            655,205
                                                                                   ------------        ------------

Total liabilities and stockholders' equity (net capital deficiency).............   $  1,836,108        $  2,862,521
                                                                                   ============        ============
</TABLE>
                 See notes to consolidated financial statements.

                                      -3-

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                     Consolidated Statements of Operations
           For the Three and Six Months Ended June 30, 1999 and 1998
                 and for the Period October 17, 1986 (inception)
                                to June 30, 1999
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                           Three Months Ended                Six Months Ended
                                                                  June 30                          June 30          October 17, 1986
                                                      ---------------------------     ----------------------------   (inception) to
                                                              1999           1998             1999           1998    June 30, 1999
                                                              ----           ----             ----           ----    ---------------

<S>                                                 <C>             <C>            <C>            <C>              <C>
Revenues:
   Sublicense revenue...............................  $       --      $    350,000    $       --      $    350,000    $  1,360,000
   Interest income..................................        17,476           2,562          39,353           3,515         553,453
                                                      ------------    ------------    ------------    ------------    ------------

        Total revenues..............................        17,476         352,562          39,353         353,515       1,913,453

Expenses:
   Acquisition of research and development
        in-process technology.......................          --        12,500,000            --        12,500,000      14,975,000
   Research and development.........................       835,975         187,063       1,490,954       1,796,104      23,094,644
   General and administrative.......................       632,693         882,409       1,132,356       1,494,899      20,697,685
   Interest.........................................        35,818          86,211          65,709         128,681         476,827
                                                      ------------    ------------    ------------    ------------    ------------

        Total expenses..............................     1,504,486      13,655,683       2,689,019      15,919,684      59,244,156
                                                      ------------    ------------    ------------    ------------    ------------

Loss before extraordinary item......................    (1,487,010)    (13,303,121)     (2,649,666)    (15,566,169)    (57,330,703)
Extraordinary item..................................          --              --              --              --            42,787
                                                      ------------    ------------    ------------    ------------    ------------

Net loss............................................  $ (1,487,010)   $(13,303,121)   $ (2,649,666)   $(15,566,169)   $(57,287,916)
                                                      ============    ============    ============    ============    ============

Accretion of mandatorily redeemable preferred
  stock.............................................          --              --              --           (23,900)       (103,400)
                                                      ------------    ------------    ------------    ------------    ------------

Net loss - attributable to common shares............  $ (1,487,010)   $(13,303,121)   $ (2,649,666)   $(15,590,069)   $(57,391,316)
                                                      ============    ============    ============    ============    ============

Weighted average common shares outstanding-
   basic and diluted................................    27,276,405      19,950,354      27,175,887      16,820,359       7,149,495

Net loss per share of common stock - basic and
diluted:
      Loss before extraordinary item................  $      (0.05)   $      (0.67)   $      (0.10)   $      (0.93)   $      (8.03)
Extraordinary item                                      --              --              --              --                     .01
                                                      ------------    ------------    ------------    ------------    ------------
      Net loss per share............................  $      (0.05)   $      (0.67)   $      (0.10)   $      (0.93)   $      (8.02)
                                                      ============    ============    ============    ============    ============
</TABLE>


