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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, 1999

         [ ]      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)



                             THE VERANDA, SUITE 301
                                 814 HIGHWAY A1A
                           PONTE VEDRA BEACH, FL 32082
                         (ADDRESS OF PRINCIPAL EXECUTIVE
                                    OFFICES)



                    ISSUER'S TELEPHONE NUMBER: (904) 394-2800


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

         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
6, 1999: 6,983,316.

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

<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, as
amended (the "Securities  Act"), and Section 21E of the Securities  Exchange Act
of 1934, as amended (the "Exchange Act"). 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  results  of  SunPharm  Corporation  (the  "Company"),  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, 1998 (the "1998 Form 10-KSB")  under the
caption "Item 1. Description of Business - Risk Factors."

                          PART I. 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, normally disclosed 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, 1998, which are included in the 1998 Form 10-KSB.

                                      -2-
<PAGE>


<TABLE>
<CAPTION>
                                              SunPharm Corporation
                                         (A Development Stage Company)

                                                 BALANCE SHEETS
                                                  (Unaudited)

                                                                                     June 30,      December 31,
                                                                                       1999            1998
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
                                  ASSETS
Current Assets:
      Cash .....................................................................   $    404,813    $         --
      Short-term investments ...................................................        249,216       1,699,200
      Prepaid expenses and other ...............................................         94,879         162,734
                                                                                   ------------    ------------
               Total current assets ............................................        748,908       1,861,934

Receivable from stockholder ....................................................        129,656         124,865
Property and equipment, net ....................................................         56,031          57,933
Other assets ...................................................................          9,275           9,275
                                                                                   ------------    ------------
                                                                                   $    943,870    $  2,054,007
                                                                                   ============    ============

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
      Accounts payable .........................................................   $    452,623    $    213,627
      Accrued liabilities ......................................................        112,358         135,580
      Notes payable ............................................................         43,124         102,706
      Other ....................................................................         92,961              --
                                                                                   ------------    ------------
               Total current liabilities .......................................        701,066         451,913

Stockholders' Equity:
      Undesignated preferred stock, par value $0.001
          per share;  2,000,000 shares authorized;
          0 shares issued and outstanding ......................................             --              --
      Series A preferred stock, par value $0.001 per
          share; 300,000 shares authorized; 300,000
          shares issued and outstanding ........................................            300             300
      Series B preferred stock, par value $0.001 per
          share; 200,000 shares authorized; 66,667
          and 0 shares issued and outstanding ..................................             67              --
      Common stock, par value $0.0001 per share;
          25,000,000 shares authorized; 6,930,598
          and 6,621,395 shares issued and
          outstanding ..........................................................            693             662
      Additional paid-in capital ...............................................     21,440,781      20,871,578
      Accumulated deficit during development stage .............................    (21,199,037)    (19,270,446)
                                                                                   ------------    ------------
               Total stockholders' equity ......................................        242,804       1,602,094
                                                                                   ------------    ------------
                                                                                   $    943,870    $  2,054,007
                                                                                   ============    ============

The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                      -3-
<PAGE>


<TABLE>
<CAPTION>
                                           SunPharm Corporation
                                      (A Development Stage Company)

                                         STATEMENTS OF OPERATIONS
                                               (Unaudited)


                                                                              Three Months Ended June 30,
                                                                                  1999           1998
                                                                              ------------    -----------
<S>                                                                            <C>            <C>
Revenues:
      Sponsored Research/Sublicensing Revenue ..............................   $        --    $        --
      Interest Income ......................................................        14,097         47,093
      Miscellaneous Income .................................................         2,400             --
                                                                               -----------    -----------
           Total Revenues ..................................................        16,497         47,093

Expenses:
      Research and Development .............................................       547,124        641,512
      General and Administrative ...........................................       428,802        454,434
      Royalty Expense ......................................................            --             --
                                                                               -----------    -----------
           Total Expenses ..................................................       975,926      1,095,946

Net Loss ...................................................................   $  (959,429)   $(1,048,853)
                                                                               ===========    ===========

Net Loss per Share .........................................................   $     (0.14)   $     (0.18)
                                                                               ===========    ===========

Shares used in computing loss per share ....................................     6,929,726      5,765,919
                                                                               ===========    ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>
                                                   -4-

