--------------------------------------------------------------------------------
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                           ---------------------------

                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                      For Quarter Ended September 30, 1998
                         Commission File Number 1-12584

                          ----------------------------


                         SHEFFIELD PHARMACEUTICALS, INC.
                    (EXACT NAME OF REGISTRANT IN ITS CHARTER)


DELAWARE                                                              13-3808303
(State of Incorporation)                       (IRS Employer Identification No.)


425 SOUTH WOODSMILL ROAD, SUITE 270
ST. LOUIS, MISSOURI                                                   63017-3441
(Address of Principal Executive Offices)                              (Zip Code)


       Registrant's telephone number, including area code: (314) 579-9899





            Indicate by check 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 
                                    ----      ----

            The number of shares  outstanding  of the  issuer's  Common Stock is
27,058,419 shares of Common Stock as of September 30, 1998.



--------------------------------------------------------------------------------

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

                                      INDEX
                                      -----

                                                                            Page
PART I.                   Financial Information

             ITEM 1.      Financial Statements.

                           Consolidated  Balance  Sheets - September
                           30, 1998 and December 31, 1997.                    1

                           Consolidated Statements of Operations for          2
                           the three and nine months ended September
                           30, 1998 and 1997 and for the period from
                           October 17, 1986 (inception) to September
                           30, 1998.

                           Consolidated Statements of Cash Flows for        3-4
                           the three and nine months ended September
                           30, 1998 and 1997 and for the period from
                           October 17, 1986 (inception) to September
                           30, 1998.

                           Consolidated  Statements of Stockholders'        5-6
                           Equity (Net Capital  Deficiency)  for the
                           period from October 17, 1986  (inception)
                           to September 30, 1998.

                           Notes    to    Consolidated     Financial          7
                           Statements.                              


             ITEM 2.      

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

PART II.                   Other Information.

             ITEM 2.       Changes in Securities.                            12
             ITEM 4.       Submission   of  Matters  to  a  Vote  of         13
                           Security-Holders.
             ITEM 6.       Exhibits and Reports on Form 8-K.                 13

SIGNATURES                                                                   14

<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                                    September 30,
                                                                                                        1998           December 31,
                                                                                                     (Unaudited)           1997
                                                                                                   --------------      ------------
                                                               ASSETS
<S>                                                                                                 <C>                 <C>         
Current assets:
          Cash and cash equivalents                                                                $  2,585,013        $    393,608
          Marketable securities                                                                         200,500                --
          Loan receivable - former officer                                                               67,876              80,000
          Prepaid expenses and other current assets                                                      39,094              47,378
                                                                                                   ------------        ------------
               Total current assets                                                                   2,892,483             520,986
                                                                                                   ------------        ------------

Property and equipment:
          Laboratory equipment                                                                          264,273             185,852
          Office equipment                                                                              120,087             142,562
                                                                                                   ------------        ------------
                                                                                                        384,360             328,414
          Less accumulated depreciation and amortization                                                227,639             185,201
                                                                                                   ------------        ------------
               Net property and equipment                                                               156,721             143,213
                                                                                                   ------------        ------------

Other assets                                                                                              5,681              25,738
                                                                                                   ------------        ------------
               Total assets                                                                        $  3,054,885        $    689,937
                                                                                                   ============        ============

                        LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

Current liabilities:
          Accounts payable and accrued liabilities                                                 $    526,654        $    887,782
          Sponsored research payable                                                                    449,805             470,768
                                                                                                   ------------        ------------
               Total current liabilities                                                                976,459           1,358,550

Convertible promissory note                                                                             500,000                --
6% convertible subordinated debenture                                                                      --             1,551,000
Interest payable on debenture                                                                              --                28,875

Preferred stock, $.01 par value, authorized 3,000,000 shares:
          Series A cumulative convertible redeemable preferred stock,
                 0 and 10,000 shares issued and oustanding at September 30, 1998
                 and December 31, 1997, respectively                                                       --             2,468,263
          Series B cumulative convertible redeemable preferred stock,
                 0 shares issued and oustanding at September 30, 1998
                 and December 31, 1997                                                                     --                  --

Commitments and contingencies

Stockholders' equity (net capital deficiency):
           Series  C convertible preferred stock, 11,500 and 0 shares issued and
                   outstanding at September 30, 1998 and December 31, 1997,
                    respectively                                                                            115                --
          Common stock, $.01 par value.  Authorized, 50,000,000 shares;
                  issued and outstanding, 27,058,419 and 12,649,539
                  shares at September 30, 1998 and December 31, 1997, respectively                      270,584             126,495
          Notes receivable in connection with sale of stock                                             (12,500)            (72,600)
          Valuation allowance for unrealized loss on marketable securities                             (149,500)               --
          Additional paid-in capital                                                                 55,359,496          31,386,644
          Deficit accumulated during development stage                                              (53,889,769)        (36,157,290)
                                                                                                    -----------        ------------

                                                                                                      1,578,426          (4,716,751)
                                                                                                   ------------        ------------
                                                                                                                       ============
               Total liabilities and stockholders' equity (net capital deficiency)                 $  3,054,885        $    689,937
                                                                                                   ============        ============
</TABLE>

                                       1

     See accompanying notes to unaudited consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND FOR THE PERIOD
             FROM OCTOBER 17, 1986 (INCEPTION) TO SEPTEMBER 30, 1998
                                   (UNAUDITED)

