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

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

                                   FORM 10-QSB
(Mark One)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

               For the quarterly period ended June 30, 1998

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from __________ to __________

                         Commission File Number 0-27578

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

                              SUNPHARM CORPORATION
        (Exact name of small business issuer as specified in its charter)

          DELAWARE                                       F593097048
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)                         

                         4651 Salisbury Road, Suite 205
                           Jacksonville, Florida 32256
                    (Address of principal executive offices)

                    Issuer's telephone number: (904) 296-3320

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

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

                              Yes  [X]          No  [ ]

         Number of shares of the issuer's Common Stock  outstanding as of August
7, 1998: 5,767,830


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<PAGE>

                 STATEMENT REGARDING FORWARD-LOOKING INFORMATION



         This  Quarterly   Report  on  Form  10-QSB   contains   forward-looking
statements  within the meaning of Section 27A of the  Securities Act of 1933 and
Section 21E of the Securities  Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as a result of
a number of important factors.  For a discussion of important factors that could
affect the  Company's  results,  please refer to the  discussions  herein and to
those contained in the Company's Annual Report on Form 10-KSB for the year ended
December  31, 1997 under the  caption  "Item 1.  Description  of Business - Risk
Factors."

                          PART 1. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

         The  following  unaudited  financial   statements  have  been  prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and notes disclosures, normally included in annual financial
statements prepared in accordance with generally accepted accounting principles,
have been omitted pursuant to these rules and regulations.  However, the Company
believes that the disclosures  made herein are adequate and,  accordingly,  that
the information  presented is not misleading.  These financial statements should
be read in  conjunction  with the  financial  statements  and notes for the year
ended  December 31, 1997,  which are included in the Company's  Annual Report on
Form  10-KSB  for the year  ended  December  31,  1997,  filed  pursuant  to the
Securities Exchange Act of 1934.

                                      -2-
<PAGE>

                              SUNPHARM CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                  June 30,      December 31,
                                                                    1998            1997
                                                                ------------   ------------
<S>                                                           <C>              <C> 
                    ASSETS
Current Assets:
     Cash ..................................................   $    177,436    $    356,969

     Short-term investments ................................      2,079,143       4,268,566
     Receivables ...........................................         18,732              --

     Other current assets ..................................        133,899         206,024
                                                               ------------    ------------
          Total current assets ..............................     2,409,210       4,831,559


Receivable from shareholder ................................        114,942         106,611
Property and equipment, net .................................        31,476          30,319
Other assets ................................................        34,132           3,250
                                                               ------------    ------------
                                                               $  2,589,760    $  4,971,739
                                                               ============    ============

         LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable ......................................   $    276,324    $    399,996

     Accrued liabilities ...................................        160,867         231,754

     Notes payable .........................................         38,246         155,271
                                                               ------------    ------------
          Total current liabilities ........................        475,437         787,021

Stockholders' Equity:
     Undesignated preferred stock, par value
          $.0001 per share;  2,500,000 shares
          authorized;  0 shares issued and
          outstanding .......................................            --              --

     Common stock, par value $.0001 per share;
          25,000,000 shares authorized; 5,767,830
          and 5,737,828 shares issued and
          outstanding, respectively ........................            577             574

     Additional paid-in capital ............................     19,704,780      19,687,198

     Accumulated deficit during development stage ..........    (17,591,034)    (15,503,054)
                                                               ------------    ------------
          Total stockholders' equity .......................      2,114,323       4,184,718
                                                               ------------    ------------
                                                               $  2,589,760    $  4,971,739
                                                               ============    ============
</TABLE>

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

                                      - 3 -

<PAGE>
                              SUNPHARM CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                      Three Months Ended June 30,
                                                                        1998               1997
                                                                   -----------         ------------

<S>                                                               <C>                       <C>   
Revenues:
     Sponsored research/sublicensing revenue .............         $        --                   --
     Interest income .....................................              47,093               94,968
                                                                   -----------          -----------
          Total revenues .................................              47,093               94,968

Expenses:
     Research and development ............................             641,512              781,096
     General and administrative ..........................             454,434              260,448
     Royalty expense .....................................                  --                   --
                                                                   -----------          -----------
          Total expenses .................................           1,095,946            1,041,544
                                                                   -----------          -----------


Net loss .................................................         $(1,048,853)         $  (946,576)
                                                                   ===========          ===========


Net loss per share .......................................         $     (0.18)         $     (0.17)
                                                                   ===========          ===========