<PAGE>


<TABLE>
<CAPTION>
                                                 SunPharm Corporation
                                             (A Development Stage Company)

                                               STATEMENTS OF OPERATIONS
                                                      (Unaudited)

                                                                                                        From Inception
                                                                                                         (May 3, 1990)
                                                                             Six Months Ended June 30,      Through
                                                                                1999           1998      June 30, 1999
                                                                             -----------    -----------   ------------
<S>                                                                          <C>            <C>           <C>
Revenues:
      Sponsored Research/Sublicensing Revenue ............................   $        --    $        --   $  3,115,729
      Interest Income ....................................................        33,060         96,031        711,493
      Miscellaneous Income ...............................................         2,400             --          2,400
                                                                             -----------    -----------   ------------
           Total Revenues ................................................        35,460         96,031      3,829,622

Expenses:
      Research and Development ...........................................     1,130,526      1,164,798     13,626,327
      General and Administrative .........................................       833,525      1,019,213     10,912,332
      Royalty Expense ....................................................            --             --        490,000
                                                                             -----------    -----------   ------------
           Total Expenses ................................................     1,964,051      2,184,011     25,028,659
                                                                             -----------    -----------   ------------

Net Loss .................................................................   $(1,928,591)   $(2,087,980)  $(21,199,037)
                                                                             ===========    ===========   ============

Net Loss per Share .......................................................   $     (0.28)   $     (0.36)
                                                                             ===========    ===========

Shares used in computing loss per share ..................................     6,804,165      5,756,652
                                                                             ===========    ===========

The accompanying notes are an integral part of these financial statements.
</TABLE>
                                                          -5-

<PAGE>


<TABLE>
<CAPTION>
                                                       SunPharm Corporation
                                                   (A Development Stage Company)

                                                 STATEMENT OF STOCKHOLDERS' EQUITY
                                                            (Unaudited)


                                                                                                                       Deficit
                                                                                                                      Accumulated
                                      Redeemable Convertible Preferred Stock                            Additional      During
                                          Series A              Series B            Common Stock         Paid-In      Development
                                      Shares     Amount     Shares     Amount     Shares     Amount      Capital         Stage
                                     -----------------------------------------   -------------------   ---------------------------
<S>                                   <C>       <C>          <C>      <C>        <C>         <C>       <C>            <C>
Balance at December 31, 1998 .....    300,000   $   300          --         --   6,621,395   $   662   $ 20,871,578   $(19,270,446)

Issuance of Common Stock .........         --        --          --         --     309,203        31        302,602             --

Issuance of Preferred Stock ......         --        --      66,667   $     67          --        --        266,601             --

Net Loss .........................         --        --          --         --          --        --             --     (1,928,591)
                                     -----------------------------------------   -------------------   ---------------------------

Balance at June 30, 1999 .........    300,000   $   300      66,667   $     67   6,930,598   $   693   $ 21,440,781   $(21,199,037)
                                     =========================================   ===================   ===========================
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                                               -6-

<PAGE>


<TABLE>
<CAPTION>
                                             SunPharm Corporation
                                         (A Development Stage Company)

                                           STATEMENTS OF CASH FLOWS
                                                 (Unaudited)

                                                                                                From Inception
                                                                                                 May 3, 1990
                                                                  Six Months Ended June 30,       through
                                                                    1999             1998       June 30, 1999
                                                                 ------------    ------------   -------------
<S>                                                              <C>             <C>             <C>
Operating activities
     Net loss ................................................   $ (1,928,591)   $ (2,087,980)   $(21,199,037)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
           Depreciation and amortization .....................          5,177           3,911          90,857
           Compensation expense related to options,
             warrants and stock appreciation rights ..........             --              --         999,016
           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 stockholder ...........         (4,791)         (8,331)       (129,656)
           Decrease (increase) in prepaid expenses
             and other assets ................................         67,855          (3,393)       (102,545)
           Increase (decrease) in accounts payable ...........        238,996        (123,672)        452,623
           (Decrease) increase in accrued liabilities ........        (23,222)        (70,887)        418,608
           Increase in other liabilities .....................         92,961              --              --
                                                                 ------------    ------------    ------------
             Total adjustments ...............................        376,976        (202,372)      2,574,023
                                                                 ------------    ------------    ------------
Net cash used in operating activities ........................     (1,551,615)     (2,290,352)    (18,625,014)
                                                                 ------------    ------------    ------------

