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<SEC-DOCUMENT>0000950124-01-502861.txt : 20010815
<SEC-HEADER>0000950124-01-502861.hdr.sgml : 20010815
ACCESSION NUMBER:		0000950124-01-502861
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		2
CONFORMED PERIOD OF REPORT:	20010630
FILED AS OF DATE:		20010814

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SHEFFIELD PHARMACEUTICALS INC
		CENTRAL INDEX KEY:			0000894158
		STANDARD INDUSTRIAL CLASSIFICATION:	PHARMACEUTICAL PREPARATIONS [2834]
		IRS NUMBER:				133808303
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-12584
		FILM NUMBER:		1712040

	BUSINESS ADDRESS:	
		STREET 1:		425 WOODSMILL RD
		CITY:			ST LOUIS
		STATE:			MO
		ZIP:			63017
		BUSINESS PHONE:		3145799899

	MAIL ADDRESS:	
		STREET 1:		425 WOODSMILL RD
		CITY:			ST LOUIS
		STATE:			MO
		ZIP:			63017

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	SHEFFIELD MEDICAL TECHNOLOGIES INC
		DATE OF NAME CHANGE:	19940606
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>c64437e10-q.txt
<DESCRIPTION>QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2001
<TEXT>
<PAGE>   1





                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

                       FOR THE QUARTER ENDED JUNE 30, 2001


                         Commission file number 1-12584


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


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


14528 SOUTH OUTER FORTY ROAD               63017              (314) 579-9899
ST. LOUIS, MISSOURI                      (Zip Code)     (Registrant's telephone,
(Address of principal executive offices)                   including area code)



           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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


           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      None


Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ]Yes [ ] No


The number of shares outstanding of the Registrant's Common Stock is 29,035,321
shares as of August 10, 2001.









<PAGE>   2



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

                                    FORM 10-Q
                       For the Quarter Ended June 30, 2001

                                Table of Contents
<TABLE>
<CAPTION>

                                                                            Page
                                     PART I

<S>                                                                          <C>
Item 1.  Financial Statements

Consolidated Balance Sheets as of June 30, 2001
   and December 31, 2000.......................................................3

Consolidated Statements of Operations
  for the three and six months ended June 30, 2001 and 2000 and for the
  period from October 17, 1986 (inception) to June 30, 2001....................4

Consolidated Statements of Stockholders' Equity
  (Net Capital Deficiency) for the period from October 17, 1986
  (inception) to June 30, 2001.................................................5

Consolidated Statements of Cash Flows
  for the six months ended June 30, 2001 and 2000 and for the period from
  October 17, 1986 (inception) to June 30, 2001................................6

Notes to Consolidated Financial Statements ....................................7

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations..........................................8


                                     PART II

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

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

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

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

</TABLE>



                                       2
<PAGE>   3



PART I:      FINANCIAL INFORMATION
Item 1.      Financial Statements

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

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                        June 30,                 December 31,
                                                                                          2001                       2000
                                                                                     ----------------           ---------------
                                                                                       (unaudited)
<S>                                                                                    <C>                        <C>
Current assets:
    Cash and cash equivalents ...............................................            $ 1,463,968               $ 3,041,948
    Marketable equity securities.............................................                308,675                   327,422
    Milestone advance receivable.............................................                     --                 1,000,000
    Contract research receivable.............................................                761,529                   233,891
    Prepaid expenses and other current assets ...............................                324,136                   306,381
                                                                                     ----------------           ---------------
       Total current assets .................................................              2,858,308                 4,909,642
                                                                                     ----------------           ---------------

Property and equipment:
    Laboratory equipment ....................................................                339,328                   271,748
    Office equipment ........................................................                245,019                   211,609
    Leasehold improvements ..................................................                 25,309                    18,320
                                                                                     ----------------           ---------------
       Total at cost ........................................................                609,656                   501,677
    Less accumulated depreciation and amortization ..........................              (292,930)                 (235,389)
                                                                                     ----------------           ---------------
       Property and equipment, net ..........................................                316,726                   266,288
                                                                                     ----------------           ---------------

Patent costs, net of accumulated amortization of $14,252 and $9,287, respectively            289,750                   258,897
Other assets.................................................................                 37,506                    15,830
                                                                                     ----------------           ---------------
    Total assets ............................................................            $ 3,502,290               $ 5,450,657
                                                                                     ================           ===============

           LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

Current liabilities:
    Accounts payable and accrued liabilities ................................            $ 1,594,945               $ 1,234,765
    Sponsored research payable ..............................................                235,757                   235,757
                                                                                     ----------------           ---------------
       Total current liabilities ............................................              1,830,702                 1,470,522

Convertible promissory note .................................................              2,000,000                 2,000,000
Unearned revenue ............................................................              2,000,000                 2,000,000
Other long-term liabilities .................................................                496,403                   393,855
Commitments and contingencies ...............................................                     --                        --
                                                                                     ----------------           ---------------
    Total liabilities .......................................................              6,327,105                 5,864,377

Minority interest in subsidiary..............................................                     --                        --