                                                                                                                    October 17, 1986
                                                        Three months ended                 Nine months ended          (inception) to
                                                          September 30,                      September 30,            September 30,
                                              -------------------------------------------------------------------  -----------------
                                                   1998                1997          1998                1997              1998
                                              ---------------- ------------------ ---------------- --------------  -----------------
<S>                                             <C>               <C>               <C>               <C>                <C>      
Revenues:
     Sub-license revenue                      $       --        $       --        $    350,000      $       --           1,360,000
     Interest income                                32,450             9,391            35,965            49,363           489,792
                                              ------------      ------------      ------------      ------------      ------------

     Total revenue                                  32,450             9,391           385,965            49,363         1,849,792

Expenses:
     Acquisition of R & D in-process
          technology                               741,745              --          13,241,745         1,650,000        14,891,745
     Research and development                      218,063           570,170         2,014,167         3,283,632        21,266,557
     General and administrative                  1,039,390         1,325,874         2,534,289         3,087,103        19,056,548
     Interest                                      175,662             2,183           304,343             6,951           464,098
                                              ------------      ------------      ------------      ------------      ------------
     Total expenses                              2,174,860         1,898,227        18,094,544         8,027,686        55,678,948
                                              ------------      ------------      ------------      ------------      ------------

Loss before extraordinary item                  (2,142,410)       (1,888,836)      (17,708,579)       (7,978,323)      (53,829,156)
Extraordinary item                                    --                --                --                --              42,787

                                              ============      ============      ============      ============      ============
Net loss                                      $ (2,142,410)     $ (1,888,836)     $(17,708,579)     $ (7,978,323)      (53,786,369)
                                              ============      ============      ============      ============      ============

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

                                              ============      ============      ============      ============      ============
Net loss - attributable to common shares      $ (2,142,410)     $ (1,888,836)     $(17,732,479)     $ (7,978,323)     $(53,889,769)
                                              ============      ============      ============      ============      ============

Loss per share of common stock - basic 
  and diluted:
Loss before extraordinary item                $      (0.08)     $      (0.16)     $      (0.88)     $      (0.68)     $      (9.13)
Extraordinary item                                    --                --                --                --                0.01
                                              ============      ============      ============      ============      ============
Basic and diluted net loss per share          $      (0.08)     $      (0.16)     $      (0.88)     $      (0.68)            (9.12)
                                              ============      ============      ============      ============      ============


Weighted average common shares
     outstanding - basic and diluted:           26,858,366        12,077,667        20,203,133        11,765,653         5,900,036
                                              ============      ============      ============      ============      ============
</TABLE>


                                       2

     See accompanying notes to unaudited consolidated financial statements

<PAGE>
<TABLE>
<CAPTION>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND FOR THE PERIOD
             FROM OCTOBER 17, 1986 (INCEPTION) TO SEPTEMBER 30, 1998
                                   (UNAUDITED)

                                                                                     Three months ended        
                                                                                       September 30,           
                                                                              ---------------------------------
                                                                                   1998             1997       
                                                                              ---------------- ----------------

<S>                                                                              <C>              <C>          
Cash outflows from development stage activities 
  and extraordinary gain:
      Loss before extraordinary item                                             $ (2,142,410)    $ (1,888,836)
    Extraordinary gain on extinguishment of debt                                            -                - 
                                                                              ---------------- ----------------
      Net loss                                                                     (2,142,410)      (1,888,836)
Adjustments to reconcile net loss to net cash used by
   development stage activities:
    Issuance of common stock, stock options/warrants 
      for fees/services                                                               343,525          118,750 
    Non-cash interest income                                                             (670)               - 
    Non-cash interest expense                                                               -                - 
    Non-cash acquisition of R&D in process technology                                       -                - 
    Securities aquired under sub-license agreement                                          -                - 
    Issuance of common stock for intellectual property rights                               -                - 
    Amortization of organizational and debt issuance costs                                  -                - 
    Depreciation and amortization                                                      16,061           35,915 
    Increase in debt issuance and organizational costs                                      -                - 
    Loss realized on sale of marketable securities                                          -          300,259 
    Decrease (increase) in prepaid expenses and other current assets                   (5,643)         (14,324)
    Decrease (increase) in other assets                                                     -                - 
    Increase (decrease) in accounts payable, accrued liabilities                     (189,851)         292,130 
    Increase (decrease) in sponsored research payable                                 (20,375)        (196,598)
                                                                              ---------------- ----------------
      Net cash used by development stage activities                                (1,999,363)      (1,352,704)
                                                                              ---------------- ----------------
Cash flows from investing activities:
    Proceeds on sale of marketable securities                                               -          174,407 
    Decrease in segregated cash                                                             -           25,000 
    Acquisition of laboratory and office equipment                                    (86,910)          (1,801)
    Disposition of office equipment                                                         -                - 
    Increase in notes receivable in connection with sale of stock                           -                - 
    Decrease (increase) in loan receivable - former officer                            (2,876)               - 
    Payments received on notes receivable                                               2,500           37,400 
    Purchase of Camelot Pharmacal L.L.C., net of cash acquired                              -                - 
                                                                              ---------------- ----------------
      Net cash provided (used) by investing activities                                (87,286)         235,006 
                                                                              ---------------- ----------------
Cash flows from financing activities:
    Principal payments under capital lease                                                  -           (6,097)
    Proceeds from issuance of convertible notes                                       500,000                - 
    Conversion of convertible, subordinated notes                                           -                - 
    Proceeds from issuance of convertible debenture                                         -        1,589,614 
    Proceeds from issuance of common stock                                                  -                - 
    Proceeds from issuance of preferred stock                                               -                - 
    Redemption of preferred stock                                                  (1,250,000)               - 
    Proceeds from exercise of stock options                                                 -                - 
    Proceeds from exercise of warrants                                                      -                - 
                                                                              ---------------- ----------------
      Net cash provided (used) by financing activities                               (750,000)       1,583,517 
                                                                              ---------------- ----------------