Investing activities
     Purchases of short-term investments .....................     (3,134,940)     (4,368,706)    (29,623,771)
     Sales and maturities of short-term investments ..........      4,584,924       6,584,033      29,374,555
     Purchases of property and equipment .....................         (3,275)         (5,068)        (83,193)
     Payment of patent costs .................................             --              --         (67,424)
                                                                 ------------    ------------    ------------
Net cash provided by (used in) investing activities ..........      1,446,709       2,210,259        (399,833)
                                                                 ------------    ------------    ------------

Financing activities
     Repayments of notes payable .............................        (59,582)       (117,025)        (56,876)
     Issuance of Series A preferred stock ....................             --              --       1,673,225
     Issuance of Series B preferred stock ....................        266,668              --         716,668
     Issuance of common stock ................................        302,633          17,585      17,601,030
     Stock offering costs ....................................             --              --        (597,348)
     Repayment of payable to shareholders ....................             --              --        (542,500)
                                                                 ------------    ------------    ------------
Net cash provided by (used in) financing activities ..........        509,719         (99,440)     18,794,199
                                                                 ------------    ------------    ------------

Net change in cash ...........................................        404,813        (179,533)       (230,648)
Cash at beginning of period ..................................             --         356,969              --
                                                                 ------------    ------------    ------------
Cash at end of period ........................................   $    404,813    $    177,436    $   (230,648)
                                                                 ============    ============    ============

Supplemental information:
     Cash paid for interest ..................................   $      2,527    $      3,550    $    169,979
                                                                 ============    ============    ============
</TABLE>
The accompanying notes are an integral part of these financial statements.

                                                     -7-
<PAGE>


                              SUNPHARM CORPORATION
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1999
                                   (Unaudited)


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  balance  sheet  at  June  30,  1999,  the  related  statements  of
operations for the three- and six-month periods ended June 30, 1999 and 1998 and
the period from  inception (May 3, 1990) through June 30, 1999, the statement of
stockholders'  equity at June 30, 1999, and the statements of cash flows for the
six-month  periods  ended June 30, 1999 and 1998 and the period  from  inception
through June 30, 1999 are unaudited.  These interim financial  statements should
be read in conjunction with the financial  statements and related notes included
in the 1998 Form 10-KSB.  The unaudited  interim financial  statements  included
herein  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  filing,
prosecuting,  and maintaining the licensed  patents.  These costs are charged to
research and development expense when incurred.

RESEARCH AND DEVELOPMENT

         Sponsored research payments are recognized as revenue when the research
underlying such payments has been performed.  Research and development  expenses
are charged to  operations  when  incurred.  Research and  development  expenses
include  consulting fees and cost of  reimbursements  to UFRFI,  preclinical and
clinical  testing  of drug  compounds  under  investigation,  and  salaries  and
benefits of employees engaged in research and development activities.

SEGMENT INFORMATION

         The Company is in one business  segment and follows the requirements of
SFAS  No.  131,   "Disclosure  about  Segments  of  an  Enterprise  and  Related
Information."

                                      -8-
<PAGE>


NEW ACCOUNTING STANDARD

         In June 1998, the Financial  Accounting Standards Board issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS No.
133"),  effective for fiscal years  beginning  after June 15, 1999. SFAS No. 133
requires  companies  to record  derivatives  on the balance  sheet as assets and
liabilities,  measured at fair value.  Gains or losses resulting from changes in
the values of those  derivatives  would be accounted for depending on the use of
the derivative and whether it qualifies for hedge  accounting.  In May 1999, the
Financial  Accounting  Standards Board postponed the effective date for SFAS No.
133 to fiscal years beginning after June 15, 2000. At this time, the Company has
not determined the effect of this statement on its financial statements.

