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<SEC-DOCUMENT>0000950134-02-005526.txt : 20020515
<SEC-HEADER>0000950134-02-005526.hdr.sgml : 20020515
ACCESSION NUMBER:		0000950134-02-005526
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20020331
FILED AS OF DATE:		20020515

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:		02648269

	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>c69619e10-q.txt
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDING MARCH 31, 2002
<TEXT>
<PAGE>




                       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 MARCH 31, 2002


                         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                 Name 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 29,563,712
shares as of May 10, 2002.


<PAGE>

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

                                    FORM 10-Q
                      For the Quarter Ended March 31, 2002

                                Table of Contents


<TABLE>
<CAPTION>
                                                                                        Page
                                                                                        ----
<S>                                                                                     <C>

                                     PART I

Item 1.  Financial Statements

Consolidated Balance Sheets as of March 31, 2002
   and December 31, 2001.................................................................3

Consolidated Statements of Operations
  for the three months ended March 31, 2002 and 2001 and for the period from
  October 17, 1986 (inception) to March 31, 2002 ........................................4

Consolidated Statements of Stockholders' Equity
  (Net Capital Deficiency) for the period from October 17, 1986
  (inception) to March 31, 2002 .........................................................5

Consolidated Statements of Cash Flows
  for the three months ended March 31, 2002 and 2001 and for the period from
  October 17, 1986 (inception) to March 31, 2002.........................................6

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

Item 2.  Management's Discussion and Analysis of Financial
  Condition and Results of Operations....................................................9

Item 3.  Quantitative and Qualitative Disclosure About Market Risk.......................15



                                     PART II


Item 2.  Changes in Securities...........................................................16

Item 6.  Exhibits and Reports on Form 8-K................................................16

Signatures...............................................................................17
</TABLE>


                                       2

<PAGE>
PART I:           FINANCIAL INFORMATION
Item 1.           Financial Statements

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

<TABLE>
<CAPTION>
                                      ASSETS                                            March 31,                December 31,
                                                                                          2002                       2001
                                                                                     ----------------           ---------------
                                                                                       (unaudited)
<S>                                                                                  <C>                        <C>
Current assets:
    Cash and cash equivalents ......................................................      $1,056,918                 $ 859,298
    Clinical supplies...............................................................         499,422                   427,550
    Prepaid expenses and other current assets ......................................          90,732                    86,080
                                                                                     ----------------           ---------------
       Total current assets ........................................................       1,647,072                 1,372,928
                                                                                     ----------------           ---------------

Property and equipment:
    Laboratory equipment ...........................................................         462,949                   431,920
    Office equipment ...............................................................         245,019                   245,019
    Leasehold improvements .........................................................          25,309                    25,309
                                                                                     ----------------           ---------------
       Total at cost ...............................................................         733,277                   702,248
    Less accumulated depreciation and amortization .................................       (391,066)                 (355,014)
                                                                                     ----------------           ---------------
       Property and equipment, net .................................................         342,211                   347,234
                                                                                     ----------------           ---------------

Patent costs, net of accumulated amortization of $23,349 and $20,216,
    respectively ...................................................................         308,224                   308,203
Other assets........................................................................          28,214                    27,913
                                                                                     ----------------           ---------------
    Total assets ...................................................................      $2,325,721               $ 2,056,278
                                                                                     ================           ===============

           LIABILITIES AND STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

Current liabilities:
    Accounts payable................................................................      $2,102,848                 $ 856,216
    Accrued liabilities.............................................................         123,825                   441,778
    Sponsored research payable .....................................................         235,757                   235,757
    Note payable ...................................................................              --                 4,000,000
                                                                                     ----------------           ---------------
       Total current liabilities ...................................................       2,462,430                 5,533,751

Convertible promissory note ........................................................       2,000,000                 2,000,000
Long-term debt .....................................................................       8,000,000                 3,000,000
Other long-term liabilities ........................................................         845,001                   608,803
Commitments and contingencies ......................................................              --                        --
                                                                                     ----------------           ---------------
    Total liabilities ..............................................................      13,307,431                11,142,554