Stockholders' equity (net capital deficiency): Preferred stock, $.01 par value,
    authorized 3,000,0000 shares:
       Series C cumulative convertible preferred stock, authorized 23,000
         shares; issued and outstanding 14,197 and 13,712 shares at June 30,
         2001 and December 31, 2000, respectively............................                    142                       137
       Series D cumulative convertible exchangeable preferred stock, authorized
         21,000 shares; 13,325 and 12,870 issued and outstanding at June 30, 2001
         and December 31, 2000, respectively.................................                    133                       129
       Series E cumulative convertible non-exchangeable preferred stock,
         authorized 9,000 shares; 2,049 and 1,004 shares issued and outstanding
         at June 30, 2001 and December 31, 2000, respectively................                     21                        10
       Series F convertible non-exchangeable preferred stock, 5,000 shares
         authorized; 5,000 shares issued and outstanding at June 30, 2001 and
         December 31, 2000...................................................                     50                        50
    Common stock, $.01 par value, authorized 100,000,000 shares; issued and
         outstanding 29,035,321 and 28,791,643 shares at June 30, 2001
         and December 31, 2000, respectively.................................                290,353                   287,916
Additional paid-in capital ..................................................             82,561,062                80,108,095
Other comprehensive income ..................................................                138,720                   157,467
Deficit accumulated during development stage ................................           (85,815,296)              (80,967,524)
                                                                                     ----------------           ---------------
          Total stockholders' equity (net capital deficiency) ...............            (2,824,815)                 (413,720)
                                                                                     ----------------           ---------------

Total liabilities and stockholders' equity (net capital deficiency)..........            $ 3,502,290               $ 5,450,657
                                                                                     ================           ===============

</TABLE>

                 See notes to consolidated financial statements.


                                       3
<PAGE>   4


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

                      CONSOLIDATED STATEMENTS OF OPERATIONS
            For the Three and Six Months Ended June 30, 2001 and 2000
                               and for the Period
               from October 17, 1986 (inception) to June 30, 2001
                                   (Unaudited)



<TABLE>
<CAPTION>

                                                   Three Months Ended                    Six Months Ended           October 17, 1986
                                                        June 30,                             June 30,               (inception) to
                                            -------------------------------      -------------------------------       June 30,
                                                2001               2000               2001                2000           2001
                                            ------------      -------------      -------------      ------------    ---------------

<S>                                         <C>                 <C>                 <C>           <C>                <C>
Revenues:
  Contract research revenue.........        $    688,348        $   124,505         $  869,095     $     245,675      $   1,770,045
  Sublicense revenue................               5,000                 --              5,000                --          1,370,000
                                            ------------        -----------         ----------        ----------      -------------

     Total revenues.................             693,348            124,505            874,095           245,675          3,140,045

Expenses:
  Acquisition of research and develop-
   ment in-process technology.......                  --                 --                 --                --         29,975,000
  Research and development..........           1,934,362            882,755          2,980,135         1,784,778         31,752,996
  General and administrative........           1,119,531            691,421          1,877,800         1,386,145         26,212,885
                                            ------------        -----------         ----------        ----------      -------------

     Total expenses.................           3,053,893          1,574,176          4,857,935         3,170,923         87,940,881
                                            ------------        -----------         ----------        ----------      -------------

Loss from operations................          (2,360,545)        (1,449,671)        (3,983,840)       (2,925,248)       (84,800,836)

Interest income.....................              22,382             41,991             50,765            94,492            781,714
Interest expense....................             (51,398)           (57,124)          (109,247)         (107,157)          (906,962)
Realized gain (loss) on sale of
   marketable securities............                  --             52,614                 --            52,614            (85,286)
Minority interest in loss of subsidiary          110,151             28,380            182,502            44,399          3,322,574
                                            ------------        -----------         ----------        ----------      -------------

Loss before extraordinary item......          (2,279,410)        (1,383,810)        (3,859,820)       (2,840,900)       (81,688,796)

Extraordinary item..................                  --                 --                 --                --             42,787
                                            ------------        -----------         ----------        ----------      -------------

Net loss............................         $(2,279,410)       $(1,383,810)       $(3,859,820)    $  (2,840,900)     $(81,646,009)

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

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

Net loss - attributable to common shares     $(2,279,410)       $(1,383,810)      $ (3,859,820)    $  (2,840,900)     $ (81,749,409)

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

Weighted average common shares
  outstanding-basic and diluted.....          28,965,925         27,975,234         28,897,350        27,781,815         9,992,155

Net loss per share of common stock - basic and diluted:
    Loss before extraordinary item..           $   (0.08)       $     (0.05)         $   (0.13)    $       (0.10)     $       (8.18)
    Extraordinary item..............                  --                 --                 --                --                --
                                            ------------        -----------         ----------        ----------      -------------
    Net loss per share..............           $   (0.08)       $     (0.05)         $   (0.13)    $       (0.10)     $       (8.18)
                                            ==============      ============     =============     =============      =============

</TABLE>

                 See notes to consolidated financial statements.


                                       4
<PAGE>   5



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

    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
        For the Period from October 17, 1986 (Inception) to June 30, 2001
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                            Notes
                                                                                          receivable in
                                                                                           connection       Additional
                                                           Preferred       Common         with sale of       paid-in
                                                             stock          stock            stock            capital
                                                          ------------    --------        -------------    -----------
<S>                                                       <C>          <C>                 <C>            <C>