2.       SUBSEQUENT EVENT - Surrender of Purchase Option

         On February 16, 1999, the  underwriter of the Company's  initial public
offering  ("IPO")  agreed to surrender its option to purchase  110,000 shares of
Common Stock at $11.20 per share,  which it had acquired in connection  with the
IPO and which was due to expire on January 12, 2000.  In exchange for  surrender
of this option,  the Company agreed to issue an equal number of shares of Common
Stock to the  underwriter  at $0.60 per share,  for total  proceeds  of $66,000.
Subsequent  to the date of the agreement and payment of proceeds to the Company,
but prior to the surrender of the underwriter's  options, it was determined that
the underwriter had previously assigned or disposed of a portion of such option.
Accordingly,  on August 11,  1999,  the Company made a decision to refund to the
underwriter  $43,200 of the $66,000  proceeds and reduce the number of shares of
Common Stock to be issued from 110,000 to 38,000.

3.       SUBSEQUENT EVENT - Merger with GelTex Pharmaceuticals, Inc.

         On August 13,  1999,  the  Company's  Board of  Directors  approved the
merger of the  Company  with GelTex  Pharmaceuticals,  Inc.,  a publicly  traded
Delaware  corporation  ("GelTex"),  through a reverse triangular merger in which
the Company would merge with a wholly owned  subsidiary  of GelTex.  The Company
entered into a merger  agreement to effect such  transaction on August 13, 1999.
Both the  merger  and the  merger  agreement  are  subject  to  approval  by the
Company's stockholders at a special meeting to be held following approval of the
proxy  statement  by the SEC. In the merger,  the  Company's  stockholders  will
receive  shares of  common  stock of GelTex  for their  shares of the  Company's
Common Stock and Preferred  Stock. If the stockholders  approve the merger,  the
merger will be  effected,  and the closing of the merger  agreement  will occur,
immediately following the special meeting.

                                      -9-

<PAGE>


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

OVERVIEW

         Since its inception in May 1990, 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 its research and preclinical
activities at the University of Florida, with clinical investigations  conducted
at various sites,  including the University of Florida. The Company has incurred
cumulative net losses of $21,199,000  from its inception  through June 30, 1999.
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 is  continuing  to assess its  financial  and  operational
systems to ensure  Year 2000  ("Y2K")  compliance.  Y2K 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 because certain
computer  programs or equipment  may  interpret  the year 2000 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
review  to  date  and  other  preliminary  information,  the  Company  does  not
anticipate that it will incur any significant  costs relating to the remediation
of Y2K issues.  The Company believes that the potential  impact,  if any, of its
systems  not being Y2K  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  research and business  partners,
vendors  or  customers  will  successfully  be able to  identify  and remedy all
potential  Y2K  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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 AND 1998

         Interest  income  decreased  to $14,000 for the three months ended June
30,  1999 from  $47,000  earned  in the same  period in 1998.  The  decrease  is
attributable to a lower average cash balance available for investment during the
current quarter.

         The Company's  research and development  expenses  totaled $547,000 for
the quarter,  a decrease of 15% from the $642,000 recorded in the same period in
1998.  The lower  expenses  in the  current  period  were due to a  decrease  in
clinical   expenses,   in  that  the  Company  was  not  funding  any   clinical
investigations during the current period.

         General and administrative  expenses were $429,000 for the three months
ended June 30,  1999,  as compared to  $454,000  for the same period in 1998,  a
decrease of 6%. This resulted

                                      -10-
<PAGE>

from a decrease  in employee  costs,  offset by  increases  in  corporate  legal
expenses and in lease expense for office space.

SIX MONTHS ENDED JUNE 30, 1999 AND 1998

         Interest income  decreased to $33,000 for the six months ended June 30,
1999  from  $96,000  earned  in  the  same  period  in  1998.  The  decrease  is
attributable to a lower average cash balance available for investment.

         The Company's research and development  expenses totaled $1,131,000 for
the six  months  ended  June 30,  1999,  a  decrease  of 3% over the  $1,165,000
recorded in the same period in 1998.  The lower  expenses in the current  period
were due to a decrease in clinical  expenses,  as discussed  above.  The Company
expects its research and  development  expenses in 1999 to be roughly 10% higher
than in 1998, in anticipation of filing  Investigational  New Drug  applications
and initiating up to three clinical trials for drug candidates during the second
half of the year.

         General and  administrative  expenses  were $834,000 for the six months
ended June 30, 1999,  as compared to  $1,019,000  for the same period in 1998, a
decrease of 18%. This resulted from a decrease in employee costs,  partly offset
by increases in corporate  legal expenses and in lease expense for office lease.
In  recognition  of  the  current  trend,   the  Company   expects  general  and
administrative  expenses  for the  remainder  of 1999 to remain  lower than 1998
levels.

