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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 March 31, 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 May 8,
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>
                                                                                           March 31,     December 31,
                                                                                             1998            1997
                                                                                         ------------    ------------
                                           ASSETS
<S>                                                                                      <C>            <C>          
Current Assets:
     Cash ............................................................................   $    241,643   $     356,969
     Short-term investments ..........................................................      3,314,584       4,268,566
     Accounts receivable .............................................................         21,852              --
     Other current assets ............................................................        166,879         206,024
                                                                                         ------------    ------------
       Total current assets ..........................................................      3,744,958       4,831,559

Receivable from shareholder ..........................................................        105,295         106,611
Property and equipment, net ..........................................................         32,340          30,319
Other assets .........................................................................          3,250           3,250
                                                                                         ------------    ------------
                                                                                         $  3,885,843    $  4,971,739
                                                                                         ============    ============


      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
     Accounts payable ................................................................   $    431,155    $    399,996
     Accrued liabilities .............................................................        209,199         231,754
     Notes payable ...................................................................         89,306         155,271
                                                                                         ------------    ------------
       Total current liabilities .....................................................        729,660         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; 5,758,901
       and 5,737,828 shares issued and
       outstanding, respectively .....................................................            576             574
     Additional paid-in capital ......................................................     19,697,787      19,687,198
     Accumulated deficit during development stage ....................................    (16,542,180)    (15,503,054)
                                                                                         ------------    ------------
       Total stockholders' equity ....................................................      3,156,183       4,184,718
                                                                                         ------------    ------------
                                                                                         $  3,885,843    $  4,971,739
                                                                                         ============    ============


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


                                        3
<PAGE>


                                               SunPharm Corporation
                                          (A Development Stage Company)

                                             STATEMENTS OF OPERATIONS
                                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   From Inception
                                                                                                   (May 3, 1990)
                                                                     Three Months Ended March 31,     Through
                                                                         1998            1997      March 31, 1998
                                                                     ------------    ------------  --------------
<S>                                                                  <C>             <C>           <C>           
Revenues:
  Sponsored research/sublicensing revenue ........................   $         --              --  $    2,885,000
  Interest income ................................................         48,939          24,537         564,246
                                                                     ------------    ------------  --------------
      Total revenues .............................................         48,939          24,537       3,449,246

Expenses:
  Research and development .......................................        523,286         550,585      10,509,526
  General and administrative .....................................        564,779         394,495       8,991,900
  Royalty expense ................................................             --              --         490,000
                                                                     ------------    ------------  --------------
      Total expenses .............................................      1,088,065         945,080      19,991,426
                                                                     ------------    ------------  --------------


Net loss .........................................................   $ (1,039,126)   $   (920,543) $  (16,542,180)
                                                                     ============    ============  ==============


Net loss per share ...............................................   $      (0.18)   $      (0.24)
                                                                     ============    ============


Shares used in computing loss per share ..........................      5,747,049       3,769,822
                                                                     ============    ============

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


                                                        4
<PAGE>


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

                                                 STATEMENT OF STOCKHOLDERS' EQUITY
                                                            (Unaudited)



                                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 .........        --       --         --         --         21,073           2          10,589               --

Net Loss ....................        --       --         --         --             --          --              --       (1,039,126)
                                --------------------------------------    --------------------------------------------------------

Balance at March 31, 1998 ...        --       --         --         --      5,758,901   $     576    $ 19,697,787   $  (16,542,180)
                                ======================================    ========================================================


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


                                                                 5
<PAGE>


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

                                                      STATEMENTS OF CASH FLOWS
                                                           (Unaudited)                                                From Inception
                                                                                                                      (May 3, 1990)
                                                                                       Three months ended March 31,      Through
                                                                                           1998            1997       March 31, 1998
                                                                                       ------------    ------------   --------------
<S>                                                                                    <C>             <C>            <C>           
Cash flows from operating activities
   Net loss ........................................................................   $ (1,039,126)   $   (920,543)  $ (16,542,180)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
       Depreciation ................................................................          1,962             900          79,360
       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
       Decrease (Increase) in receivable
         from shareholder ..........................................................          1,316         (86,500)       (105,295)
       Decrease (increase) in accounts
         receivable and other current assets .......................................         (3,410)        493,417        (211,887)
       Increase (decrease) in accounts payable .....................................         31,159          31,821         431,155
       Increase (decrease) in accrued liabilities ..................................        (22,555)        141,655         216,261
       Increase (decrease) in accrued legal fees ...................................             --              --         300,000
                                                                                       ------------    ------------   -------------
         Total adjustments .........................................................          8,472         581,293       2,553,730
                                                                                       ------------    ------------   -------------
Net cash used in operating activities ..............................................     (1,030,654)       (339,250)    (13,988,450)
                                                                                       ------------    ------------   -------------

Cash flows from investing activities
  Purchases of short-term investments ..............................................     (3,575,313)             --     (21,510,365)
  Sales and maturities of short-term investments ...................................      4,550,000         597,969      18,216,486
  Capital expenditures .............................................................         (3,984)         (2,328)        (48,006)
  Payment of patent costs ..........................................................             --              --         (67,424)
                                                                                       ------------    ------------   -------------
Net cash provided by (used in) investing activities ................................        970,703         595,641      (3,409,309)
                                                                                       ------------    ------------   -------------