                See notes to consolidated financial statements

                                      -4-

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                      Consolidated Statements of Cash Flows
                For the Three and Six Months Ended June 30, 1999
                  and 1998 and for the Period October 17, 1986
                    (inception) to June 30, 1999
                                  (Unaudited)
<TABLE>
<CAPTION>
                                                                                     Six Months Ended         October 17,
                                                                                         June 30,                1986
                                                                               --------------------------    (inception) to
                                                                                   1999           1998       June 30, 1999
                                                                                   ----           ----       -------------
<S>                                                                         <C>           <C>              <C>
Cash outflows from development stage activities and
   extraordinary gain:  Loss before extraordinary item.....................   $(2,649,666)   $(15,566,169)   $(57,330,703)
         Extraordinary gain on extinguishment of debt......................          --              --            42,787
                                                                              -----------    ------------    ------------
         Net loss..........................................................    (2,649,666)    (15,566,169)    (57,287,916)
                                                                              -----------    ------------    ------------
Adjustments  to  reconcile  net  loss  to net  cash  used by
  development  stage activities:
     Issuance of common stock, stock options/warrants for
         services..........................................................       105,642          16,389       2,387,615
     Non-cash acquisition of research and development in-process
         technology........................................................          --              --         1,650,000
     Depreciation and amortization.........................................        42,143          26,377         435,362
     Other items...........................................................        60,457        (303,826)        472,051
     (Increase) decrease in other assets...................................       (15,642)         20,057          55,941
     Increase in unearned revenue..........................................     1,000,000            --         1,000,000
     (Increase) decrease in prepaid expenses & other current assets........       (85,779)         13,927        (196,397)
     Decrease in accounts payable and accrued liabilities..................       (83,991)       (171,277)        (56,688)
     (Decrease) increase in sponsored research payable.....................          --              (588)      1,026,875
                                                                              -----------    ------------    ------------
Net cash used by development stage activities..............................    (1,626,836)    (15,965,110)    (50,513,157)
                                                                              -----------    ------------    ------------
Cash flows from investing activities:
     Proceeds on sale of marketable securities.............................          --              --           175,085
     Acquisition of laboratory and office equipment, and
         leasehold improvements............................................       (47,992)         (2,596)       (497,116)
     Disposition of office equipment.......................................          --            33,560            --
     Increase in notes receivable in connection with sale of stock.........          --              --          (240,000)
     Decrease in loan receivable - former officer..........................          --            15,000            --
     Payments of notes receivable..........................................        10,000          47,200         229,600
     Purchase of Camelot Pharmacal, L.L.C., net cash acquired..............          --              --           (46,687)
                                                                              -----------    ------------    ------------
Net cash provided (used) by investing activities...........................       (37,992)         93,164        (379,118)
                                                                              -----------    ------------    ------------
Cash flows from financing activities:
     Principal payments under capital lease................................        (2,670)           --           (79,143)
     Proceeds from notes payable - related party...........................          --              --           154,145
     Repayments of notes payable - related party...........................      (104,145)           --          (154,145)
     Proceeds from issuance of convertible securities......................       500,000            --         3,800,000
     Conversion of convertible, subordinated notes.........................          --              --           749,976
     Proceeds from issuance of common and preferred stock..................          --        20,900,000      37,452,847
     Redemption of preferred stock.........................................          --              --        (1,250,000)
     Proceeds from exercise of warrants/stock options......................        74,375            --        11,476,533
                                                                              -----------    ------------    ------------
Net cash provided by financing activities..................................       467,560      20,900,000      52,150,213
                                                                              -----------    ------------    ------------

Net (decrease) increase in cash and cash equivalents.......................    (1,197,268)      5,028,054       1,257,938
Cash and cash equivalents at beginning of period...........................     2,456,290         393,608           1,084
                                                                              -----------    ------------    ------------
Cash and cash equivalents at end of period.................................   $ 1,259,022    $  5,421,662    $  1,259,022
                                                                              -----------    ------------    ------------
Noncash investing and financing activities:
     Common stock, stock options and warrants issued for services..........   $   105,642    $       --      $  2,387,615
     Common stock redeemed in payment of notes receivable..................          --              --            10,400
     Acquisition of research and development in-process technology.........          --              --         1,655,216
     Common stock issued for intellectual property rights..................          --              --           866,250
     Common stock issued to retire debt....................................          --              --           600,000
     Common stock issued to redeem convertible securities..................          --         4,019,263       5,353,368
     Securities acquired under sublicense agreement........................          --           350,000         850,000
     Equipment acquired under capital lease................................          --              --           121,684
     Notes payable converted to common stock...............................          --              --           749,976
     Stock dividends.......................................................       422,987            --         1,201,534
Supplemental disclosure of cash flow information:
     Interest paid.........................................................   $     4,152    $    182,195    $    271,553
</TABLE>
                See notes to consolidated financial statements.
                                      -5-
<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
    Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)
        For the Period from October 17, 1986 (inception) to June 30, 1999
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                            Notes
                                                                                          receivable
                                                                                             in
                                                                                           connection        Additional
                                                             Preferred        Common      with sale of        paid-in
                                                               stock          stock          stock            capital
                                                           -------------      ------      ------------       -----------