Balance at October 17, 1986.......................        $     --     $        --          $      --      $        --
Common stock issued...............................              --      11,484,953            100,000       30,539,185
Reincorporation in Delaware at $.01 par value.....              --     (11,220,369)                --       11,220,369
Common stock subscribed...........................              --              --           (110,000)              --
Common stock options and warrants issued..........              --              --                 --          240,868
Issuance of common stock in connection with
     acquisition of Camelot Pharmacal, L.L.C......              --           6,000                 --        1,644,000
Common stock options extended.....................              --              --                 --          215,188
Accretion of issuance costs for Series A preferred
stock.............................................              --              --                 --               --
Series C preferred stock issued...................             115              --                 --       11,499,885
Series C preferred stock dividends................               4              --                 --          413,996
Comprehensive income (loss):
       Unrealized loss on marketable securities...              --              --                 --               --
       Net loss...................................              --              --                 --               --
       Comprehensive income (loss)................              --              --                 --               --
                                                          ------------    --------          ---------      -----------
Balance at December 31, 1998......................             119         270,584            (10,000)      55,773,491
Common stock issued...............................              --           2,504             10,000           89,059
Series C preferred stock dividends................               9              --                 --          865,991
Series D preferred stock issued...................             120              --                 --       12,014,880
Series F preferred stock issued...................              50              --                 --        4,691,255
Common stock warrants issued......................              --              --                 --          203,452
Comprehensive income (loss):
     Unrealized gain on marketable securities.....              --              --                 --               --
     Net loss.....................................              --              --                 --               --
     Comprehensive income (loss)..................              --              --                 --               --
                                                          ------------    --------          ---------      -----------
Balance at December 31, 1999......................             298         273,088                 --       73,638,128
Common stock issued...............................              --          15,738                 --        3,796,072
Repurchase and retirement of common stock.........              --           (910)                 --         (312,279)
Series C preferred stock dividends................               9              --                 --          931,991
Series D preferred stock dividends................               9              --                 --          854,991
Series E  preferred stock issued..................              10              --                 --          999,990
Series E  preferred stock dividends...............                              --                 --            4,000
Common stock warrants issued......................              --              --                 --          195,202
Comprehensive income (loss):
     Unrealized loss on marketable securities.....              --              --                 --               --
     Net loss.....................................              --              --                 --               --
     Comprehensive income (loss)..................              --              --                 --               --
                                                          ------------    --------          ---------      -----------
Balance at December 31, 2000......................             326         287,916                 --       80,108,095
Common stock issued...............................              --           2,437                 --          341,246
Series C preferred stock dividends................               5              --                 --          484,995
Series D preferred stock dividends................               4              --                 --          454,996
Series E  preferred stock issued..................              10              --                 --          999,990
Series E preferred stock dividends................               1              --                 --           44,999
Common stock warrants issued......................              --              --                 --          126,741
Comprehensive income (loss):
     Unrealized loss on marketable securities.....              --              --                 --               --
     Net loss.....................................              --              --                 --               --
     Comprehensive income (loss)..................              --              --                 --               --
                                                          ------------    --------          ---------      -----------
Balance at June 30, 2001..........................            $346        $290,353          $      --      $82,561,062
                                                          ============    ========          =========      ===========
xxxxxxxxxxxxxxxxxxxxxxxxxxxxx

<CAPTION>

                                                                                Deficit            Total
                                                               Other          accumulated      stockholders'
                                                           comprehensive        during          equity (net
                                                               income        development         capital
                                                               (loss)          stage          deficiency)
                                                           ------------    --------------     -------------
<S>                                                         <C>            <C>                <C>

Balance at October 17, 1986.......................          $      --      $         --        $       --
Common stock issued...............................                 --                --        42,124,138
Reincorporation in Delaware at $.01 par value.....                 --                --                --
Common stock subscribed...........................                 --                --          (110,000)
Common stock options and warrants issued..........                 --                --           240,868
Issuance of common stock in connection with
     acquisition of Camelot Pharmacal, L.L.C......                 --                --         1,650,000
Common stock options extended.....................                 --                --           215,188
Accretion of issuance costs for Series A preferred
stock.............................................                 --          (103,400)         (103,400)
Series C preferred stock issued...................                 --                --        11,500,000
Series C preferred stock dividends................                 --          (415,112)           (1,112)
Comprehensive income (loss):
       Unrealized loss on marketable securities...           (222,226)               --                --
       Net loss...................................                 --       (54,638,251)               --
       Comprehensive income (loss)................                 --                --        54,860,477)
                                                            ---------      ------------       -----------
Balance at December 31, 1998......................           (222,226)      (55,156,763)          655,205
Common stock issued...............................                 --                --           101,563
Series C preferred stock dividends................                 --          (868,277)           (2,277)
Series D preferred stock issued...................                 --                --        12,015,000
Series F preferred stock issued...................                 --                --         4,691,305
Common stock warrants issued......................                 --                --           203,452
Comprehensive income (loss):
     Unrealized gain on marketable securities.....            391,613                --                --
     Net loss.....................................                 --       (17,384,788)               --
     Comprehensive income (loss)..................                 --                --       (16,993,175)
                                                            ---------      ------------       -----------
Balance at December 31, 1999......................            169,387       (73,409,828)          671,073
Common stock issued...............................                 --                --         3,811,810
Repurchase and retirement of common stock.........                 --                --          (313,189)
Series C preferred stock dividends................                 --          (934,045)           (2,045)
Series D preferred stock dividends................                 --          (855,750)             (750)
Series E  preferred stock issued..................                 --                --         1,000,000
Series E  preferred stock dividends...............                 --            (4,750)             (750)
Common stock warrants issued......................                 --                --           195,202
Comprehensive income (loss):
     Unrealized loss on marketable securities.....            (11,920)               --                --
     Net loss.....................................                 --        (5,763,151)               --
     Comprehensive income (loss)..................                 --                --        (5,775,071)
                                                            ---------      ------------       -----------
Balance at December 31, 2000......................            157,467       (80,967,524)         (413,720)
Common stock issued...............................                 --                --           343,683
Series C preferred stock dividends................                 --          (486,815)           (1,815)
Series D preferred stock dividends................                 --          (455,455)             (455)
Series E  preferred stock issued..................                 --                --         1,000,000
Series E preferred stock dividends................                 --           (45,682)             (682)
Common stock warrants issued......................                 --                --           126,741
Comprehensive income (loss):
     Unrealized loss on marketable securities.....            (18,747)               --                --
     Net loss.....................................                 --        (3,859,820)               --
     Comprehensive income (loss)..................                 --                --        (3,878,567)
                                                            ---------      ------------       -----------
Balance at June 30, 2001..........................          $ 138,720      $(85,815,296)      $(2,824,815)
                                                            =========      ============       ===========

</TABLE>


                 See notes to consolidated financial statements.