      Net increase (decrease) in cash and cash equivalents                         (2,836,649)         465,819 
 Cash and cash equivalents at beginning of period                                   5,421,662          539,287 
                                                                              ================ ================
 Cash and cash equivalents at end of period                                       $ 2,585,013      $ 1,005,106 
                                                                              ================ ================

Noncash investing and financing activities:
    Common stock, stock options and warrants issued for services                    $ 343,525        $ 118,750 
    Common stock redeemed in payment of notes receivable                               10,400                - 
    Acquisiton of R&D in-process technology                                                 -                - 
    Common stock issued for intellectual property rights                                    -                - 
    Common stock issued to retire debt                                                      -                - 
    Common stock issued to redeem convertible securities                                    -                - 
    Securities acquired under sub-license agreement                                         -                - 
    Unrealized (realized) depreciation of investments                                 149,500                - 
    Equipment acquired under capital lease                                                  -                - 
    Notes payable converted to common stock                                                 -                - 
    Stock dividends                                                                         -                - 
                                                                              ================ ================

Supplemental disclosure of cash flow information:
   Interest paid                                                                    $ 175,662          $ 2,183 
                                                                              ================ ================
</TABLE>
                                       3

     See accompanying notes to unaudited consolidated financial statements

<PAGE>

<TABLE>
<CAPTION>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 AND FOR THE PERIOD
             FROM OCTOBER 17, 1986 (INCEPTION) TO SEPTEMBER 30, 1998
                                   (UNAUDITED)
                                                                                                                  October 17, 1986  
                                                                                       Nine months ended           (inception) to   
                                                                                         September 30,              September 30,   
                                                                               ---------------------------------- ------------------
                                                                                     1998             1997              1998        
                                                                               ----------------- ---------------- ------------------
                                                                                                                                    
<S>                                                                               <C>               <C>               <C>           
Cash outflows from development stage activities                                                                                     
  and extraordinary gain:                                                                                                           
      Loss before extraordinary item                                              $ (17,708,579)    $ (7,978,323)     $ (53,829,156)
    Extraordinary gain on extinguishment of debt                                              -                -             42,787 
                                                                               ----------------- ---------------- ------------------
      Net loss                                                                      (17,708,579)      (7,978,323)       (53,786,369)
Adjustments to reconcile net loss to net cash used by                                                                               
   development stage activities:                                                                                                    
    Issuance of common stock, stock options/warrants                                                                                
      for fees/services                                                                 359,914          143,750          2,281,973 
    Non-cash interest income                                                               (670)               -               (670)
    Non-cash interest expense                                                            46,174                -            125,049 
    Non-cash acquisition of R&D in process technology                                         -        1,650,000          1,650,000 
    Securities aquired under sub-license agreement                                     (350,000)               -           (850,000)
    Issuance of common stock for intellectual property rights                                 -                -            866,250 
    Amortization of organizational and debt issuance costs                                    -                -             77,834 
    Depreciation and amortization                                                        42,438           71,930            289,029 
    Increase in debt issuance and organizational costs                                        -                -            (77,834)
    Loss realized on sale of marketable securities                                            -          300,259            324,915 
    Decrease (increase) in prepaid expenses and other current assets                      8,284          (74,769)           (98,135)
    Decrease (increase) in other assets                                                  20,057              600             53,360 
    Increase (decrease) in accounts payable, accrued liabilities                       (361,128)         350,036            (45,200)
    Increase (decrease) in sponsored research payable                                   (20,963)        (445,120)         1,026,875 
                                                                               ----------------- ---------------- ------------------
      Net cash used by development stage activities                                 (17,964,473)      (5,981,637)       (48,162,923)
                                                                               ----------------- ---------------- ------------------
Cash flows from investing activities:                                                                                               
    Proceeds on sale of marketable securities                                                 -          174,407            175,085 
    Decrease in segregated cash                                                               -           25,000                  - 
    Acquisition of laboratory and office equipment                                      (89,506)          (3,888)          (406,858)
    Disposition of office equipment                                                      33,560                -             33,560 
    Increase in notes receivable in connection with sale of stock                             -                -           (240,000)
    Decrease (increase) in loan receivable - former officer                              12,124                -            (67,876)
    Payments received on notes receivable                                                49,700           37,400            217,100 
    Purchase of Camelot Pharmacal L.L.C., net of cash acquired                                -           (8,259)           (46,687)
                                                                               ----------------- ---------------- ------------------
      Net cash provided (used) by investing activities                                    5,878          224,660           (335,676)
                                                                               ----------------- ---------------- ------------------
Cash flows from financing activities:                                                                                               
    Principal payments under capital lease                                                    -          (19,538)           (72,453)
    Proceeds from issuance of convertible notes                                         500,000                -            500,000 
    Conversion of convertible, subordinated notes                                             -                -            749,976 
    Proceeds from issuance of convertible debenture                                           -        1,589,614          2,300,000 
    Proceeds from issuance of common stock                                            8,150,000                -         21,418,035 
    Proceeds from issuance of preferred stock                                        12,750,000        3,212,136         16,034,812 
    Redemption of preferred stock                                                    (1,250,000)               -         (1,250,000)
    Proceeds from exercise of stock options                                                   -                -          1,337,677 
    Proceeds from exercise of warrants                                                        -                -         10,064,481 
                                                                               ----------------- ---------------- ------------------
      Net cash provided (used) by financing activities                               20,150,000        4,782,212         51,082,528 
                                                                               ----------------- ---------------- ------------------
                                                                                                                                    