<S>                                                        <C>             <C>             <C>               <C>
Balance at October 17, 1986 ............................   $       --      $       --      $    --           $       --
Common stock issued ....................................           --        11,334,252         --            17,024,469
Reincorporation in Delaware at $.01 par value ..........           --       (11,220,369)        --            11,220,369
Common stock options issued ............................           --              --           --                75,000
Common stock subscribed ................................           --              --       (110,000)                 --
Comprehensive income (loss):
       Unrealized loss on marketable security ..........           --              --           --                    --
       Net loss ........................................           --              --           --                    --
          Comprehensive income (loss) ..................      ---------      ------------   -----------      -----------

Balance at December 31, 1996 ...........................           --           113,883     (110,000)         28,319,838
Issuance of common stock in connection with
     acquisition of Camelot Pharmacal, L.L.C ...........           --             6,000         --             1,644,000
Common stock issued ....................................           --             6,612       37,400           1,041,750
Common stock options and warrants issued ...............           --              --           --               165,868
Common stock options extended ..........................           --              --           --               215,188
Accretion of issuance costs for Series A preferred stock           --              --           --                    --
Comprehensive income (loss):
     Unrealized gain on marketable security ............           --              --           --                    --
     Net loss ..........................................           --              --           --                    --
          Comprehensive income (loss) ..................      ---------      ------------   -----------      -----------

Balance at December 31, 1997 ...........................           --           126,495      (72,600)         31,386,644
Common stock issued ....................................           --           144,089       62,600          12,472,966
Series C preferred stock issued ........................            115            --           --            11,499,885
Series C preferred stock dividends .....................              4            --           --               413,996
Accretion of issuance costs for Series A preferred stock           --              --           --                    --
Comprehensive income (loss):
     Unrealized loss on marketable security ............           --              --           --                    --
     Net loss ..........................................           --              --           --                    --
          Comprehensive income (loss) ..................
                                                            -----------      ------------   -----------      -----------

Balance at December 31, 1998 ...........................            119         270,584      (10,000)         55,773,491
Common stock issued ....................................           --               550       10,000              73,825
Series C preferred stock dividends .....................              4            --           --               421,996
Common stock warrants issued ...........................           --              --           --               105,642
Comprehensive income (loss):
     Unrealized gain on marketable security ............           --              --           --                    --
     Net loss ..........................................           --              --           --                    --
          Comprehensive income (loss) ..................
                                                            -----------    ------------   -----------        -----------
Balance at June 30, 1999 ...............................   $        123    $    271,134    $    --           $56,374,954
                                                            ===========    ============   ===========        ===========
</TABLE>
                See notes to consolidated financial statements.

                                      -6-
<PAGE>
<TABLE>
<CAPTION>
                                                                             Deficit           Total
                                                             Other         accumulated      stockholders'
                                                            comprehen-       during          equity (net
                                                            sive income    development        capital
                                                            (loss)           stage          deficiency)
                                                            -----------   ------------      -------------
<S>                                                       <C>          <C>             <C>
Balance at October 17, 1986 ............................  $    --      $       --           $        --
Common stock issued ....................................       --              --            28,358,721
Reincorporation in Delaware at $.01 par value ..........       --              --                    --
Common stock options issued ............................       --              --                75,000
Common stock subscribed ................................       --              --              (110,000)
Comprehensive income (loss):
       Unrealized loss on marketable security ..........    (39,232)           --               (39,232)
       Net loss ........................................       --       (26,588,652)        (26,588,652)
                                                                                           ------------
                                                                                            (26,627,884)
          Comprehensive income (loss) ..................   ---------    -----------        ------------

Balance at December 31, 1996 ...........................    (39,232)    (26,588,652)          1,695,837
Issuance of common stock in connection with
     acquisition of Camelot Pharmacal, L.L.C ...........       --              --             1,650,000
Common stock issued ....................................       --              --             1,085,762
Common stock options and warrants issued ...............       --              --               165,868
Common stock options extended ..........................       --              --               215,188
Accretion of issuance costs for Series A preferred stock       --           (79,500)            (79,500)
Comprehensive income (loss):
     Unrealized gain on marketable security ............     39,232            --                39,232
     Net loss ..........................................       --        (9,489,138)         (9,489,138)
                                                                                           ------------
          Comprehensive income (loss) ..................                                     (9,449,906)
                                                           --------    -----------         ------------