                                       5
<PAGE>   6



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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
     For the Six Months Ended June 30, 2000 and 1999 and for the Period from
                  October 17, 1986 (inception) to June 30, 2001
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                                         Six Months Ended             October 17, 1986
                                                                              June 30,                 (inception) to
                                                                --------------------------------          June 30,
                                                                     2001              2000                 2001
                                                                ---------------    -------------      ----------------
<S>                                                              <C>               <C>                 <C>
Cash outflows from operating activities:
    Net loss.........................................            $(3,859,820)       $(2,840,900)       $(81,646,009)
Adjustments to reconcile net loss to net cash used by
   development stage activities:
     Issuance of common stock, stock options/warrants for
     services........................................                126,741             77,002           2,819,368
     Depreciation and amortization...................                 62,506             63,423             660,841
     Non-cash acquisition of research and development
     in-process technology...........................                     --                 --           1,650,000
     (Gain) loss realized on sale of marketable securities                --            (52,614)             85,286
     Increase in prepaid expenses & other current assets            (545,393)          (330,845)         (1,144,706)
     Decrease in milestone advance receivable........              1,000,000                 --                  --
     (Increase) decrease in other assets.............                (57,494)            10,760            (282,467)
     Increase (decrease) in accounts payable and accrued             542,130           (220,723)          1,343,632
liabilities..........................................
     (Decrease) increase in sponsored research payable                    --            (73,052)            812,827
     Increase in unearned revenue....................                     --                 --           2,000,000
     Other...........................................                (78,773)            59,116             219,275
                                                                 -----------        -----------        ------------
Net cash used by operating activities................             (2,810,103)        (3,307,833)        (73,481,953)
                                                                 -----------        -----------        ------------

Cash flows from investing activities:
     Proceeds from sale of marketable securities.....                     --             70,618             594,759
     Acquisition of laboratory and office equipment, and
leasehold                                                           (107,979)           (40,950)           (779,798)
         improvements................................
     Other...........................................                     --                 --             (57,087)
                                                                 -----------        -----------        ------------
Net cash provided (used) by investing activities.....               (107,979)            29,668            (242,126)
                                                                 -----------        -----------        ------------

Cash flows from financing activities:
     Payments on debt and capital leases.............                 (3,581)            (3,102)           (846,190)
     Net proceeds from issuance of:
        Debt.........................................                     --                 --           5,050,000
        Common stock.................................                     --                 --          23,433,660
        Preferred stock..............................              1,000,000                 --          34,741,117
     Proceeds from exercise of warrants/stock options                343,683          1,566,075          13,621,589
     Repurchase and retirement of common stock.......                     --           (313,189)           (313,189)
     Other...........................................                     --                 --            (500,024)
                                                                 -----------        -----------        ------------
Net cash provided by financing activities............              1,340,102          1,249,784          75,186,963
                                                                 -----------        -----------        ------------
Net (decrease) increase in cash and cash equivalents.             (1,577,980)        (2,028,381)          1,462,884
Cash and cash equivalents at beginning of period.....              3,041,948          3,874,437               1,084
                                                                 -----------        -----------        ------------
Cash and cash equivalents at end of period...........           $  1,463,968        $ 1,846,056       $   1,463,968
                                                                ============        ===========       =============

Noncash investing and financing activities:
     Common stock, stock options/warrants issued for             $   126,741        $    77,002       $   2,819,368
services.............................................
     Common stock redeemed in payment of notes receivable                 --                 --              10,400
     Acquisition of research and development in-process
         technology..................................                     --                 --           1,655,216
     Common stock issued for intellectual property rights                 --                 --             866,250
     Common stock issued to retire debt..............                     --                 --             600,000
     Common stock issued to redeem convertible securities                 --                 --           5,353,368
     Securities acquired under sublicense agreement..                     --                 --             850,000
     Equipment acquired under capital lease..........                     --                 --             121,684
     Notes payable converted to common stock.........                     --                 --             749,976
     Stock dividends.................................                985,000            876,000           4,426,369

Supplemental disclosure of cash flow information:                $     1,106        $     1,070        $    280,366
Interest paid........................................

</TABLE>


                 See notes to consolidated financial statements.


                                       6
<PAGE>   7

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2001
                                   (Unaudited)

1.   BASIS OF PRESENTATION The accompanying unaudited consolidated financial
     statements have been prepared in accordance with the instructions to Form
     10-Q of the Securities and Exchange Commission and should be read in
     conjunction with the financial statements and notes thereto included in the
     Company's Annual Report on Form 10-K for the year ended December 31, 2000.
     In the opinion of management, all adjustments (consisting only of normal
     recurring accruals) necessary to present fairly the financial position,
     results of operations, stockholders' equity and cash flows at June 30, 2001
     and for all periods presented have been made. Certain information and
     footnote disclosures normally included in financial statements prepared in
     accordance with generally accepted accounting principles have been
     condensed or omitted. The results of operations for the three and six
     months ended June 30, 2001 and 2000 are not necessarily indicative of the
     operating results for the full years.