      Net increase (decrease) in cash and cash equivalents                            2,191,405         (974,765)         2,583,929 
 Cash and cash equivalents at beginning of period                                       393,608        1,979,871              1,084 
                                                                               ================= ================ ==================
 Cash and cash equivalents at end of period                                         $ 2,585,013      $ 1,005,106        $ 2,585,013 
                                                                               ================= ================ ==================
                                                                                                                                    
Noncash investing and financing activities:                                                                                         
    Common stock, stock options and warrants issued for services                      $ 359,914        $ 143,750        $ 2,281,173 
    Common stock redeemed in payment of notes receivable                                 10,400                -             10,400 
    Acquisiton of R&D in-process technology                                                   -        1,650,000          1,650,000 
    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 sub-license agreement                                     350,000                -            850,000 
    Unrealized (realized) depreciation of investments                                   149,500                -            149,500 
    Equipment acquired under capital lease                                                    -                -             72,453 
    Notes payable converted to common stock                                                   -                -            749,976 
    Stock dividends                                                                     182,195                -            364,547 
                                                                               ================= ================ ==================
                                                                                                                                    
Supplemental disclosure of cash flow information:                                                                                   
   Interest paid                                                                      $ 183,081          $ 6,951          $ 307,631 
                                                                               ================= ================ ==================
                                                                                                                                    
</TABLE>
                                       4

     See accompanying notes to unaudited consolidated financial statements

<PAGE>
<TABLE>
<CAPTION>

               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 SEPTEMBER 30, 1998
                                   (UNAUDITED)

                                                                                                     Notes                         
                                                                                                   receivable                      
                                                                                                  in connection     Additional     
                                                                Common           Preferred         with sale          paid-in      
                                                                stock              stock            of stock          capital      
                                                           ----------------- ------------------ ----------------- ---------------- 
<S>                                                           <C>                    <C>           <C>              <C>           
Balance at October 17, 1986                                               -                  -                 -                -  
Common stock issued                                            $ 11,288,329                  -                 -        $ 254,864  
Common stock options issued                                               -                  -                 -           75,000  
Net loss                                                                  -                  -                 -                -  
                                                           ----------------- ------------------ ----------------- ---------------- 
Balance at December 31, 1994                                     11,288,329                  -                 -          329,864  
Reincorporation in Delaware at $.01 par value                   (11,220,369)                 -                 -       11,220,369  
Common stock issued                                                  27,656                  -                 -        9,726,277  
Net loss                                                                  -                  -                 -                -  
                                                           ----------------- ------------------ ----------------- ---------------- 
Balance at December 31, 1995                                         95,616                  -                 -       21,276,510  
Common stock issued                                                  18,267                  -                 -        7,043,328  
Common stock subscribed                                                   -                  -        $ (110,000)               -  
Unrealized loss on marketable securities                                  -                  -                 -                -  
Net 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 cumulative
 convertible redeemable preferred stock                                   -                  -                 -                -  
Unrealized gain on marketable securities                                  -                  -                 -                -  
Net loss                                                                  -                  -                 -                -  
                                                           ----------------- ------------------ ----------------- ---------------- 
Balance at December 31, 1997                                        126,495                  -           (72,600)      31,386,644  
Common stock issued                                                  30,933                  -            23,300        2,216,397  
Accretion of issuance costs for cumulative
 convertible redeemable preferred stock                                   -                  -                 -                -  
Net loss                                                                  -                  -                 -                -  
                                                           ----------------- ------------------ ----------------- ---------------- 
Balance at March 31, 1998                                           157,428                  -           (49,300)      33,603,041  
Common stock issued                                                 111,106                  -            23,900        9,926,164  
Preferred stock issued                                                    -              $ 115                 -       11,499,885  
Net loss                                                                  -                  -                 -                -  
                                                           ----------------- ------------------ ----------------- ---------------- 
Balance at June 30, 1998                                            268,534                115           (25,400)      55,029,090  
Common stock issued                                                   2,050                  -            12,900          330,406  
Unrealized loss on marketable securities                                  -                  -                 -                -  
Net loss                                                                  -                  -                 -                -  
                                                           ========================================================================
Balance at September 30,1998                                      $ 270,584              $ 115         $ (12,500)    $ 55,359,496  
                                                           ========================================================================

</TABLE>
                                       5

     See accompanying notes to unaudited consolidated financial statements

<PAGE>

<TABLE>
<CAPTION>
               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 SEPTEMBER 30, 1998
                                   (UNAUDITED)