Balance at December 31, 1997 ...........................       --       (36,157,290)         (4,716,751)
Common stock issued ....................................       --              --            12,679,655
Series C preferred stock issued ........................       --              --            11,500,000
Series C preferred stock dividends .....................       --          (415,112)             (1,112)
Accretion of issuance costs for Series A preferred stock       --           (23,900)            (23,900)
Comprehensive income (loss):
     Unrealized loss on marketable security ............   (222,226)           --              (222,226)
     Net loss ..........................................       --       (18,560,461)        (18,560,461)
                                                                                           ------------
          Comprehensive income (loss) ..................                                    (18,782,687)
                                                           ---------    -----------        ------------

Balance at December 31, 1998 ...........................   (222,226)    (55,156,763)            655,205
Common stock issued ....................................       --              --                84,375
Series C preferred stock dividends .....................       --          (422,987)               (987)
Common stock warrants issued ...........................       --              --               105,642
Comprehensive income (loss):
     Unrealized gain on marketable security ............     63,585            --                63,585
     Net loss ..........................................       --        (2,649,666)         (2,649,666)
                                                                                           ------------
          Comprehensive income (loss) ..................                                     (2,586,081)
                                                           ---------    -----------        ------------
Balance at June 30, 1999 ...............................  $(158,641)   $(58,229,416)       $ (1,741,846)
                                                           =========   ============        ============
</TABLE>
                See notes to consolidated financial statements.

                                      -7-

<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (a development stage enterprise)
                   Notes to Consolidated Financial Statements
                                  June 30, 1999
                                   (Unaudited)


1.   BASIS OF PRESENTATION

     The  accompanying  consolidated  balance  sheet as of June 30, 1999 and the
     accompanying  consolidated  statements of operations,  stockholders' equity
     and cash  flows for the three and six months  ended June 30,  1999 and 1998
     and for the period from October 17, 1986 (inception) to June 30, 1999, have
     been prepared by Sheffield  Pharmaceuticals,  Inc.  without  audit.  In the
     opinion of management, all adjustments (consisting only of normal recurring
     accruals)  necessary to present fairly the financial  position,  results of
     operations,  stockholders'  equity and cash flows at June 30,  1999 and for
     all periods presented have been made.

     Certain information and footnote disclosures normally included in financial
     statements  prepared  in  accordance  with  generally  accepted  accounting
     principles  have been  condensed  or omitted.  It is  suggested  that these
     consolidated financial statements be read in conjunction with the financial
     statements  and notes thereto  included in the  Company's  annual report on
     Form 10-K for the year ended  December 31, 1998.  The results of operations
     for the  three  and six  months  ended  June  30,  1999  and  1998  are not
     necessarily indicative of the operating results for the full years.

     The  consolidated  interim  financial  statements  include the  accounts of
     Sheffield   Pharmaceuticals,   Inc.  and  its  wholly-owned   subsidiaries,
     including Systemic Pulmonary Delivery, Ltd., and Ion Pharmaceuticals,  Inc.
     and are herein referred to as "the Company." All  significant  intercompany
     transactions are eliminated in consolidation.

     The  accompanying  consolidated  interim  financial  statements  have  been
     prepared on a going concern basis which  contemplates  the  realization  of
     assets and satisfaction of liabilities and commitments in the normal course
     of business.  The Company is in the development  stage and to date has been
     principally  engaged in research,  development and licensing  efforts.  The
     Company has generated minimal operating revenue,  sustained significant net
     operating losses, and requires  additional capital that the Company intends
     to  obtain  through  out-licensing  as  well as  through  equity  and  debt
     offerings to continue to operate its  business.  The  Company's  ability to
     meet its  obligations as they become due and to continue as a going concern
     must be  considered  in  light of the  expenses,  difficulties  and  delays
     frequently encountered in developing a new business, particularly since the
     Company will focus on product development that may require a lengthy period
     of time and substantial  expenditures  to complete.  Even if the Company is
     able to successfully  develop new products,  there can be no assurance that
     the Company will generate sufficient revenues from the sale or licensing of
     such  products to be  profitable.  Management  believes  that the Company's
     ability to meet its  obligations  as they  become due and to  continue as a
     going concern through December 1999 is dependent upon obtaining  additional
     funding.   However,   the  accompanying   consolidated   interim  financial
     statements  do not  include  any  adjustments  that might  result  from the
     outcome of this uncertainty.