Shares used in computing loss per share ..................           5,765,919            5,616,423
                                                                   ===========           ===========
</TABLE>


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

                                       -4-
<PAGE>



                              SUNPHARM CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF OPERATIONS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                              From Inception
                                                                                               (May 3, 1990)
                                                                  Six Months Ended June 30,      Through
                                                                    1998            1997       June 30, 1998
                                                               ------------    ------------    ------------

<S>                                                            <C>             <C>             <C>   
REVENUES:
     Sponsored research/sublicensing revenue ...............   $         --              --    $  2,885,000
     Interest income .......................................         96,031         119,505         611,338
                                                               ------------    ------------    ------------
          Total revenues ...................................         96,031         119,505       3,496,338


EXPENSES:
     Research and development ..............................      1,164,798       1,331,681      11,151,038
     General and administrative ............................      1,019,213         654,943       9,446,334
     Royalty expense .......................................             --              --         490,000
                                                               ------------    ------------    ------------
          Total expenses ...................................      2,184,011       1,986,624      21,087,372
                                                               ------------    ------------    ------------


NET LOSS ...................................................   $ (2,087,980)   $ (1,867,119)   $(17,591,034)
                                                               ============    ============    ============


NET LOSS PER SHARE .........................................   $      (0.36)   $      (0.40)
                                                               ============    ============


SHARES USED IN COMPUTING LOSS PER SHARE ....................      5,756,652       4,698,362
                                                               ============    ============
</TABLE>

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

                                      -5-

<PAGE>

                              SUNPHARM CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)

                        STATEMENT OF STOCKHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>


                                      Redeemable Convertible Preferred Stock:                             Additional     Accumulated
                                           Series A        Series B                  Common Stock:         Paid-In     Deficit Since
                                      Shares   Amount   Shares   Amount           Shares       Amount      Capital       Inception
                                   ------------------------------------------ ------------------------------------------------------
<S>                                   <C>      <C>      <C>      <C>          <C>          <C>         <C>            <C>           
Balance at December 31, 1997 ....       --       --       --       --          5,737,828   $     574   $ 19,687,198   $(15,503,054)


Issuance of Common Stock ........       --       --       --       --                 --          --             --             --


Exercise of Options .............       --       --       --       --             28,573           3         11,330             --


Exercise of Warrants.............       --       --       --       --              1,429          --          6,252             --


Net Loss ........................       --       --       --       --                 --          --             --     (2,087,980)

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

Balance at June 30, 1998* .......       --       --       --       --          5,767,830   $     577   $ 19,704,780   $(17,591,034)

                                   ========================================== ======================================================

</TABLE>

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

                                      -6-

<PAGE>
                                                       SUNPHARM CORPORATION
                                                   (A DEVELOPMENT STAGE COMPANY)

                                                      STATEMENTS OF CASH FLOWS
                                                             (Unaudited)
<TABLE>
<CAPTION>
                                                                                                                      From Inception
                                                                                                                       (May 3, 1990)
                                                                                    Six months ended June 30,             Through
                                                                                     1998               1997           June 30, 1998
                                                                                 ------------       ------------       ------------
<S>                                                                              <C>                <C>                <C>  
Cash flows from operating activities
   Net loss ..........................................................           $ (2,087,980)      $ (1,867,119)      $(17,591,034)

   Adjustments to reconcile net loss to net cash
     used in operating activities:
          Depreciation and amortization ..............................                  3,911              1,800             81,309

          Expense related to issuance of
             stock for services ......................................                     --                 --            133,770

          Compensation expense related to
             operations, warrants and stock
             appreciation rights .....................................                     --                 --            865,246

          Amortization of deferred offering costs
             incurred in connection with
             issuance of Bridge Notes ................................                     --                 --            775,000

          Write-off of patents .......................................                     --                 --             70,120

          Increase in receivable from shareholder ....................                 (8,331)          (117,529)          (114,942)
          (Increase) decrease in prepaid expenses,
             receivables and other assets ............................                 (3,393)           470,623           (211,058)