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 14,965 and 14,708 shares at March 31,
         2002 and December 31, 2001, respectively...................................             150                       147
       Series D cumulative convertible exchangeable preferred stock, authorized
         21,000 shares; 13,779 issued and outstanding at March 31, 2002 and
         December 31, 2001..........................................................             138                       138
       Series E cumulative convertible non-exchangeable preferred stock,
         authorized 9,000 shares; issued and outstanding 3,124 and 2,124 shares at
         March 31, 2002 and December 31, 2001, respectively.........................              31                        21
       Series F convertible non-exchangeable preferred stock, 5,000 shares
           authorized; 5,000 shares issued and outstanding at March 31, 2002 and
         December 31, 2001..........................................................              50                        50
    Common stock, $.01 par value, authorized 100,000,000 shares; issued and
          outstanding 29,068,712 and 29,001,602 shares at March 31, 2002
          and December 31, 2001, respectively.......................................         290,687                   290,016
      Additional paid-in capital ...................................................      84,615,171                83,120,316
      Other comprehensive income ...................................................              --                        --
      Deficit accumulated during development stage .................................    (95,887,937)              (92,496,964)
                                                                                     ----------------           ---------------
                    Total stockholders' equity (net capital deficiency) ............    (10,981,710)               (9,086,276)
                                                                                     ----------------           ---------------

Total liabilities and stockholders' equity (net capital deficiency).................      $2,325,721               $ 2,056,278
                                                                                     ================           ===============
</TABLE>


                 See notes to consolidated financial statements.

                                       3

<PAGE>

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

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      For the Three Months Ended March 31,
                        2002 and 2001 and for the Period
               from October 17, 1986 (inception) to March 31, 2002
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                             Three Months Ended              October 17, 1986
                                                                  March 31,                  (inception) to
                                                        --------------------------------        March 31,
                                                           2002               2001                2002
                                                        --------------    --------------    ------------------
<S>                                                     <C>               <C>               <C>
Revenues:
  Contract research revenue ..........................   $       --         $    180,747       $  1,770,045
  Sublicense revenue .................................           --                 --            1,370,000
                                                         ------------       ------------       ------------

     Total revenues ..................................           --              180,747          3,140,045

Expenses:
  Acquisition of research and development
        in-process technology ........................           --                 --           29,975,000
  Research and development ...........................      1,153,790          1,045,773         35,926,345
  General and administrative .........................      1,938,666            758,269         30,825,412
                                                         ------------       ------------       ------------

Total expenses .......................................      3,092,456          1,804,042         96,726,757
                                                         ------------       ------------       ------------

Loss from operations .................................     (3,092,456)        (1,623,295)       (93,586,712)

Interest income ......................................          2,662             28,383            792,049
Interest expense .....................................       (149,831)           (57,849)        (1,223,401)
Realized loss on sale of marketable securities .......           --                 --               (5,580)
Minority interest in loss of subsidiary ..............        106,042             72,351          3,624,735
                                                         ------------       ------------       ------------

Net loss .............................................   $ (3,133,583)      $ (1,580,410)      $(90,398,909)
                                                         ============       ============       ============

Preferred stock dividends ............................       (552,663)          (487,775)        (6,282,183)
Accretion of mandatorily redeemable preferred stock ..           --                 --             (103,400)
                                                         ------------       ------------       ------------

Net loss -- attributable to common shares ............   $ (3,686,246)      $ (2,068,185)      $(96,784,492)
                                                         ============       ============       ============

Weighted average common shares outstanding-
   basic and diluted .................................     29,024,008         28,828,015         10,914,442
                                                         ============       ============       ============

Net loss per share of common stock -- basic and
  diluted ............................................   $      (0.13)      $      (0.07)      $      (8.87)
                                                         ============       ============       ============
</TABLE>


                 See notes to consolidated financial statements.