2.   BASIC LOSS PER COMMON SHARE

     Basic net loss per share is  calculated  in  accordance  with  Statement of
     Financial  Accounting Standards No. 128, Earnings Per Share. Basic net loss
     per share is based  upon the  weighted  average  common  stock  outstanding
     during each year.  Potentially  dilutive  securities such as stock options,
     warrants,  convertible debt and preferred stock,  have not been included in
     any years presented as their effect is antidilutive.

3.   UNEARNED REVENUE

     In May 1999, in  conjunction  with the completion of the Phase I/II Metered
     Solution  Inhaler-albuterol  trial,  Zambon Group, SpA provided the Company
     with a $1 million  interest-free advance against future milestone payments.
     Upon  the  attainment  of  certain  future  milestones,  the  Company  will
     recognize  this advance as revenue.  If the Company does not achieve  these
     future milestones,  the advance must be repaid in quarterly installments of
     $250,000  commencing on January 1, 2002. The proceeds from this advance are
     not restricted as to their use by the Company.

                                      -8-

<PAGE>
Item 2.

Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------

This report contains certain  forward-looking  statements  within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created hereby.  All  forward-looking  statements involve risks
and uncertainty.  Although the Company believes that the assumptions  underlying
the  forward-looking  statements  contained  herein are  reasonable,  any of the
assumptions could be inaccurate,  and therefore,  there can be no assurance that
the  forward-looking  statements  included  in  this  report  will  prove  to be
accurate. Important factors that could cause actual results to differ materially
from  the  forward-looking  statements  include  the  Company's  need to  obtain
substantial  additional  capital  (through  financings or otherwise) to fund its
operations and the program of development and licensing/commercialization of the
Company's  technologies.  In light of the significant  uncertainties inherent in
the   forward-looking   statements   included  herein,  the  inclusion  of  such
information  should not be  regarded as a  representation  by the Company or any
other person that the objectives and plans of the Company will be achieved.

Overview

The Company is a specialty pharmaceutical company focused on the development and
commercialization  of later  stage,  lower  risk  pharmaceutical  products  that
utilize the Company's delivery  technologies.  In 1997, the Company acquired the
Metered Solution Inhaler ("MSI")  pulmonary  delivery system through a worldwide
exclusive license and supply arrangement with Siemens AG. During the second half
of 1998,  the Company  acquired the rights to an additional  pulmonary  delivery
technology,  the Aerosol Drug  Delivery  System  ("ADDS")  from a subsidiary  of
Aeroquip-Vickers,  Inc.  ("Aeroquip-Vickers").  The  ADDS  technology  is a  new
generation propellant-based pulmonary delivery system.

Using these pulmonary delivery systems as platforms, the Company has established
strategic alliances with Elan Corporation,  plc ("Elan"), Siemens AG ("Siemens")
and  Zambon  Group  SpA  ("Zambon")  for  developing  initial  products.   In  a
collaboration  with Zambon,  the Company is developing a range of pharmaceutical
products  delivered  by the MSI to treat  respiratory  diseases.  As part of the
strategic  alliance  with  Elan,  a  world  leader  in  pharmaceutical  delivery
technology,  the Company is  developing  therapies  for systemic  diseases to be
delivered to the lungs. The initial  systemic  programs are for therapies in the
breakthrough pain and migraine  headache  markets.  Elan licensed two of its own
delivery   technologies  to  the  Company  that  complement  the  MSI  and  ADDS
technologies. Outside of its strategic alliances, the Company owns the worldwide
rights to respiratory disease  applications of all of its technologies,  subject
only to the MSI respiratory  rights licensed to Zambon. The Company will seek to
acquire additional novel platform drug delivery systems and technologies.