     The consolidated financial statements include the accounts of Sheffield
     Pharmaceuticals, Inc. and its wholly owned subsidiaries, Systemic Pulmonary
     Delivery, Ltd., Ion Pharmaceuticals, Inc., and CP Pharmaceuticals, Inc.,
     and its 80.1% owned subsidiary, Respiratory Steroid Delivery, Ltd., and are
     herein referred to as "Sheffield" or the "Company." All significant
     intercompany transactions are eliminated in consolidation.

     The Company is focused on the development and commercialization of later
     stage pharmaceutical products that utilize the Company's unique proprietary
     pulmonary delivery technologies. The Company is in the development stage
     and to date has been principally engaged in research, development and
     licensing efforts. The Company has generated minimal operating revenue,
     sustained significant net operating losses, and requires additional capital
     that the Company intends to obtain through out-licensing as well as through
     equity and debt offerings to continue to operate its business. Even if the
     Company is able to successfully develop new products, there can be no
     assurance that the Company will generate sufficient revenues from the sale
     or licensing of such products to be profitable.

2.   BASIC LOSS PER COMMON SHARE

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

3.   SUBSEQUENT EVENT

     On August 14, 2001 the Company entered into a Note Purchase Agreement with
     Elan Pharma International Ltd. ("Elan Pharma"), pursuant to which Elan
     Pharma agreed to lend the Company $2 million. Pursuant to the Note Purchase
     Agreement, Elan Pharma may lend the Company an additional $2 million if the
     Company requests such additional financing and Elan Pharma agrees to fund
     the additional amount. All borrowings under the Note Purchase Agreement are
     evidenced by a $4 million unsecured promissory note of the Company that
     provides for interest on principal and semi-annually compounded interest at
     a fixed rate of 10% per annum and a maturity date 360 days after the last
     funding under the Note Purchase Agreement, or upon the earlier occurrence
     of one or more specified events.

4.   RECLASSIFICATIONS

     Certain amounts in the prior year financial statements and notes have been
     reclassified to conform to the current year presentation.

                                       7
<PAGE>   8



Item 2.

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

The following contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
the safe harbors created thereby. All forward-looking statements involve risks
and uncertainty. Although the Company believes that the assumptions underlying
the forward-looking statements contained herein are reasonable, any of the
assumptions could be inaccurate, and therefore, there can be no assurance that
the forward-looking statements included in this report will prove to be
accurate. The Company's actual results may differ materially from the results
anticipated in the forward-looking statements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Important Factors
that May Affect Future Results" included herein for a discussion of factors that
could contribute to such material differences. In light of the significant
uncertainties inherent in the forward-looking statements included herein, the
inclusion of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. The Company disclaims any obligation to update or revise the
information provided in this report to reflect future events.


OVERVIEW

The Company provides innovative, cost-effective pharmaceutical therapies by
combining state-of-the-art pulmonary drug delivery technologies with existing
and emerging therapeutic agents. The Company is developing a range of products
to treat respiratory and systemic diseases in its proprietary Premaire(TM)
Delivery System ("Premaire") and Tempo(TM) Inhaler ("Tempo"). The Company is in
the development stage and, as such, has been principally engaged in the
development of its pulmonary delivery systems. The Company and its development
partners currently have ten products in various stages of development.

In 1997, the Company acquired the Premaire Delivery System, a portable
nebulizer-based pulmonary delivery system, through a worldwide exclusive license
and supply arrangement with Siemens AG ("Siemens"). During the second half of
1998, the Company acquired the rights to an additional pulmonary delivery
technology, the Tempo Inhaler, from a subsidiary of Aeroquip-Vickers, Inc.
("Aeroquip-Vickers"). The Tempo technology is a new generation propellant-based
pulmonary delivery system. Additionally, during 1998, Sheffield licensed from
Elan Corporation, plc ("Elan") the Ultrasonic Pulmonary Drug Absorption System
("UPDAS"), a novel disposable unit dose nebulizer system, and Elan's Absorption
Enhancing Technology ("Enhancing Technology"), a therapeutic agent to increase
the systemic absorption of drugs. In October 1999, the Company licensed Elan's
Nanocrystal(TM) technology to be used in developing certain inhaled steroid
products.

Using the above pulmonary delivery systems and technologies as platforms, the
Company has established strategic alliances for developing its initial products
with Elan, Siemens and Zambon Group SpA ("Zambon").

In a collaboration with Zambon, the Company is developing a range of
pharmaceutical products delivered by Premaire to treat respiratory diseases.
Under its agreement with Zambon, Premaire commercial rights for respiratory
products have been sublicensed to Zambon in return for an equity investment in
the Company (approximately 10%). Zambon has committed to fund the development
costs for respiratory compounds delivered by Premaire, as well as make certain
milestone payments and pay royalties on net sales to the Company resulting from
these Premaire products. Initial products for respiratory disease therapy
delivered through Premaire include albuterol, ipratropium, cromolyn and inhaled
steroids. The Company has maintained co-marketing rights for the U.S. The
Company's ability to co-market Premaire respiratory products in the U.S.
requires no additional payment to Zambon by the Company. Zambon and the Company
continue to have discussions regarding the possible modification of their
agreement, including the future marketing arrangements for the Premaire
respiratory products. Concurrently, the Company, in consultation with Zambon, is
having discussions with third parties regarding an arrangement for the
development and commercialization of Premaire respiratory products in North
America.