                                       4

<PAGE>
                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 March 31, 2002
                                   (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 issued............................                  --           2,504             10,000           89,059
   Common stock options and warrants issued.......                  --              --                 --          444,320
   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.............                  13              --                 --        1,279,987
   Series D preferred stock issued................                 120              --                 --       12,014,880
   Series F preferred stock issued................                  50              --                 --        4,691,255
   Comprehensive income (loss):
       Unrealized gain on marketable securities...                  --              --                 --               --
       Net loss...................................                  --              --                 --               --
       Comprehensive 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 loss.........................                  --              --                 --               --
                                                              --------    ------------         ----------     ------------
Balance at December 31, 2000......................                 326         287,916                 --       80,108,095
   Common stock issued............................                  --           4,251                 --          481,201
   Repurchase and retirement of common stock                        --         (2,151)                 --        (640,691)
   Series C preferred stock dividends.............                  10              --                 --          995,990
   Series D preferred stock dividends.............                   9              --                 --          928,991
   Series E preferred stock issued................                  10              --                 --          999,990
   Series E preferred stock dividends.............                   1              --                 --          119,999
   Common stock warrants issued...................                  --              --                 --          126,741
   Comprehensive income (loss):
       Unrealized loss on marketable securities...                  --              --                 --               --
       Net loss...................................                  --              --                 --               --
       Comprehensive loss.........................                  --              --                 --               --
                                                              --------    ------------         ----------     ------------
Balance December 31, 2001.........................            $    356    $    290,016         $       --     $ 83,120,316

   Common stock issued............................                  --             671                 --           16,329
   Series C preferred stock dividends.............                   3              --                 --          256,997
   Series E preferred stock issued................                  10              --                 --          999,990
   Common stock warrants issued...................                  --              --                 --          221,539
   Net loss.......................................                  --              --                 --               --
                                                              --------    ------------         ----------     ------------
Balance March 31, 2002............................            $    369    $    290,687         $       --     $ 84,615,171
                                                              ========    ============         ==========     ============
</TABLE>

<TABLE>
<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 issued............................                  --                      --                       101,563
   Common stock options and warrants issued.......                  --                      --                       444,320
   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.............                  --             (1,283,389)                       (3,389)
   Series D preferred stock issued................                  --                      --                    12,015,000
   Series F preferred stock issued................                  --                      --                     4,691,305
   Comprehensive income (loss):
       Unrealized gain on marketable securities...             169,387                      --                            --
       Net loss...................................                  --            (72,023,039)                            --
       Comprehensive loss.........................                  --                      --                  (71,853,652)
                                                            ----------           -------------                 -------------
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 loss.........................                  --                      --                   (5,775,071)
                                                            ----------           -------------                 -------------
Balance at December 31, 2000......................             157,467            (80,967,524)                     (413,720)
   Common stock issued............................                  --                      --                       485,452
   Repurchase and retirement of common stock                        --                      --                     (642,842)
   Series C preferred stock dividends.............                  --               (999,278)                       (3,278)
   Series D preferred stock dividends.............                  --               (929,603)                         (603)
   Series E preferred stock issued................                  --                      --                     1,000,000
   Series E preferred stock dividends.............                  --               (121,422)                       (1,422)
   Common stock warrants issued...................                  --                      --                       126,741
   Comprehensive income (loss):
       Unrealized loss on marketable securities...           (157,467)                      --                            --
       Net loss...................................                  --             (9,479,137)                            --
       Comprehensive loss.........................                  --                      --                   (9,636,604)
                                                            ----------           -------------                 -------------
Balance December 31, 2001.........................          $       --           $(92,496,964)                 $ (9,086,276)

   Common stock issued............................                  --                      --                        17,000
   Series C preferred stock dividends.............                  --               (257,390)                         (390)
   Series E preferred stock issued................                  --                      --                     1,000,000
   Common stock warrants issued...................                  --                      --                       221,539
   Net loss.......................................                  --             (3,133,583)                   (3,133,583)
                                                            ----------           -------------                 -------------
Balance March 31, 2002............................          $       --           $(95,887,937)                 $(10,981,710)
                                                            ==========           =============                 =============
</TABLE>

                 See notes to consolidated financial statements.