Results of Operations

Revenue

Sublicense  revenue  for the three  months  ended  June 30,  1998  relates to an
agreement with Lorus Therapeutics,  Inc. (formerly Imutec Pharma Inc.) licensing
the  rights to a series of  compounds  for the  treatment  of  cancer,  Kaposi's
sarcoma and actinic  kerotosis.  The Company  received  583,188  shares of Lorus
Therapeutics,  Inc. stock with a value of $350,000.  From inception  through the
period  ended  June 30,  1999,  the  Company  has earned  sublicense  revenue of
$1,360,000 related to the sublicensing of various early stage  technologies.  As
part of the Company's focus on later stage opportunities,  the Company continues
seeking to outlicense its remaining portfolio of early stage technologies. There
can be no assurance that the Company will receive license fees or other payments
related  to  these   technologies.   The  Company  believes  these  early  stage
technologies  will have no  material  impact on the  financial  position  of the
Company.

Interest  income was $17,476 and $2,562 for the quarter  ended June 30, 1999 and
1998,  respectively,  and $39,353 and $3,515,  for the six months ended June 30,
1999 and 1998,  respectively.  The increase  between  years is  attributable  to
higher available cash balances for investment  reflecting the cash received from
the sale of stock associated with the 1998 agreements with Zambon and Elan. From
inception  through the period  June 30,  1999,  the Company has earned  interest
income of $553,453.

The  Company's  ability to  generate  material  revenues  is  contingent  on the
successful  commercialization  of its  technologies  and other  technologies and
products  that  it  may  acquire,  followed  by  the  successful  marketing  and
commercialization  of such  technologies  through  licenses,  joint ventures and
other arrangements.
                                      -9-
<PAGE>
Acquisition of Research & Development In-Process Technology

Acquisition of research and development in-process technology of $12,500,000 for
the second quarter of 1998 relates to the purchase of certain  pulmonary  device
delivery  technologies  from Elan. The  acquisition of research and  development
in-process  technology  from inception to June 30, 1999 of $14,975,000  reflects
the  acquisitions  of Camelot  Pharmacal,  LLC in 1997 for  $1,650,000,  certain
delivery   technologies  from  Elan  totaling  $12,500,000  and  the  ADDS  from
Aeroquip-Vickers for $825,000 in 1998.

Research and Development

Research  and  development  expenses  were  $835,975 and $187,063 for the second
quarter of 1999 and 1998, respectively,  and $1,490,954 and $1,796,104,  for the
first half of 1999 and 1998,  respectively.  The  increase  for the three  month
period  ended June 30,  1999 of $648,912  primarily  resulted  from  development
expenses  associated with the ADDS which was purchased  during the third quarter
of 1998.  The  decrease  for the six  months  ended  June 30,  1999 of  $305,150
reflects  the  shifting  of  responsibility  for  development  expenses  of  the
respiratory  applications of the MSI to the Company's partner, Zambon, partially
offset by the above-mentioned increase in ADDS development expenses.

General and Administrative

General and  administrative  expenses  were  $632,693 and $882,409 for the three
months ended June 30, 1999 and 1998, respectively, and $1,132,356 and $1,494,899
for the six months ended June 30, 1999 and 1998, respectively.  The decrease for
the second quarter of 1999 of $249,716 was primarily attributable to the expense
associated  with the  settlement  of an old dispute with the innovator of one of
the Company's  early stage  research  projects,  and legal and  consulting  fees
associated  with  completing the agreements  with Zambon and Elan, both of which
occurred in 1998. The decrease for the first half of 1999 of $362,543 was due to
lower  compensation  expense reflecting fewer employees during the first quarter
of  1999  as  compared  to  the  same  period  in  1998,   in  addition  to  the
above-mentioned settlement and lower legal and consulting costs.

Interest Expense

Interest  expense was  $35,818  and  $86,211 for the second  quarter of 1999 and
1998,  respectively,  and $65,709 and  $128,681 for the first six months of 1999
and 1998,  respectively.  The decrease in 1999 as compared to 1998 resulted from
interest associated with the Company's Series A Cumulative Convertible Preferred
Stock and 6% Convertible  Subordinated Debentures which were both converted into
Common Stock during 1998.

Liquidity and Capital Resources

The Company's  cash available as of June 30, 1999 for funding its operations was
$1,259,022.  As of such date,  the  Company had trade  payables of $352,349  and
current research  obligations of $449,805.  In addition,  subsequent to June 30,
1999, the Company has committed to fund an additional $1,029,322 for development
of pulmonary delivery systems.