As part of a strategic alliance with Elan, the Company is developing therapies
for non-respiratory diseases to be delivered to the lungs using both Tempo and
Premaire. In 1998, the systemic applications of Premaire and Tempo were licensed
to Systemic Pulmonary Delivery, Ltd. ("SPD"), a wholly owned subsidiary of the
Company. In addition, two Elan technologies, UPDAS(TM) and the Enhancing
Technology, were also licensed to SPD. The Company retained exclusive rights
outside of the strategic alliance to respiratory disease applications utilizing
the Tempo technology and the two Elan technologies. Two systemic compounds for
pulmonary delivery are currently under development. For the treatment of
breakthrough pain, the Company is developing morphine delivered through
Premaire. Ergotamine, a therapy for the treatment of migraine headaches, is
currently being developed for use in Tempo.



                                       8
<PAGE>   9


In addition to the above alliance with Elan, in 1999, the Company and Elan
formed a joint venture, Respiratory Steroid Delivery, Ltd. ("RSD"), to develop
certain inhaled steroid products to treat respiratory diseases using Elan's
NanoCrystal technology. The inhaled steroid products to be developed include a
propellant-based steroid formulation for delivery through the Tempo(TM) Inhaler,
a solution-based unit-dose-packaged steroid formulation for delivery using a
conventional tabletop nebulizer, and a solution-based steroid formulation for
delivery using the Premaire(TM) Delivery System, subject to further agreement
with Zambon.

Outside of these alliances, the Company owns the worldwide rights to respiratory
disease applications of all of its technologies, subject only to the Premaire
respiratory rights sublicensed to Zambon.

RESULTS OF OPERATIONS

Revenues

Contract research revenues primarily represent revenues earned from a
collaborative research agreement with Zambon relating to the development of
respiratory applications of Premaire. Contract research revenues for the second
quarter of 2001 and 2000 were $688,348 and $124,505, respectively. For the first
six months of 2001 and 2000, contract research revenues were $869,095 and
$245,675, respectively. The increase for both the second quarter and first half
of 2001 is due to higher costs associated with Premaire device development work
and testing prior to the start of Phase III Premaire-albuterol clinical trials.
Costs of contract research revenues approximate such revenues and are included
in research and development expenses. Future contract research revenues and
expenses are anticipated to fluctuate depending, in part, upon the success of
current clinical studies, and obtaining additional collaborative agreements.

The Company's ability to generate material revenues is contingent on the
successful commercialization of its technologies and other technologies and
products that it may acquire, followed by the successful marketing and
commercialization of such technologies through licenses, joint ventures and
other arrangements.

Research and Development

Research and development ("R&D") expenses were $1,934,362 and $882,755 for the
second quarter of 2001 and 2000, respectively. For the six months ended June 30,
2001 and 2000, R&D costs were $2,980,135 and $1,784,778, respectively. The
increase for both the second quarter and first half of 2001 primarily reflects
higher costs associated with the previously described increase in contract
research revenues, higher development expenses related to RSD's unit-dose and
Premaire steroid products, and formulation and feasibility work associated with
new product development in the area of polypeptides. The increase in research
and development expenses also reflects higher costs related to development,
design and testing of the Tempo Inhaler, partially offset by nonrecurring costs
incurred in the first half of 2000 associated with modifications made to the
Premaire Delivery System to enhance its commercial appeal.

General and Administrative

General and administrative expenses were $1,119,531 and $691,421 for the
quarters ended June 30, 2001, and 2000, respectively, and $1,877,800 and
$1,386,145 for the first half of 2001 and 2000, respectively. The increase for
both the second quarter and the first six months of 2001 was primarily due to
higher consulting costs and legal fees associated with expanded business
development activities.

Interest

Interest income was $22,382 and $41,991 for the second quarter of 2001 and 2000,
respectively, and $50,765 and $94,492 for the first six months of 2001 and 2000,
respectively. The decrease in interest income for both the second quarter and
first six months of 2001 was primarily due to less cash available for investment
and lower yields on those investments.

Interest expense was $51,398 and $57,124 for the second quarter of 2001 and
2000, respectively, and $109,247 and $107,157 for the first half of 2001 and
2000, respectively. The decrease in the second quarter of 2001 resulted from a
lower interest rate on the Company's convertible note with Elan. The increase in
the first half of 2001 resulted from a slightly higher average interest rate on
the Company's convertible promissory note with Elan.


                                       9
<PAGE>   10


LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2001, the Company had $1,463,968 in cash and cash equivalents
compared to $3,041,948 at December 31, 2000. The decrease of $1,577,980
primarily reflects $3,810,103 of cash disbursements used primarily to fund
operating activities, partially offset by the receipt of a $1.0 million
milestone advance from Zambon, $1.0 million from the issuance of 1,000 shares of
the Company's Series E Cumulative Convertible Preferred Stock, and $343,683 in
net proceeds from the exercise of common stock options and warrants.

On August 14, 2001 the Company entered into a Note Purchase Agreement with Elan
Pharma International Ltd. ("Elan Pharma"), pursuant to which Elan Pharma agreed
to lend the Company $2 million. Pursuant to the Note Purchase Agreement, Elan
Pharma may lend the Company an additional $2 million if the Company requests
such additional financing and Elan Pharma agrees to fund the additional amount.
All borrowings under the Note Purchase Agreement are evidenced by a $4 million
unsecured promissory note of the Company that provides for interest on principal
and semi-annually compounded interest at a fixed rate of 10% per annum and a
maturity date 360 days after the last funding under the Note Purchase Agreement,
or upon the earlier occurrence of one or more specified events.