                                                    Unrealized          Deficit             Total           
                                                    gain (loss)       accumulated       stockholders'       
                                                        on               during             equity          
                                                    marketable        development        (Net capital       
                                                    securities           stage           deficiency)        
                                                 ------------------ -----------------  -----------------    
<S>                                                    <C>            <C>                  <C>             
Balance at October 17, 1986                                      -                 -                  -     
Common stock issued                                              -                 -       $ 11,543,193     
Common stock options issued                                      -                 -             75,000     
Net loss                                                         -     $ (12,192,046)       (12,192,046)    
                                                 ------------------ -----------------  -----------------    
Balance at December 31, 1994                                     -       (12,192,046)          (573,853)    
Reincorporation in Delaware at $.01 par value                    -                 -                  -     
Common stock issued                                              -                 -          9,753,933     
Net loss                                                         -        (7,387,717)        (7,387,717)    
                                                 ------------------ -----------------  -----------------    
Balance at December 31, 1995                                     -       (19,579,763)         1,792,363     
Common stock issued                                              -                 -          7,061,595     
Common stock subscribed                                          -                 -           (110,000)    
Unrealized loss on marketable securities                 $ (39,232)                -            (39,232)    
Net loss                                                         -        (7,008,889)        (7,008,889)    
                                                 ------------------ -----------------  -----------------    
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 cumulative                                                                  
 convertible redeemable preferred stock                          -           (79,500)           (79,500)    
Unrealized gain on marketable securities                    39,232                 -             39,232     
Net loss                                                         -        (9,489,138)        (9,489,138)    
                                                 ------------------ -----------------  -----------------    
Balance at December 31, 1997                                     -       (36,157,290)        (4,716,751)    
Common stock issued                                                                           2,270,630     
Accretion of issuance costs for cumulative                                                                  
 convertible redeemable preferred stock                          -           (23,900)           (23,900)    
Net loss                                                         -        (2,263,048)        (2,263,048)    
                                                 ------------------ -----------------  -----------------    
Balance at March 31, 1998                                        -       (38,444,238)        (4,733,069)    
Common stock issued                                              -                 -         10,061,170     
Preferred stock issued                                           -                 -         11,500,000     
Net loss                                                         -       (13,303,121)       (13,303,121)    
                                                 ------------------ -----------------  -----------------    
Balance at June 30, 1998                                         -       (51,747,359)         3,524,980     
Common stock issued                                              -                 -            345,356     
Unrealized loss on marketable securities                  (149,500)                -           (149,500)    
Net loss                                                         -        (2,142,410)        (2,142,410)    
                                                ========================================================    
Balance at September 30,1998                            $ (149,500)    $ (53,889,769)       $ 1,578,426     
                                                ========================================================    
</TABLE>

      See accompanying notes to unaudited consolidated financial statements

                                       6
<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)


1.          CONSOLIDATED FINANCIAL STATEMENTS

            The  accompanying  consolidated  balance  sheets as of September 30,
            1998  and  December  31,  1997  and  the  accompanying  consolidated
            statements  of  operations  and cash  flows  for the  three and nine
            months  ended  September  30,  1998 and 1997 and for the period from
            October  17, 1986  (inception)  to  September  30,  1998,  have been
            prepared by Sheffield Pharmaceuticals,  Inc. (the "Company") 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,  and  cash  flows  at
            September 30, 1998 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,  as amended,  for the
            year ended  December 31,  1997.  The results of  operations  for the
            three and nine  months  ended  September  30,  1998 and 1997 are not
            necessarily indicative of the operating results for the full years.

            Sheffield Medical  Technologies Inc.  ("Sheffield") was incorporated
            on October 17, 1986. The Company's wholly-owned  subsidiary,  U-Tech
            Medical Corporation  ("U-Tech") was incorporated on January 13, 1992
            and was  liquidated  on June 30,  1997.  On January  26,  1995,  the
            Company's   shareholders  approved  the  proposal  to  reincorporate
            Sheffield  in  Delaware,  which was  effected on June 13,  1995.  On
            January 10, 1996, Ion Pharmaceuticals, Inc. ("Ion"), was formed as a
            wholly-owned  subsidiary of the Company.  At that time, Ion acquired
            the Company's rights to certain early-stage biomedical technologies.
            On April 17, 1997, CP  Pharmaceuticals,  Inc.  ("CP") was formed for
            the purpose of acquiring Camelot Pharmacal, L.L.C., a privately held
            pharmaceutical    development   company,   which   acquisition   was
            consummated  on April 25,  1997.  On June 26,  1997,  the  Company's
            shareholders  approved the proposal to change  Sheffield's name from
            Sheffield Medical  Technologies  Inc. to Sheffield  Pharmaceuticals,
            Inc. As part of an agreement with Elan Corporation, plc, on June 30,
            1998,  Systemic  Pulmonary  Delivery,  Ltd.  ("SPD") was formed as a
            wholly-owned  subsidiary of the Company.  At that time, SPD acquired
            the  Company's  rights to the systemic  applications  of the Metered
            Solution  Inhaler  ("MSI")  and  acquired  Elan's  rights to certain
            pulmonary  delivery   technologies.   Unless  the  context  requires
            otherwise, Sheffield, U-Tech, Ion, CP and SPD are referred herein to
            as "the  Company." All  significant  intercompany  transactions  are
            eliminated in consolidation.

            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 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 has the ability to
            meet its  obligations  as they become due and to continue as a going
            concern through December 1998.