As part of an agreement with Elan,  Elan agreed to make available to the Company
a convertible  promissory  note that provides the Company the right to borrow up
to $2,000,000,  subject to satisfying certain conditions.  No more than $500,000
may be drawn under the note in any calendar quarter and at least one-half of the
proceeds must be used to fund SPD's development activities. As of June 30, 1999,
the Company had borrowed  $1,500,000  under this note. In July 1999, the Company
borrowed an additional $500,000 under the note.

In May 1999,  in  conjunction  with the  completion  of its Phase  I/II  Metered
Solution  Inhaler-albuterol trial, Zambon Group, SpA provided the Company with a
$1 million  interest-free  advance against future milestone  payments.  Upon the
attainment of certain future milestones, the Company will recognize this advance
as revenue. If the Company does not achieve these future milestones, the advance
must be repaid in quarterly  installments  of $250,000  commencing on January 1,
2002.  The proceeds from this advance are not  restricted as to their use by the
Company.  Upon the  achievement of certain other early  milestones,  Zambon will
provide an additional $1,000,000 advance under the terms of the agreement.

The  Company  expects to incur  additional  costs in the future to fund  certain
ongoing technology  research  projects,  including costs relating to its ongoing
research and development activities, and preclinical and clinical testing of its
product  candidates.  The Company may also bear considerable costs in connection
with  filing,  prosecuting,  defending  and/or  enforcing  its  patent and other
intellectual  property  claims.  There  can  be no  assurance  that  any  of the
technologies to which the Company  currently has or may acquire rights to can or
will  be   commercialized   or   that   any   revenues   generated   from   such
commercialization  will be sufficient  to fund existing and future  research and
development activities.
                                      -10-
<PAGE>

Because the  Company  does not expect to  generate  significant  cash flows from
operations for at least the next few years, the Company believes it will require
additional  funds to meet future  costs.  The Company  will  attempt to meet its
capital  requirements with existing cash balances and through  additional public
or private  offerings of its securities,  debt financing and  collaboration  and
licensing arrangements with other companies.  There can be no assurance that the
Company  will be able to  obtain  such  additional  funds  or  enter  into  such
collaborative and licensing  arrangements on terms favorable to the Company,  if
at all. The Company's development programs may be curtailed if future financings
are not completed.

Year 2000 Compliance

The   inability   of   computers,   software  and  other   equipment   utilizing
microprocessors  to recognize and properly process data fields  containing a two
digit year is  commonly  referred  to as the Year 2000  compliance  issue.  Such
systems that are not Year 2000  compliant may not be able to properly  interpret
dates beyond the Year 1999, which could lead to business disruptions in the U.S.
and internationally.  The potential costs and uncertainties  associated with the
Year 2000 issue will depend on a number of factors, including software, hardware
and the  nature  of the  industry  in which a  company  operates.  Additionally,
companies must  coordinate  with other  entities with which they  electronically
interact, such as customers, creditors and borrowers.

During 1998,  the Company  conducted an  assessment  of its computer  systems to
identify  systems that could be affected by the Year 2000 issue.  All identified
systems that could potentially be affected by the turnover to the Year 2000 were
tested.  During the second quarter of 1999, all noncompliant  internal  software
and hardware were replaced or upgraded to reach compliance.

The Company relies on various  universities  and  laboratories  for conducting a
significant portion of the research and development of its products. The Company
is currently in the process of  communicating  with third  parties with which it
does significant  business to determine their Year 2000 compliance readiness and
the  extent to which the  Company  is  vulnerable  to any third  party Year 2000
issues.  The Company  anticipates  completing  its third party review during the
third quarter of 1999. To date, all vendors that have responded to the Company's
requests are either fully compliant,  or plan to be within the timeframe for the
completion of this project.  However, there can be no guarantee that the systems
of third parties,  principally clinical research companies and institutions,  on
which the Company relies will be timely Year 2000 compliant or that a failure to
become Year 2000 compliant by another company, or a Year 2000 conversion process
that is incompatible with the Company's systems, would not have material adverse
effect on the Company,  including  delays of continued  research and development
efforts.  At this time, the Company does not anticipate this worst case scenario
to  occur,  nor does the  Company  anticipate  any  major  interruptions  in its
development efforts.