In October 1999, as part of a licensing agreement with Elan, the Company
received gross proceeds of $17.0 million related to the issuance to Elan of
12,015 shares of Series D Cumulative Convertible Exchangeable Preferred Stock
and 5,000 shares of Series F Convertible Non-Exchangeable Preferred Stock. In
turn, the Company made an equity investment of $12,015,000 in a joint venture,
RSD, representing an initial 80.1% ownership. The remaining proceeds from this
preferred stock issuance will be utilized for general operating purposes. As
part of the agreement, Elan also committed to purchase, on a drawdown basis, up
to an additional $4.0 million of the Company's Series E Preferred Stock, of
which $2.0 million of such commitment remains outstanding. The proceeds from the
Series E Preferred Stock will be utilized by the Company to fund its portion of
RSD's operating and development costs.

In May 1999, in conjunction with the completion of its Phase I/II
Premaire-albuterol trial, Zambon provided the Company with a $1.0 million
interest-free advance against future milestone payments. In January 2001, the
Company received an additional $1.0 million interest-free milestone advance
resulting from the demonstration of the technical feasibility of delivering an
inhaled steroid formulation in Premaire. Upon the attainment of certain future
milestones, the Company will recognize these advances as revenue. If the Company
does not achieve these future milestones, the advance must be repaid in
quarterly installments of $250,000 commencing January 1, 2002. The proceeds from
these advances are not restricted as to their use by the Company.

Since its inception, the Company has financed its operations primarily through
the sale of securities and convertible debentures, from which it has raised an
aggregate of approximately $76.8 million through June 30, 2001, of which
approximately $30.0 million has been spent to acquire certain in-process
research and development technologies, and $31.8 million has been incurred to
fund certain ongoing technology research projects. The Company expects to incur
additional costs in the future, including costs relating to its ongoing research
and development activities, and preclinical and clinical testing of its product
candidates. The Company may also bear considerable costs in connection with
filing, prosecuting, defending and/or enforcing its patent and other
intellectual property claims. Therefore, the Company will need substantial
additional capital before it will recognize significant cash flow from
operations, which is contingent on the successful commercialization of the
Company's technologies. There can be no assurance that any of the technologies
to which the Company currently has or may acquire rights can or will be
commercialized or that any revenues generated from such commercialization will
be sufficient to fund existing and future research and development activities.

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

IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS

The following are some of the factors that could affect the Company's future
results. They should be considered in connection with evaluating forward-looking
statements contained in this report and otherwise made by the Company or on the
Company's behalf, because these factors could cause actual results and
conditions to differ materially from those projected in forward-looking
statements.


                                       10
<PAGE>   11


The Company's future results are subject to risks and uncertainties including,
but not limited to, the risks that (1) the Company may not be able to obtain
additional financing on acceptable terms, or at all, to continue to fund its
operations, and may be required to delay, reduce the scope of, or eliminate one
or more of its research and development programs, or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products that the Company would otherwise seek to develop; (2) the Company's
product opportunities may not be successfully developed, proven to be safe and
efficacious in clinical trials, may not meet applicable regulatory standards,
may not receive the required regulatory approvals, or may not be produced in
commercial quantities at reasonable costs or be successfully commercialized and
marketed; (3) the Company may default in payments required under certain
licensing agreements, thereby potentially forfeiting its rights under those
agreements; (4) due to rapid technological change and innovation, the Company
may not have a competitive advantage in its fields of technology or in any of
the fields in which the Company may concentrate its efforts; (5) government
regulation may prevent or delay regulatory approval of the Company's products;
(6) the Company may not develop or receive sublicenses or other rights related
to proprietary technology that are patentable, one or more of the Company's
pending patents may not issue, any issued patents may not provide the Company
with any competitive advantages, or issued patents may be challenged by third
parties; (7) the Company may not have the resources available to build or
otherwise acquire its own marketing capabilities, or agreements with other
pharmaceutical companies to market the Company's products may not be reached on
terms acceptable to the Company; (8) manufacturing and supply agreements entered
into by the Company will not be adequate or the Company will not be able to
enter into future manufacturing and supply agreements on acceptable terms; (9)
private health insurance and government health program reimbursement price
levels may not be sufficient to provide a return to the Company on its
investment in new products and technologies; (10) the Company may not be able to
maintain or obtain product liability insurance for any future clinical trials;
(11) the failure to meet the American Stock Exchange's ("AMEX") listing
guidelines may result in the Common Stock of the Company no longer being
eligible for listing on the AMEX, which would make it more difficult for
investors to dispose of, or to obtain accurate quotations as to the market value
of the Company's Common Stock and would make it more difficult for the Company
to raise additional funds; (12) announcements of developments in the medical
field generally, or in the Company's research areas or by the Company's
competitors specifically, may have a materially adverse effect on the market
price of, the Company's Common Stock; (13) the exercise of options and
outstanding warrants, the conversion of the Company's currently outstanding
convertible securities or convertible promissory notes, or conversion of
convertible securities issuable in the future may significantly dilute the
market price of shares of the Company's Common Stock, and could impair the
Company's ability to raise capital through the future sale of its equity
securities.

Readers are also directed to other risks and uncertainties discussed, as well as
to further discussion of the risks described above, in other documents filed by
the Company with the Securities and Exchange Commission. The Company
specifically disclaims any obligation to update or revise any forward-looking
information, whether as a result of new information, future developments, or
otherwise.