                                        7
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998
                                   (UNAUDITED)

2.          LOSS PER COMMON SHARE

            In 1997, the Financial  Accounting  Standards  Board ("FASB") issued
            Statement  of  Financial  Accounting  Standards  ("SFAS")  No.  128,
            Earnings Per Share.  SFAS No. 128 replaced the  previously  reported
            primary and fully diluted  earnings per share with basic and diluted
            earnings  per  share.  Unlike  primary  earnings  per  share,  basic
            earnings  per  share  excludes  any  dilutive  effects  of  options,
            warrants and convertible  securities.  Diluted earnings per share is
            very similar to the previously  reported fully diluted  earnings per
            share.  Basic net loss per share is based upon the weighted  average
            Common Stock  outstanding  during each year.  Options,  warrants and
            convertible   securities   are  not  included  as  their  effect  is
            antidilutive.  The  effect  of  adoption  of  SFAS  No.  128  had no
            financial impact, and accordingly,  no restatement of loss per share
            for prior periods was necessary.

3.          IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

            On January 1, 1998 the  Company  adopted  SFAS No.  130,  "Reporting
            Comprehensive  Income"  ("SFAS No. 130").  SFAS No. 130  establishes
            standards for the reporting and display of comprehensive  income and
            its  components and is applied to all  enterprises.  The adoption of
            SFAS No. 130 had no impact on the Company's  consolidated results of
            operations, financial position or cash flows.

            In June 1997,  the FASB  issued  SFAS No.  131.  "Disclosures  about
            Segments of an Enterprise and Related Information" ("SFAS No. 131").
            SFAS No. 131 establishes  standards for the way that public business
            enterprises  report  information about operating  segments in annual
            financial  statements  and requires  that those  enterprises  report
            selected  information about operating  segments in interim financial
            reports issued to stockholders.  It also  establishes  standards for
            related  disclosures about products and services,  geographic areas,
            and  major  customers.  SFAS  No.  131 is  effective  for  financial
            statements for fiscal years  beginning  after December 15, 1997. The
            Company will adopt the new requirements in conjunction with its 1998
            Form 10-K.  The  adoption  of SFAS No. 131 will have no  significant
            impact on the Company's financial reporting.

4.          SIGNIFICANT TRANSACTIONS

            On April 15, 1998,  the Company  issued 1,250 shares of its Series B
            Cumulative  Convertible  Redeemable  Preferred  Stock  in a  private
            placement for an aggregate purchase price of $1,250,000. On July 31,
            1998,  all of the Series B Preferred  Stock was redeemed for cash by
            the Company.

            On July 15, 1998, the Company  acquired from Aeroquip  Corporation a
            new generation  metered dose inhaler (MDI) system called the Aerosol
            Drug Delivery  System (ADDS) for $825,000 cash. Part of the purchase
            price  was made in the form of an option  payment  made  during  the
            quarter ended June 30, 1998. The remainder has been expensed  during
            the quarter  ended  September  30, 1998 as acquired  R&D  in-process
            technology  because the assets  acquired,  which  consist  solely of
            intellectual   property  related  to  ADDS,  have  not  demonstrated
            technological  feasibility and have no alternative  future uses. SPD
            holds the rights to all systemic  disease  applications  of the ADDS
            technology  while  Sheffield  retains  the  rights  to  develop  the
            respiratory disease applications of ADDS.

            On  September  29,  1998,  the  Company  received  $500,000  from an
            affiliate of Elan  Corporation,  plc. Such funds were borrowed under
            the terms of a convertible  promissory note that provides  Sheffield
            with the right to borrow up to $2  million,  subject  to  satisfying
            certain  conditions.  No more than  $500,000 may be drawn under this
            note in any calendar  quarter and at least  one-half of the proceeds
            must be used to fund SPD's  development  activities.  The  principal
            outstanding under this note draws interest at the prime rate plus 1%
            and, if not previously converted, matures on June 30, 2005. Prior to
            repayment,  Elan has the right to convert all  principal and accrued
            interest into shares of Sheffield common stock at a conversion price
            of $1.75 per share.

                                       8
<PAGE>

                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)


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 THEREBY.  ALL FORWARD-LOOKING  STATEMENTS INVOLVE RISKS
AND UNCERTAINTY,  INCLUDING WITHOUT LIMITATION,  THE SUCCESSFUL  DEVELOPMENT AND
LICENSING OF THE COMPANY'S TECHNOLOGIES AND THE SUCCESSFUL COMPLETION OF PLANNED
FINANCINGS.  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.   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  opportunities,
particularly those utilizing unique pulmonary delivery technologies over a range
of therapeutic  areas.  The Company is focusing its resources on the development
and  commercialization  of pharmaceutical  products whose utility and commercial
potential  can be  exploited  or enhanced  by  delivery in one of the  Company's
proprietary  pulmonary delivery systems.  The Company has established  strategic
alliances with Siemens AG, Zambon Group SpA, and Elan  Corporation,  plc for the
development of these systems. The Company,  through its wholly-owned subsidiary,
Systemic  Pulmonary  Delivery,  Ltd.  ("SPD"),  has  expanded  its  portfolio of
proprietary  pulmonary delivery technologies with the recent acquisitions of the
UPDAS(TM)  and  Enhancing  Technology  from Elan  Corporation,  plc and the ADDS
system from Aeroquip  Corporation.  The Company will seek to acquire  additional
novel platform drug delivery systems and technologies.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash available for funding its operations as of September 30, 1998
was $2,585,013.  As of such date, the Company had trade payables of $526,654 and
current research obligations of $449,805. At September 30, 1998, the Company had
$1.5  million  available  to be  borrowed  under  the  terms  of a $2.0  million
convertible  promissory note from an affiliate of Elan  Corporation plc. No more
than $500,000 may be drawn under this note in any calendar  quarter and at least
one-half of the proceeds must be used to fund SPD's development  activities.  In
addition,  under the terms of its agreement with Zambon Group,  SpA, the Company
will be entitled to receive two  separate  $1.0 million  interest-free  advances
against future milestone  payments upon the  demonstration of certain  technical
capabilities  related to the performance of the Metered  Solution  Inhaler (MSI)
during the initial stage of the development program for respiratory drugs in the
MSI.