Due to the lack of legacy  systems  at the  Company  and the  limited  number of
issues that have arisen,  to date the Company has not  formalized a  contingency
plan. A formal contingency plan will be addressed after the communication effort
with outside vendors/contractors is completed. This contingency plan may include
alternate vendor selection if necessary, and address potential manual procedures
in areas where systems will not operate properly.

As of June 30,  1999 the  Company  has spent  approximately  $15,000  to replace
software and hardware which were identified as lacking  compliance.  The Company
estimates  that it will incur an  additional  $5,000 to  complete  its Year 2000
efforts.  These  costs and the date on which the Company  plans to complete  the
Year 2000  modification  and testing  processes are based on  management's  best
estimates,  which were derived utilizing  numerous  assumptions of future events
including  the  continued   availability  of  certain  resources,   third  party
modification  plans and other factors.  However,  there can be no assurance that
these  estimates  will be achieved  and actual  results  could differ from those
plans.
                                      -11-

<PAGE>
PART II:  OTHER INFORMATION

Item 2.   Changes in Securities.
          ---------------------

          The  following  unregistered  securities  were  issued by the  Company
          during the quarter ended June 30, 1999:

                             Number of
                              Shares
                            Sold/Issued    Offering/
Date of      Description    /Subject to    Exercise
Sale/        of Securities  Options or     Price per       Purchaser or
Issuance       Issued        Warrants      Share ($)          Class
----------     ------       ----------    ------------   ----------------

June 1999    Common stock    50,000         $2.25        Advisors in lieu
               warrants                                      of cash
                                                           consideration.

          The  issuance  of  these  securities  is  claimed  to be  exempt  from
          registration  pursuant to Section 4 (2) of the Securities Act of 1933,
          as  amended,  as  transactions  by an issuer  not  involving  a public
          offering.  There were no underwriting discounts or commissions paid in
          connection with the issuance of any of these securities.

Item 4.   Submission of Matters to a Vote of Security Holders
          ---------------------------------------------------

          An annual  Meeting  of  Stockholders  was held on June 29,  1999.  All
          management's  nominees for director,  as listed in the Proxy Statement
          for the Annual  Meeting,  were  elected.  Listed below are the matters
          voted on by  stockholders  and the  number of votes cast at the Annual
          Meeting.

     (a)  Election of members of the Board of Directors.
          ---------------------------------------------

                                            Voted    Votes     Broker Non-Votes
             Name              Voted for   Against  Withheld    and Absentions
             ----              ---------   -------  --------   -----------------
        Loren G. Peterson      23,119,708     -      63,905           -
        Thomas M. Fitzgerald   23,118,833     -      64,780           -
        John M. Bailey         23,118,883     -      64,730           -
        Digby W. Barrios       23,120,883     -      62,730           -
        Todd C. Davis          23,135,383     -      48,230           -
        George R. Griffiths    23,134,058     -      49,555           -

     (b)  Amendment to the Company's  Certificate of  Incorporation  to increase
          the number of shares of Common Stock that the Company is authorized to
          issue from 50,000,000 to 60,000,000.
          ---------------------------------------------------------------------

          Voted For:                          22,644,577
          Voted Against:                         422,316
          Voted Abstained:                       116,720
          Broker Non-Votes:                            -

     (c)  Ratification of Ernst & Young LLP as independent public accountant for
          fiscal year ending December 31, 1999.
          ----------------------------------------------------------------------

          Voted For:                          22,609,648
          Voted Against:                         449,900
          Voted Abstained:                       124,065
          Broker Non-Votes:                            -

Item 6.   Exhibits and Reports on Form 8-K.
          --------------------------------
          No reports on Form 8-K were filed  during the  quarter  ended June 30,
          1999.

          Exhibits
          --------

          No.       Description
          --        -----------
          27        Financial Data Schedule.
                                      -12-
<PAGE>

                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                                 SHEFFIELD PHARMACEUTICALS, INC.

Dated: August 11, 1999              /s/ Loren G. Peterson
                                    --------------------------------------------
                                    Loren G. Peterson
                                    President & Chief Executive Officer


Dated: August 11, 1999              /s/ Scott A. Hoffmann
                                    --------------------------------------------
                                    Scott A. Hoffmann
                                    Vice President & Chief Financial Officer
                                    (Principal Financial and Accounting Officer)

                                      -13-