          (Decrease) increase in accounts payable ....................               (123,672)           (68,786)           276,324
          (Decrease) increase in accrued liabilities .................                (70,887)          (432,701)           167,117
          Increase in accrued legal fees .............................                     --                 --            300,000
                                                                                 ------------       ------------       ------------
             Total adjustments .......................................               (202,372)          (146,593)         2,342,886
                                                                                 ------------       ------------       ------------
Net cash used in operating activities ................................             (2,290,352)        (2,013,712)       (15,248,148)
                                                                                 ------------       ------------       ------------
Cash flows from investing activities
   Purchases of short-term investments ...............................             (4,368,706)        (5,808,774)       (22,303,758)
   Sales and maturities of short-term investments ....................              6,584,033          1,677,755         20,250,519
   Purchases of property and equipment ...............................                 (5,068)            (4,922)           (49,090)
   Payment of patent costs ...........................................                     --                 --            (67,424)
                                                                                 ------------       ------------       ------------
Net cash provided by (used in) investing activities ..................              2,210,259         (4,135,941)        (2,169,753)
                                                                                 ------------       ------------       ------------

Cash flows from financing activities
   Repayments of notes payable .......................................               (117,025)           (74,301)           (61,754)
   Increase in deferred offering costs ...............................                     --                 --           (597,348)
   Issuance of Series A preferred stock ..............................                     --                 --            513,525
   Issuance of Series B preferred stock ..............................                     --                 --            450,000
   Issuance of common stock ..........................................                 17,585          6,333,489         17,290,914
   Proceeds from payable to shareholders .............................                     --                 --            542,500
   Repayment of payable to shareholders ..............................                     --                 --           (542,500)
                                                                                 ------------       ------------       ------------
Net cash (used in) provided by financing activities ..................                (99,440)         6,259,188         17,595,337
                                                                                 ------------       ------------       ------------

Net change in cash ...................................................               (179,533)           109,535            177,436

Cash at beginning of period ..........................................                356,969            341,145                 --
                                                                                 ------------       ------------       ------------
                                                                                                                       
Cash at end of period ................................................           $    177,436       $    450,680       $    177,436
                                                                                 ============       ============       ============
Supplemental information:
   Cash paid for interest ............................................           $      3,550       $      2,174       $    171,002
                                                                                 ============       ============       ============

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

                                                                - 7 -
</TABLE>

<PAGE>


                                                       


                              SUNPHARM CORPORATION
                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (Unaudited)


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  balance  sheet  at  June  30,  1998,  the  related  statements  of
operations  for the three- and six- month  periods  ended June 30, 1998 and 1997
and the period from inception (May 3, 1990) through June 30, 1998, the statement
of  stockholders'  equity at June 30, 1998, and the statements of cash flows for
the  three-month  periods  ended  June 30,  1998 and  1997 and the  period  from
inception  through  June  30,  1998  are  unaudited.   These  interim  financial
statements  should be read in  conjunction  with the December 31, 1997 financial
statements and related footnotes included in the Company's Annual Report on Form
10-KSB for the year ended  December 31, 1997.  The unaudited  interim  financial
statements  reflect all  adjustments  which are,  in the opinion of  management,
necessary for a fair statement of results for the interim periods presented, and
all such adjustments are of a normal recurring  nature.  Interim results are not
necessarily indicative of results for a full year.

NET LOSS PER SHARE

         Net loss per share is computed based on the weighted-average  number of
shares of common stock outstanding for the period.

PATENT COSTS

         The Company  reimburses the University of Florida Research  Foundation,
Inc. (UFRFI) for direct expenses relating to the Company's patents. Patent costs
consist of legal fees and other  direct  costs  incurred in  obtaining  patents.
These costs are charged to research and development expense when incurred.

RESEARCH AND DEVELOPMENT

         Sponsored  research revenue is recognized as revenue when such payments
are  earned or  received  and the  research  has been  performed.  Research  and
development  expenses  are charged to  operations  when  incurred.  Research and
development expenses include, among other expenses,  consulting fees and cost of
reimbursements to UFRFI.

NEW ACCOUNTING STANDARD

         On  January  1,  1998,  the  Company  adopted  Statement  of  Financial
Accounting  Standards No. 130,  "Reporting  Comprehensive  Income" ("SFAS 130").
SFAS 130 establishes standards for 

                                      -8-

<PAGE>

reporting  and display of  comprehensive  income and its  components  (revenues,
expenses,  gains,  and  losses)  in a  full  set  of  general-purpose  financial
statements.  SFAS 130 requires that all items that are required to be recognized
under accounting  standards as components of comprehensive income be reported in
a  financial  statement  that is  displayed  with the same  prominence  as other
financial  statements.  SFAS 130 does not  require a  specific  format  for that
financial   statement  but  requires  that  an  enterprise   display  an  amount
representing  total  comprehensive  income  for the  period  in  that  financial
statement. Additionally, SFAS 130 requires that an enterprise (a) classify items
of other  comprehensive  income by their nature in a financial statement and (b)
display the accumulated  balance of other  comprehensive  income separately from
retained  earnings and  additional  paid-in  capital in the equity  section of a
statement  of  financial  position.  SFAS  130 is  effective  for  fiscal  years
beginning after December 15, 1997.  Reclassification of financial statements for
earlier periods provided for comparative purposes is required.  Adoption of SFAS
130 did not have a material impact on the Company's financial statements.