As a result of its development and growth plans, the Company will need to obtain
additional  funds  for  its  business  through  operations  or  equity  or  debt
financings,  collaborative  arrangements  with corporate  partners or from other
resources.  No assurance can be given that these funds will be available for the
Company to finance its development and growth on acceptable terms, if at all. If
adequate  funds are not  available  from  operations  or  additional  sources of
funding, the Company's business will suffer a material adverse effect.

                                       9
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

The  Company's  operations  to date have  consumed  substantial  and  increasing
amounts of cash. The negative cash flow from  operations is expected to continue
in the foreseeable  future.  The Company has not yet begun to generate  revenues
from the sale of products.  The  Company's  products  will  require  significant
additional    development,    clinical   testing   and   investment   prior   to
commercialization.   The  Company  does  not  expect  regulatory   approval  for
commercial sales of any of its products in the immediate future. There can be no
assurance that such products will be successfully  developed,  proven to be safe
and  efficacious  in  clinical  trials,  able  to  meet  applicable   regulatory
standards,  able  to  obtain  required  regulatory  approvals,  or  produced  in
commercial quantities at reasonable costs or be successfully  commercialized and
marketed.

The owners and licensors of the  technology  rights  acquired by the Company are
entitled to receive a certain  percentage  of all royalties and payments in lieu
of royalties received by the Company from commercialization, if any, of products
in respect of which the Company holds licenses.  Accordingly, in addition to its
substantial  investment in product development,  the Company will be required to
make  substantial  payments to others in connection  with revenues  derived from
commercialization  of products,  if any,  developed  under  licenses the Company
holds.  Consequently,  the  Company  will not  receive  the full  amount  of any
revenues that may be derived from  commercialization of products to fund ongoing
operations.

Under the terms of existing agreements, the Company is obligated to make certain
payments to its licensors. In the event that the Company defaults on the payment
of an installment under the terms of an existing licensing agreement, its rights
thereunder  could be  forfeited.  As a  consequence,  the Company could lose all
rights  under  a  license   agreement  to  the  related   licensed   technology,
notwithstanding the total investment made through the date of the default. There
can be no  assurance  that  unforeseen  obligations  or  contingencies  will not
deplete the Company's financial resources and, accordingly, sufficient resources
may not be available to fulfill the Company's commitments.

RESULTS OF OPERATIONS

The Company, a development stage enterprise,  has incurred a net loss in each of
the fiscal years since its inception  and has had to rely on outside  sources of
funds to maintain its liquidity.  Additional operating losses are expected to be
incurred for the next few years as the Company expends its resources for product
acquisition, research and development and preclinical and clinical testing.

As a development  stage company without  significant  revenues,  the Company has
financed its development  activities and operations primarily through public and
private  offerings  of  securities,  from  which it has raised an  aggregate  of
approximately $52.2 million through September 30, 1998.

Revenues:

From  inception  through the period ended  September  30, 1998,  the Company has
earned  sub-license  revenue  of  $1,360,000  relative  to  various  early-stage
technologies.  The Company earned no  sub-license  revenue for the quarter ended
September 30, 1998.

From  inception  through the period ended  September  30, 1998,  the Company has
earned  interest income of $489,792 and had an  extraordinary  item from gain on
early  extinguishment  of debt of  $42,787.  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 or other arrangements.

Interest  income for the three  months  ended  September  30,  1998 was  $32,450
compared to $9,391 for the same period ended September 30, 1997. The increase in
interest  earned is attributable to an increase in cash available for investment
during the period ended September 30, 1998.  Except for the sub-license  revenue
mentioned above, interest income represented all of the Company's income in each
of the prior periods.

                                       10
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

Operating Expenses:

From inception through the period ended September 30, 1998, the Company incurred
$55,678,948  of operating  expenses.  Of the total  operating  expenses for that
period,  $21,266,557  were costs of research and  development  for the Company's
technologies and $14,891,745 for the acquisition of R & D in-process technology.
The  remainder  of expenses  for the same period were  incurred  principally  as
consulting  costs,  costs of management,  legal and other  professional fees and
expenses relating to the Company's technologies,  and for the cost of completing
its financings.  Research and  development  costs are expected to remain high as
the  Company  develops  its  current   technologies   and  acquires   additional
technologies.  Such costs will continue to be expensed for  financial  reporting
purposes.

Operating  expenses  for  the  three  months  ended  September  30,  1998,  were
$2,174,860  compared to $1,898,226 for the same period ended September 30, 1997.
Of the total  operating  expenses  for the  period  ended  September  30,  1998,
$218,063 were costs of research and development  for the Company's  technologies
and $741,745 for the acquisition of R & D in-process  technology  related to the
ADDS  system.  General and  administrative  expenses  for the three months ended
September 30, 1998 were  $1,039,390  compared to $1,325,874  for the same period
ended September 30, 1997. The reduction in general and  administrative  expenses
is primarily due to the relocation of the Company's  headquarters  to St. Louis,
Missouri.  Interest  expense for the three months ended  September 30, 1998 were
$175,662  compared to $2,183 for the same period ended  September 30, 1997.  The
increase in interest  expense is attributable to the redemption of the Company's
Series B cumulative convertible redeemable preferred stock.