LIQUIDITY AND CAPITAL RESOURCES

         Since  inception,  the Company has  financed its  operations  primarily
through  collaborative  research and  sublicense  agreements  with its strategic
alliance  partners  and  through  the  issuance  of debt and equity  securities.
Through  June 30,  1999,  the  Company has  received  $3,116,000  of  cumulative
sponsored  research and  sublicensing  revenues and $21,442,000 in consideration
for the  issuance  of debt and equity  securities,  including  net  proceeds  of
approximately $7,200,000 related to its IPO in January 1995.

         During the six months ended June 30,  1999,  net cash used in operating
activities was $1,552,000, compared with $2,290,000 for the comparable period in
1998.  The lower use of cash in the  current  period was due to a lower net loss
resulting  from lower  expenses,  as  previously  discussed,  and also due to an
increase in the Company's accounts payable balance. The latter resulted from the
granting of an extension by UFRFI for the Company's quarterly sponsored research
payment  to  August  16,  1999.  At June  30,  1999,  the  Company  had cash and
investments  totaling  $654,000,  compared with $1,699,000 at December 31, 1998.
The  Company's  working  capital  was  $47,000  at June 30,  1999,  compared  to
$1,410,000  at December  31,  1998.  These  decreases  are  attributable  to the
Company's  use of cash to fund  its  operations  during  the  last  six  months,
partially offset by funding which was provided by a private placement  financing
as discussed below.

         On August 13,  1999,  the  Company's  Board of  Directors  approved the
merger of the  Company  with GelTex  Pharmaceuticals,  Inc.,  a publicly  traded
Delaware  corporation  ("GelTex"),  through a reverse triangular merger in which
the Company would merge with a wholly owned  subsidiary  of GelTex.  The Company
entered into a merger  agreement to effect such  transaction on August 13, 1999.
Both the  merger  and the  merger  agreement  are  subject  to  approval  by the
Company's stockholders at a special meeting to be held following approval of the
proxy  statement  by the SEC. In the merger,  the  Company's  stockholders  will
receive  shares of  common  stock of GelTex  for their  shares of the  Company's
Common Stock and Preferred  Stock. If the stockholders  approve the merger,  the
merger will be  effected,  and the closing of the merger  agreement  will occur,
immediately following the special meeting.

         On February 16, 1999,  the  underwriter  of the Company's IPO agreed to
surrender  its option to purchase  110,000  shares of Common Stock at $11.20 per
share,  which it had  acquired in  connection  with the IPO and which was due to
expire on January 12, 2000. In exchange for

                                      -11-

<PAGE>

surrender of this option,  the Company agreed to issue an equal number of shares
of Common Stock to the  underwriter  at $0.60 per share,  for total  proceeds of
$66,000.  Subsequent to the date of the agreement and payment of proceeds to the
Company,  but  prior  to the  surrender  of  the  underwriter's  option,  it was
determined that the underwriter had previously assigned or disposed of a portion
of its option.  Accordingly  on August 11, 1999,  the Company made a decision to
refund to the underwriter  $43,200 of the $66,000 proceeds and reduce the number
of shares of Common Stock to be issued from 110,000 to 38,000.

         On  March  31,  1999,  the  Company  sold  66,667  shares  of  Series B
Redeemable  Convertible  Preferred  Stock (the "Series B Preferred) at $4.00 per
share and 183,333 shares of Common Stock at $1.273 per share to an institutional
investor in a Private  Placement  pursuant to Regulation D under the  Securities
Act. The shares of Series B Preferred are initially  convertible to Common Stock
on a 1-for-1 basis, subject to customary  anti-dilution  adjustments.  Dividends
shall accrue on the Series B Preferred at the rate of 8% per annum. In the event
of liquidation,  dissolution, or winding up of the Company, or, at the option of
the holders of the Series B Preferred,  a consolidation or merger of the Company
or a sale of all or  substantially  all of its  assets,  holders of the Series B
Preferred  will be entitled to receive in preference to holders of the Company's
Common Stock an amount per share equal to the original  purchase  price plus any
accrued dividends per share.  However,  in the event that the proposed merger of
the Company with GelTex is consummated (see Note 3 to Item 1, "Subsequent Event-
Merger with GelTex  Pharmaceuticals,  Inc.), all outstanding shares of Preferred
Stock will  convert  into shares of the  Company's  Common  Stock on a 1.5 for 1
basis,  and the holder of the Company's  Preferred Stock will receive no further
preference or payment.  Proceeds from this Private Placement were  approximately
$485,000, net of legal fees.