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

OVERVIEW

         Since its inception in May 1990,  SunPharm  Corporation  ("SunPharm" or
the  "Company")  has devoted  substantially  all of its efforts and resources to
research and development conducted on its own behalf and through  collaborations
with clinical  institutions.  The Company's drug development strategy emphasizes
conducting most of its research and preclinical  activities at the University of
Florida, with clinical investigations  conducted at various sites, including the
University of Florida.  Consequently,  the Company  believes that its cumulative
research  and  development  expenditures  have been lower than other  comparable
development stage pharmaceutical  companies. The Company has incurred cumulative
net losses of $17,591,034 from its inception  through June 30, 1998. The Company
expects to incur additional  significant  operating losses for at least the next
two years,  principally as a result of its continuing  anticipated  research and
development and clinical trial expenditures.

         The Company has recently  undertaken an assessment of all its financial
and operational systems to ensure Year 2000 compliance and plans to complete the
assessment  by December 31, 1998.  Year 2000 issues result from the inability of
certain  computer  programs or computerized  equipment to accurately  calculate,
store or use a date  subsequent to December 31, 1999.  The erroneous date can be
interpreted  in  a  number  of  different  ways;  typically  the  year  2000  is
represented  as the  year  1900.  This  could  result  in a  system  failure  or
miscalculations  causing  disruptions  of  operations,  including,  among  other
things, a temporary inability to process  transactions,  send invoices or engage
in similar normal business.

         Based on its limited review to date and other preliminary  information,
the  Company  does not  anticipate  that it will  incur  any  significant  costs
relating to the  assessment  and  remediation  of Year 2000 issues.  The Company
believes that the potential  impact,  if any, of its systems not being Year 2000
compliant  should not impact the Company's  ability to continue its research and
development activities. However, there can be no assurance at this time that the
Company,  its business partners,  vendors or customers will successfully be able
to identify and remedy all potential Year 2000 problems or that a system failure
resulting from a failure to identify any such problems would not have a material
adverse effect on the Company.
                                       -9-

<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1998 AND 1997

         Interest  income  decreased  to $47,000 for the three months ended June
30, 1998 from $95,000 for the same period in 1997. This decrease is attributable
to a lower cash balance available for investment during the current quarter,  as
compared to the year-ago quarter.

         The Company's  research and development  expenses  totaled $642,000 for
the three months ended June 30, 1998, a decrease of 18% from  $781,000  recorded
in the same period in 1997.  The higher 1997 expenses  reflected a greater level
of clinical monitoring  activity,  in that patient enrollment in clinical trials
of   the   Company's   lead   compounds,    diethylnorspermine    (DENSPM)   and
diethylhomospermine  (DEHOP), were ongoing at that time. Also during that period
the Company  incurred  higher  expenses of drug compound  screening and slightly
higher patent costs.

         General and administrative  expenses were $454,000 for the three months
ended June 30, 1998,  as compared to $260,000  for the same period in 1997.  The
75% increase resulted from the Company's increased utilization of administrative
services,  most  significantly  in  investor  relations  but also in other areas
relating to operation of a public  company.  The higher 1998  expenses were also
impacted by the  addition of a senior  management  position in  September  1997,
which impacted salaries, benefits, payroll taxes, and travel.

         Net loss for the three  months ended June 30, 1998 was  $1,049,000,  as
compared to a loss of $947,000 for the same period in 1997.  The greater loss in
the current  quarter  was due to lower  interest  income and higher  general and
administrative  expenses as  discussed  above.  Net loss per share for the three
months ended June 30, 1998 of $0.18 was essentially  unchanged from net loss per
share of $0.17 for the same  period in 1997,  but was  impacted  slightly by the
greater number of weighted-average shares outstanding.

SIX MONTHS ENDED JUNE 30, 1998 AND 1997

         Interest  income of $96,000 for the six months  ended June 30, 1998 was
about 20% lower  than the  $120,000  recorded  in the same  period in 1997.  The
decrease is  attributable to a lower average balance of invested cash during the
current quarter, as compared to a year earlier.