                                       5

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

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
   For the Three Months Ended March 31, 2002 and 2001 and for the Period from
                 October 17, 1986 (inception) to March 31, 2002
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                       October 17,
                                                                       Three Months Ended                 1986
                                                                           March 31,                 (inception) to
                                                                ---------------------------------         March 31,
                                                                     2002              2001                2002
                                                                ---------------    --------------    ----------------
<S>                                                             <C>                <C>               <C>
Cash outflows from operating activities:
    Net loss ................................................  $ (3,133,583)      $ (1,580,410)      $(90,398,909)
Adjustments to reconcile net loss to net cash used by
   development stage activities:
     Issuance of common stock, stock options/warrants for
     services ...............................................       221,539             42,120          3,040,907
     Depreciation and amortization ..........................        39,185             28,824            768,075
     Non-cash acquisition of research and development
     in-process technology ..................................          --                 --            1,650,000
     Loss realized on sale of marketable securities .........          --                 --                5,580
     (Increase) decrease in clinical supplies, prepaid
     expenses &  other current assets .......................       (76,524)           139,697           (649,195)
     Decrease in milestone advance receivable ...............          --            1,000,000               --
     Increase in other assets ...............................        (3,454)              --             (300,746)
     Increase (decrease) in accounts payable and accrued
         liabilities ........................................     1,124,040           (322,217)         2,278,188
     Increase in sponsored research payable .................          --                 --              812,827
     Other ..................................................        42,476            (16,287)           268,179
                                                               ------------       ------------       ------------
Net cash used by operating activities .......................    (1,786,321)          (708,273)       (82,525,094)
                                                               ------------       ------------       ------------

Cash flows from investing activities:
     Proceeds from sale of marketable securities ............          --                 --              844,420
     Acquisition of laboratory and office equipment, and
         leasehold improvements..............................       (31,029)           (12,516)          (903,419)
     Other ..................................................          --                 --              (57,087)
                                                               ------------       ------------       ------------
Net cash used by investing activities .......................       (31,029)           (12,516)          (116,086)
                                                               ------------       ------------       ------------

Cash flows from financing activities:
     Payments on debt and capital leases ....................        (2,030)            (1,758)          (852,066)
     Net proceeds from issuance of:
        Debt ................................................     1,000,000               --           13,050,000
        Common stock ........................................          --                 --           23,433,660
        Preferred stock .....................................     1,000,000               --           35,741,117
     Proceeds from exercise of warrants/stock options .......        17,000             61,683         13,780,358
     Repurchase and retirement of common stock ..............          --                 --             (956,031)
     Other ..................................................          --                 --             (500,024)
                                                               ------------       ------------       ------------
Net cash provided by financing activities ...................     2,014,970             59,925         83,697,014
                                                               ------------       ------------       ------------

Net increase (decrease) in cash and cash equivalents ........       197,620           (660,864)         1,055,834
Cash and cash equivalents at beginning of period ............       859,298          3,041,948              1,084
                                                               ------------       ------------       ------------
Cash and cash equivalents at end of period ..................  $  1,056,918       $  2,381,084       $  1,056,918
                                                               ============       ============       ============

Noncash investing and financing activities:
     Common stock, stock options/warrants issued for
         services ...........................................  $    221,539       $     42,120       $  3,040,907
     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 ........................................       257,390            239,960          8,749,064

Supplemental disclosure of cash flow information:
Interest paid ...............................................  $        923       $        585       $    287,243
</TABLE>


                 See notes to consolidated financial statements.

                                       6

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

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (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,
         2001. 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
         March 31, 2002 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 months ended March 31, 2002 and 2001 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 accompanying consolidated financial statements have been prepared
         on a going concern basis which contemplates the realization of assets
         and satisfaction of liabilities and commitments in the normal course of
         business. 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 of rights to its technology, as
         well as through equity and debt offerings, to continue to operate its
         business. The Company's ability to meet its obligations as they become
         due and to continue as a going concern must be considered in light of
         the expenses, difficulties and delays frequently encountered in
         developing a new business, particularly since the Company will focus on
         product development that may require a lengthy period of time and
         substantial expenditures to complete. Even if the Company is able to
         successfully develop new products, there can be no assurance that the
         Company will generate sufficient revenues from the sale or licensing of
         such products to be profitable. Management believes that the Company's
         ability to meet its obligations as they become due and to continue as a
         going concern through December 2002 is dependent upon obtaining
         additional funding. In an effort to meet its capital requirement, the
         Company will be evaluating various financing alternatives including
         private offerings of its securities, debt financing, and collaboration
         and licensing arrangements with other companies. However, the
         accompanying financial statements do not include any adjustments that
         might result from the outcome of this uncertainty.