                                       11
<PAGE>   12


PART II:  OTHER INFORMATION


Item 2.   Changes in Securities

          The following unregistered securities were issued by the Company
          during the quarter ended June 30, 2001:

<TABLE>
<CAPTION>
          Date of Sale/       Description of         Number of       Aggregate
            Issuance        Securities Issued         Shares     Offering Price
         -------------     ------------------       ---------    --------------

          <S>              <C>                        <C>         <C>
           June 2001       Series E Preferred Stock    1,000      $1,000,000
</TABLE>

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

          An annual Meeting of Stockholders was held on May 8, 2001. All
          management's nominees for director, as listed in the Proxy Statement
          for the Annual Meeting, were elected. Listed below are the matters
          voted on by Stockholders and the number of votes cast at the Annual
          Meeting.

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

<TABLE>
<CAPTION>
                                                                                     Broker Non-Votes
               Name                 Voted for      Voted Against    Votes Withheld    and Abstentions
               ----                 ---------      -------------    --------------    ---------------
          <S>                    <C>                 <C>            <C>                  <C>

          Thomas M. Fitzgerald      26,943,208         --             55,034               --
          Loren G. Peterson         26,928,208         --             70,034               --
          John M. Bailey            26,928,208         --             70,034               --
          Digby W. Barrios          26,627,277         --            370,965               --
          Todd C. Davis             26,943,208         --             55,034               --
          Roberto Rettani           26,572,057         --            426,185               --
</TABLE>


   (b)

          Amendment to the Company's Certificate of Incorporation to increase
          the number of shares of Common Stock that the Company is authorized to
          issue from 60,000,000 to 100,000,000.

<TABLE>
                 <S>                        <C>
                  Voted For:                26,628,741
                  Voted Against:               337,666
                  Votes Abstained:              31,835
                  Broker Non-Votes:                 --
</TABLE>


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

          No reports on Form 8-K were filed during the quarter ended June 30,
          2001.

          Exhibits
          3.1 Certification of Incorporation of the Company, as amended.


                                       12
<PAGE>   13




                                   SIGNATURES

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

<TABLE>
<S>                                 <C>
                                    SHEFFIELD PHARMACEUTICALS, INC.

Dated:  August 10, 2001             /s/ Loren G. Peterson
                                    --------------------------------------------
                                    Loren G. Peterson
                                    President & Chief Executive Officer


Dated:  August 10, 2001             /s/ Scott A. Hoffmann
                                    --------------------------------------------
                                    Scott A. Hoffmann
                                    Vice President & Chief Financial Officer
                                    (Principal Financial and Accounting Officer)
</TABLE>
                                       13







</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>c64437ex3-1.txt
<DESCRIPTION>CERTIFICATION OF INCORPORTION AS AMEDED
<TEXT>
<PAGE>   1

                                                                     Exhibit 3.1


                            Certificate of Amendment

                                       of

                          Certificate of Incorporation

                                       of

                         SHEFFIELD PHARMACEUTICALS, INC.

                Under Section 242 of the General Corporation Law

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


         It is hereby certified that:

         1.       The name of the Corporation is Sheffield Pharmaceuticals, Inc.
(the "Corporation").

         2.       The Certificate of Incorporation of the Corporation is hereby
amended to increase the authorized shares of Common Stock of the Corporation by
striking out Article FOURTH thereof and by substituting in lieu of said Article
FOURTH the following new Article FOURTH:

                  "FOURTH: The total number of shares of stock that the
                  Corporation shall have the authority to issue is (i) one
                  hundred million (100,000,000) shares of Common Stock, $.01 par
                  value ("Common Stock"), and (ii) three million (3,000,000)
                  shares of Preferred Stock, $.01 par value ("Preferred Stock").

         A.       Common Stock.



        1.        General. The voting, dividend and liquidation rights of the
holders of Common Stock are subject to and qualified by the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of such Preferred Stock.

         2.       Voting. The holders of Common Stock are entitled to one vote
for each share held at all meetings of stockholders (and written actions in
lieu of meetings). There shall be no cumulative voting.


                                       -1-
<PAGE>   2

         3.       Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.

         4.       Liquidation. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for distribution to
its stockholders after payment of creditors and subject to any preferential
and/or participating rights of any outstanding Preferred Stock.

B.       PREFERRED STOCK.

         Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative, participating, option or other special rights and qualifications,
limitations or restrictions thereof, including without limitation thereof,
dividend rights, conversion rights, redemption privileges and liquidation
preferences, as shall be stated and expressed in such resolutions, all to the
full extent now or hereafter permitted by the General Corporation Law of
Delaware. Without limiting the generality of the foregoing, the resolutions
providing for issuance of any series of Preferred Stock may provide that such
series shall be superior to or rank equally or junior to the Preferred Stock of
any other series to the extent permitted by law. Except as expressly provided
elsewhere in this Article FOURTH, no vote of the holders of the Preferred Stock
or Common Stock shall be required in connection with the designation or the
issuance of any shares of any series of any Preferred Stock authorized by and
complying with the conditions herein, the right to have such vote being
expressly waived by all present and future holders of the capital stock of the
Corporation."

         3.       Except as amended hereby, every other Article and provision
in the Certificate of Incorporation, as amended and designated to date, remains
in full force and effect.

         4.       This Certificate of Amendment to the Certificate of
Incorporation has been duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.

Signed on June 13, 2001                          SHEFFIELD PHARMACEUTICALS, INC.

                                                 By: /S/ Loren G. Peterson
                                                 -------------------------
                                                 Name:  Loren G. Peterson
                                                 Title: President & CEO

                                      -2-





</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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