Cash flows from financing activities
  Repayments of notes payable ......................................................        (65,965)        (36,903)        (10,694)
  Increase in deferred offering costs ..............................................             --              --        (597,348)
  Issuance of Series A preferred stock .............................................             --              --         513,525
  Issuance of Series B preferred stock .............................................             --              --         450,000
  Net proceeds from issuance of common stock .......................................         10,590       6,116,500      17,283,919
  Proceeds from payable to shareholders ............................................             --              --         542,500
  Repayment of payable to shareholders .............................................             --              --        (542,500)
                                                                                       ------------    ------------   -------------
Net cash provided by (used in)financing activities .................................        (55,375)      6,079,597      17,639,402
                                                                                       ------------    ------------   -------------

Net change in cash .................................................................       (115,326)      6,335,988         241,643
Cash at beginning of period ........................................................        356,969         341,145              --
                                                                                       ------------    ------------   -------------
Cash at end of period ..............................................................   $    241,643    $  6,677,133   $     241,643
                                                                                       ============    ============   =============

Supplemental information:
  Cash paid for interest ...........................................................   $      2,276    $      1,335   $     169,728
                                                                                       ============    ============   =============

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


                                                                  6
<PAGE>


                              SUNPHARM CORPORATION
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                 March 31, 1998
                                   (Unaudited)


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         The  balance  sheet  at March  31,  1998,  the  related  statements  of
operations  for the three- month  periods  ended March 31, 1998 and 1997 and the
period from  inception  (May 3, 1990) through  March 31, 1998,  the statement of
stockholders' equity at March 31, 1998, and the statements of cash flows for the
three-month  periods ended March 31, 1998 and 1997 and the period from inception
through March 31, 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 the 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


                                        7
<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 $16,542,180 from its inception through March 31, 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.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 AND 1997

         Interest  income  increased to $49,000 for the three months ended March
31, 1998 from $25,000 for the same period in 1997. This increase is attributable
to a greater cash balance  available for investment  during the current quarter,
as compared to the year-ago quarter.

         The Company's  research and development  expenses  totaled $523,000 for
the three months ended March 31, 1998,  as compared  with  $551,000 for the same
period in 1997. This 5% decrease was principally  attributable to lower clinical
monitoring  activity and lower  expenses of drug compound  screening,  partially
offset by increased  sponsored  research  payments to the University of Florida,
increased clinical  investigator costs, and expenses related to establishment of
a quality control  laboratory.  The Company expects its research and development
expenses to increase during 1998 and into 1999, reflecting anticipated increased
expenses related to preclinical studies and human clinical trials.


                                       8
<PAGE>


         General and administrative  expenses were $565,000 for the three months
ended March 31, 1998,  as compared to $394,000 for the same period in 1997.  The
43% increase  resulted  from the  Company's  recording  additional  accruals for
professional  services in the current quarter in several  administrative  areas,
including investor relations and public company expenses. The higher expenses in
the current quarter,  as compared to the same quarter a year earlier,  were also
impacted  by the  addition  of a senior  management  position,  which  increased
salaries,  benefits,  payroll taxes, and travel. The Company expects its general
and  administrative  expenses  to  increase,  although at a slower rate than its
research and development expenses,  with the anticipated addition of a marketing
function and associated administrative support.

         Net loss for the three months ended March 31, 1998 was  $1,039,000,  as
compared  to  $921,000  for the same  period in 1997.  The  greater  loss in the
current  quarter was due to  increased  general and  administrative  expenses as
discussed above,  slightly offset by higher interest income.  Net loss per share
for the three months ended March 31, 1998 of $0.18,  which compares to $0.24 for
the same period in 1997, was impacted by the greater number of  weighted-average
shares  outstanding,  which was due to a private  placement  financing 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 March
31, 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  three  months  ended  March  31,  1998,  net cash  used in
operating  activities was $1,030,000,  compared with $339,000 for the comparable
period  in  1997.  The  lower  use of cash in the  year-ago  quarter  was due to
collection of a $500,000  milestone  payment from a corporate partner in January
1997 and the lower net loss as discussed earlier. At March 31, 1998, the Company
had cash and  investments  totaling  $3,556,000,  compared  with  $4,626,000  at
December 31, 1997.  The Company's  working  capital was  $2,980,000 at March 31,
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
three months. At this time, the Company expects currently available resources to
be able to fund its operations through 1998.

         The  Company  intends  to  obtain  additional  funds for  research  and
development  through new  collaborative  arrangements  with corporate  partners,
additional financing, and from other sources; however, there can be no assurance
that the Company will be able to obtain  necessary  financing  when  required or
what the  terms of any  financing,  if  obtained,  might be.  In  addition,  the
Company's  future success is affected by the progress of the Company's  research
and development  scope 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


                                        9
<PAGE>


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.  At the present time, 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  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;  however,  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 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 a 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.


                                       10
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES

         During the first three months of 1998, the Company sold an aggregate of
18,073  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.  The options in  question  were  granted  prior to the  Company's  1995
initial public offering.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)      Exhibits

                 11.1*    Statement of computation of net loss per share

                 27.1*    Financial Data Schedule












------------
*Filed herewith.


                                       11
<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: May 14, 1998        By: /s/ STEFAN BORG
                              ------------------------------------------------
                                  Stefan Borg 
                                  President and Chief Executive Officer
                                  (Principal Executive Officer)




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


                                       12