The  Company's  direct  research  and  development  expenses  were  $794,822 and
$32,002,860 for the three months ended September 30, 1998 and from the Company's
inception to September 30, 1998,  respectively.  The Company's  committed direct
research and  development  funding after  September  30, 1998 is currently  $2.0
million and relates primarily to the development of certain  pulmonary  delivery
technologies  by  SPD  (i.e.,  systemic  applications  of  the  MSI,  UPDAS(TM),
Enhancing  Technology,  and ADDS technologies).  The Company anticipates funding
the  development  costs  associated  with the  respiratory  applications  of the
UPDAS(TM) and ADDS  technologies,  the anticipated  costs of which have not been
determined at the time of this filing.  The Company continues to out-license the
early-stage  technologies  remaining  in its  portfolio,  seeking  organizations
having the interest and resources to continue development accordingly.


                                       11
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)

PART II:    OTHER INFORMATION

ITEM 2.     CHANGES IN SECURITIES.
            ----------------------

            The  following  unregistered  securities  were issued by the Company
            during the quarter ended September 30, 1998:


<TABLE>
<CAPTION>
                                                         Number of 
                                                          Shares
                                                        Sold/Issued
                                                         /Subject to
               Date of          Description               Options or       Offering/Exercise 
            Sale/Issuancd    of Securities Issued          Warrants        Price Per Share ($)        Purchaser Or Class
            -------------    --------------------      ---------------     -------------------        ------------------

           <S>                 <C>                        <C>                  <C>                 <C>
           June 1998           Common Stock               150,000              $1.6875             Holders of Short-term Notes
                               Warrants                                                            Originated and Repaid during the
                                                                                                   period

           July 1998           Common Stock               187,500           $1.025 - $3.50         Advisors in lieu of cash
                               Warrants                                                            consideration

           August 1998         Common Stock               620,000          $1.2375 - $3.125        Issuance to employees pursuant
                               Options                                                             to 1993 Stock Option Plan

           August 1998         Common Stock Options       325,000               $1.75              Employees

           September 1998      Common Stock                25,000              $1.4375             Issuance to eligible Directors
                               Options                                                             pursuant to the 1996 Directors
                                                                                                   Stock Option Plan

           September 1998      Common Stock Warrants      100,000               $1.125             Holders of Short-term Notes
                                                                                                   Originated during the period

           September 1998      Common Stock                35,000               $1.375             Advisors in lieu of cash
                                                                                                   consideration

           September 1998      Common Stock               175,000               $1.688             Advisors in lieu of cash
                                                                                                   consideration
</TABLE>

                        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.

                                       12
<PAGE>
 ITEM 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

                        An annual Meeting of  Stockholders  was held on July 15,
                        1998. 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.

<TABLE>
<CAPTION>
                                                                   Voted          Votes       Broker Non-Votes
                                Name             Voted For        Against       Withheld       And Abstentions
                                ----             ---------        -------       --------       ---------------

                        <S>                     <C>                  <C>         <C>                  <C>
                         Loren G. Peterson      15,386,075           0           92,985               0
                        Thomas M. Fitzgerald    15,379,375           0           99,685               0
                           John M. Bailey       15,382,975           0           96,085               0
                          Digby W. Barrios      15,382,975           0           96,085               0
</TABLE>

            (B)         AMENDMENT  TO THE  COMPANY'S  1993 STOCK  OPTION PLAN TO
                        INCREASE  THE NUMBER OF SHARES OF THE  COMPANY'S  COMMON
                        STOCK  AVAILABLE FOR ISSUANCE  THEREUNDER FROM 3,000,000
                        TO 4,000,000 SHARES.

                         Voted For:                              15,105,464
                         Voted Against:                             334,110
                         Voted Abstained:                            39,486
                         Broker Non-Votes:                                0

            (C)          RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT PUBLIC
                         ACCOUNTANT FOR FISCAL YEAR ENDING DECEMBER 31, 1998.

                         Voted For:                              14,428,770
                         Voted Against:                             446,343
                         Voted Abstained:                           603,947
                         Broker Non-Votes:                                0


ITEM 6.                 EXHIBITS AND REPORTS ON FORM 8-K.

                        (a)         EXHIBITS

                        NO.                     DESCRIPTION

                        27                      Financial Data Schedule.

                        (b)      REPORTS ON FORM 8-K

                        The Company filed a current  Report on Form 8-K with the
Securities  and Exchange  Commission  on July 16, 1998 relating to the Company's
consummation  of a license and  financing  transaction  with Elan  International
Services,  Ltd. (an affiliate of Elan  Corporation  plc) in accordance  with the
terms of the binding letter of intent dated June 3, 1998.


                                       13
<PAGE>
                SHEFFIELD PHARMACEUTICALS, INC. AND SUBSIDIARIES
                        (A DEVELOPMENT STAGE ENTERPRISE)



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:  November 13, 1998            /S/ LOREN G. PETERSON
                                    ----------------------
                                    Loren G. Peterson
                                    President & Chief Executive Officer


Dated:  November 13, 1998            /S/ JUDY ROESKE BULLOCK
                                    ------------------------
                                    Judy Roeske Bullock
                                    Vice President & Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                       14