         The  Company's  future  success is  affected  by a variety of  factors,
including progress of the Company's research and development efforts, results of
pre-clinical  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 research institutions and corporate partners,  the uncertainty of health care
reform,  and the competitive  environment in which the Company operates.  Nasdaq
has notified the Company that it is currently not in compliance with the minimum
net tangible  asset  requirement  for continued  listing on the Nasdaq  SmallCap
Market.  While the Company has not been  formally  notified that it is no longer
eligible for quotation on the Nasdaq  SmallCap  Market,  if the Company does not
receive either (i) additional  funding sufficient to meet the net tangible asset
requirement  of Nasdaq or (ii) a waiver of such  requirement  from  Nasdaq,  the
Company  may be delisted  from  quotation  on the Nasdaq  SmallCap  Market.  The
Company's  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  capital  will be available on  acceptable  terms,  if at all. At the
present time, the Company  estimates that its cash balance will be sufficient to
fund operations into the third quarter of 1999.

                                      -12-
<PAGE>

         Upon  consummation of the merger with GelTex,  the Company's ability to
fund its operations  will depend  completely  upon GelTex's  ability to fund its
operations;  however,  the  Company has need of  additional  capital to fund its
operations  until  consummation  of the  merger.  Accordingly,  the  Company  is
currently pursuing a bridge financing in the form of a loan of up to $1 million,
which would be paid back upon  consummation  of the merger.  The Company is also
pursuing  a  potential  corporate  partner   relationship  which  would  provide
additional capital and thereby reduce the amount of bridge loan required.

         The  Company  expects  to incur  substantial  additional  research  and
development  expenses,  including expenses associated with pre-clinical 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 the Warner-Lambert  Company  ("Warner-Lambert") and Nippon Kayaku Co., Ltd.
("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.

                                      -13-
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 4.   MATTERS SUBMITTED FOR SHAREHOLDER APPROVAL.

         The Company's  Annual Meeting of Shareholders was held on June 8, 1999,
at which time 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"  from each of the nominees are as set forth  opposite
their respective names:

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

   Stefan Borg                          3,634,388                   5,800
   Philip R. Tracy                      3,636,888                   3,300
   Charles L. Dimmler III               3,636,838                   3,350
   Jerry T. Jackson                     3,631,888                   8,300
   Robert S. Janicki, M. D.             3,636,888                   3,300
   Jay Moorin                           3,631,888                   8,300
   Robert A. Schoellhorn                3,636,838                   3,350


         The  shareholders  of the Company  approved  the  issuance in a private
placement of Common Stock of the Company  representing 20 percent or more of the
number of issued and outstanding  shares of such Common Stock.  The total number
of shares cast "For," cast "Against" and "Abstentions" are set forth below:


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

                 4,023,522                12,130                     2,050

         Finally,  the  shareholders  of the Company  ratified the  selection of
Deloitte  & Touche LLP as  independent  accountants  for its  fiscal  year ended
December 31, 1999.  The total  number of shares cast "For," cast  "Against"  and
"Abstentions" are set forth below:


                 VOTES FOR             VOTES AGAINST              ABSTENTIONS

                 4,752,226                 4,550                      750


                                      -14-

<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(A)      EXHIBITS
                   2.1*   Agreement  and Plan of Merger  dated  August 13,  1999
                          among GelTex Pharmaceuticals,  Inc., Shine Acquisition
                          Sub, Inc., and the Company

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

                  27.1*   Financial Data Schedule




--------
* Filed herewith


                                      -15-

<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 16, 1999        By:/s/ STEFAN BORG
                                -------------------------------------------
                                    Stefan Borg
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


Date: August 16, 1999        By:/s/ PAUL M. HERRON
                                -------------------------------------------
                                    Paul M. Herron
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


                                      -16-