         Research  and  development  expenses of  $1,165,000  for the six months
ended June 30,  1998 were about 13% lower than the  $1,332,000  recorded  in the
same period a year ago. The higher  expenses in 1997, as  previously  discussed,
were  attributable  to clinical  monitoring  activity  associated  with  patient
enrollment  in Phase I and  Phase  II  clinical  trials  of the  Company's  lead
compounds.  Additionally,  drug  screening  and patent  costs were higher in the
prior-year period.

         The Company expects its research and  development  expenses to increase
significantly  during  the second  half of 1998 and  continuing  into  1999,  in
anticipation  of increased  expenses  related to  preclinical  studies and human
clinical  trials,  as well as the  addition of senior  management  positions  in
clinical and scientific affairs.

                                      -10-

<PAGE>

         General and  administrative  expenses of $1,019,000  for the six months
ended  June 30,  1998 were 56% higher  than the  $655,000  recorded  in the same
period a year earlier.  The increase is  attributable  to an increased  level of
investor  relations  activity,  the addition of a senior management  position in
September 1997, and a higher level of associated  administrative  expenses.  The
Company expects its general and administrative expenses to increase, although at
a slower rate than its research and development  expenses,  with the anticipated
additions of accounting and marketing positions in the second half of 1998.

         Net loss for the six months  ended  June 30,  1998 was  $2,088,000,  or
$0.36 per share,  which compares to a net loss of $1,867,000 or $0.40 per share,
for the comparable  period a year ago. The greater net loss is  attributable  to
lower  interest  income  and  higher  general  and  administrative  expenses  as
discussed  above.  Net loss per share in the current  period was impacted by the
greater  number of weighted  average shares  outstanding,  as compared to a year
ago, due to a private placement financing which closed on March 28, 1997.

LIQUIDITY AND CAPITAL RESOURCES

         Since its inception,  the Company has financed its operations primarily
through  collaborative  research and  sublicense  agreements  with its strategic
alliance partners and the issuance of debt and equity  securities.  Through June
30, 1998, the Company has received  $2,885,000 of cumulative  sponsored research
and sublicensing revenues and approximately  $19,700,000 in consideration of the
issuance of debt and equity securities,  including net proceeds of approximately
$7,200,000 related to its initial public offering in January 1995.

         During the six months ended June 30,  1998,  net cash used in operating
activities was $2,290,000, compared with $2,014,000 for the comparable period in
1997. The greater use of cash in the current period was  principally  due to the
greater net loss, impacted by revenue and expense factors previously  discussed.
At June 30,  1998,  the Company had cash and  investments  totaling  $2,257,000,
compared with $4,626,000 at December 31, 1997. The Company's working capital was
$1,934,000 at June 30, 1998,  compared to $4,045,000 at December 31, 1997. These
decreases are  attributable  to the Company's use of cash to fund its operations
over the last six months.

         The Company expects currently  available  resources to be sufficient to
fund its  operations  through  the end of 1998.  However,  the  Company  will be
required to obtain  additional  funds to finance its operations  thereafter.  In
that regard,  the Company intends to obtain funds through a private placement of
equity securities prior to the end of 1998.  Additionally,  the Company may seek
to  obtain  funds  through  additional  financings,  through  new  collaborative
arrangements  with corporate  partners,  or from other sources.  There can be no
assurance,  however,  that  the  Company  will  be able to  complete  a  private
placement of equity  securities  before the end of 1998, or to obtain  necessary
financing when required,  or what the terms of any such financing,  if obtained,
might be. In addition,  the Company's future success is affected by the progress
of the Company's  research and  development  efforts and results of  preclinical
studies and clinical trials,  the cost and timing of regulatory  approvals,  the
Company's   ability  to  obtain  patent   protection   for  its  products  on  a
cost-effective   and  timely  basis,   the  rate  of   technological   advances,
determinations  as to the commercial  potential of the Company's  products under
development,   the  status  of  competitive   products,   the  establishment  of
manufacturing capacity or third-party manufacturing  arrangements,  its reliance
on
                                      -11-

<PAGE>

research  institutions  and corporate  partners,  the uncertainty of health care
reform, and the competitive  environment in which the Company operates. As noted
above, the Company's currently existing capital resources will not be sufficient
to fund the Company's  operations to the point of introduction of a commercially
successful  product,  if and when that time should  arrive.  No assurance can be
given that additional funds will be available on acceptable terms, if at all.

         The  Company  expects  to incur  substantial  additional  research  and
development  expenses,  including expenses associated with preclinical  studies,
clinical  trials and drug testing.  The Company  intends to use a portion of its
cash resources, together with funds from its existing collaborative arrangements
with Warner-Lambert and Nippon Kayaku, for these purposes.  The Company's rights
to receive payments from  Warner-Lambert  and Nippon Kayaku,  are dependent upon
the  achievement  of certain  milestones by  Warner-Lambert  and Nippon  Kayaku,
respectively, and are not within the control of the Company. No assurance can be
made  that such  milestones  will be  achieved  or that  such  payments  will be
received by the Company.

         The Company has incurred losses since inception and, therefore, has not
been subject to federal income taxes. As of December 31, 1997, the Company had a
net operating loss ("NOL") and tax credit carry forwards for income tax purposes
of  $13,327,000  and  $464,000,  respectively,  which may be available to reduce
future taxable income and future tax liabilities.  These carry forwards begin to
expire in 2008. The Tax Reform Act of 1986 provides for an annual  limitation on
the use of NOL and credit carry forwards  (following  certain ownership changes)
that could  significantly  limit the  Company's  ability to utilize  these carry
forwards.  The Company has made no  determination  concerning  whether there has
been such a cumulative  change in ownership.  It is possible that such change in
ownership  occurred  following the  completion of the Company's  initial  public
offering  in 1995 and  private  placements  in 1996 and 1997.  Accordingly,  the
Company's ability to utilize the aforementioned  carry forwards to reduce future
taxable income and tax liabilities may be limited. Additionally,  because United
States tax laws limit the time during which these carry  forwards may be applied
against  future  taxes,  the Company may not be able to take full  advantage  of
these attributes for federal income tax purposes.


                                      -12-


<PAGE>

                           PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES.

         During the first six months of 1998, the Company issued an aggregate of
30,002  shares of Common  Stock upon the  exercise of options  granted to former
consultants  of  the  Company  in  transactions  exempt  from  the  registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
thereof or Rule 701  thereunder.  The options in question  were granted prior to
the Company's 1995 initial public offering.

ITEM 4.   MATTERS SUBMITTED FOR SHAREHOLDER APPROVAL.

         The Company's annual meeting was held on May 21, 1998. The shareholders
of the Company elected the following directors of the Company to serve until the
next annual meeting. The total number of votes cast "For" and "Withheld" each of
the nominees are as set forth opposite their respective names:

         NOMINEES                              VOTES FOR       VOTES WITHHELD
         --------                              ---------       --------------

Stefan Borg                                    3,462,434           5,648
Philip R. Tracy                                3,462,184           5,898
Charles L. Dimmler III                         3,461,434           5,648
Jerry T. Jackson                               3,462,184           5.898
Robert S. Janicki, M. D                        3,462,434           5,648
Jay Moorin                                     3,441,088          26,994
Jacques F. Rejeange                            3,460,784           7,298
Robert A. Schoellhorn                          3,458,434           9,648

         The  shareholders  of the Company  approved the  amendment of Company's
Amended and Restated 1995  Nonemployee  Directors'  Stock Option Plan. The total
number of shares cast  "For," cast  "Against"  and  "Abstentions"  are set forth
below:

           VOTES                         VOTES
            FOR                         AGAINST                  ABSTENTIONS
            ---                         -------                  -----------

         3,364,966                        8,472                     14,644

         Finally,  the  shareholders  of the Company  ratified the  selection of
Deloitte  & Touche  LLP as  independent accountants  for its  fiscal  year ended
December 31, 1998.  The total  number of shares cast "For," cast  "Against"  and
"Abstentions" are set forth below:

           VOTES                         VOTES
            FOR                         AGAINST                  ABSTENTIONS
            ---                         -------                  -----------

         3,447,618                        4,750                     15,714


                                      -13-


<PAGE>


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

           (a)    Exhibits

                  10.1*    First Amendment to Amended and Restated 1995 
                           Nonemployee Directors' Stock Option Plan

                  11.1*    Statement of computation of weighted average shares
                           outstanding and  net loss per share

                  27.1*    Financial Data Schedule

________________
*Filed herewith. 
                                      -14-


<PAGE>


                                   SIGNATURES

                  Pursuant to the requirements of the Securities Exchange Act of
1934,  the  registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                                     SUNPHARM CORPORATION

Date: August 14, 1998            By: /s/ STEFAN BORG
                                     -------------------
                                     President and Chief Executive Officer
                                     (Principal Executive Officer)


Date: August 14, 1998            By: /s/ PAUL M. HERRON
                                     ----------------------
                                     Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)




                                      -15-