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 EVENTS

         On April 5, 2002, Elan International Services, Ltd. exercised a portion
         of a warrant that it had received in June 1998 as part of a strategic
         alliance with the Company and purchased 495,000 shares of Sheffield's
         common stock at $2.00 per share. Sheffield received approximately $1.0
         million in proceeds as a result of the exercise of a portion of this
         warrant.

         On April 4, 2002, the Company amended the Note Purchase Agreement dated
         as of August 14, 2001 ("Agreement"), with Elan Pharma International
         Ltd. ("Elan Pharma"). Under the terms of the amended Agreement, Elan
         Pharma agreed to increase the principal amount of the loan available
         from $4 million to $5 million and extend the maturity date from
         November 14, 2002 to April 4, 2004. On April 5, 2002, the Company
         received proceeds on the loan of $1

                                       7

<PAGE>
         million, increasing the total borrowings to $5 million. All borrowings
         under the Agreement are evidenced by a $5 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. Due
         to the modification of the maturity date, the borrowings under the
         Agreement, totaling $4 million at March 31, 2002, have been classified
         in the Company's balance sheet as long-term debt.

         In September 2001, in connection with the amendment of its 1998
         agreement with Zambon, the Company entered into a Loan and Security
         Agreement ("Loan Agreement") with Zambon, pursuant to which Zambon
         agreed to lend the Company $2.5 million. The Company received $1.0
         million upon signing of the Loan Agreement and $1.0 million on January
         2, 2002. On April 5, 2002, the Company received the final installment
         on the loan of $.5 million. The Loan Agreement provides for interest on
         principal and annually compounded interest at a fixed rate of 2% per
         annum and is secured by certain security interests in respiratory
         products developed in the Company's Premaire(R) drug delivery
         technology. One third of the principal balance, together with interest,
         is payable by the Company upon the Company's execution of an agreement
         with one or more third parties to develop, co-promote and/or sell
         certain products in North America, with all remaining unpaid principal
         and interest due on December 31, 2005.

4.       RECLASSIFICATIONS

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

















                                       8

<PAGE>
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

Sheffield Pharmaceuticals, Inc. ("Sheffield" or 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(R) 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.

In 1997, the Company acquired the Premaire, 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, Tempo, 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.

Sheffield's lead drug delivery technology, the Premaire, is a patented,
multi-dose nebulizer delivery system. The pocket-sized inhaled drug delivery
system features an ultrasonic nebulizer that emits high-frequency sound waves
that turn liquid medication into a fine cloud or soft mist. The Premaire
combines the therapeutic benefits of nebulization with the convenience of
pressurized metered dose inhalers, or pMDIs, in one patient-friendly device. The
Premaire is comprised of a hand-held ultrasonic nebulizer and drug-filled
cartridges that are inserted into the inhaler unit. The cartridges provide
patients who must take multiple respiratory medications with a single,
easy-to-use system. The Company believes the soft mist created by the Premaire
provides multiple drug administration advantages over the high-velocity pMDIs
and dry powder inhalers. Furthermore, the Premaire system is fast and portable
as compared to conventional tabletop nebulizers, which are large, cumbersome and
more time consuming to use. The Premaire system targets younger and older asthma
patients, as well as older chronic obstructive pulmonary disease patients who
have difficulty using pMDIs and currently depend on tabletop nebulizers for
delivery of their medications.

Sheffield's Tempo is a patented, new generation pMDI that the Company believes
has significant efficiency and performance advantages over standard pMDIs. The
Tempo technology utilizes a standard aerosol pMDI canister, encased in a compact
device that provides an aerosol flow-control chamber and a synchronized
triggering mechanism. The aerosol flow-control chamber allows the patient to
inhale through the device at a normal breathing rate, instead of a forced
breath. The inspiratory breath establishes flow fields within the device that
mix and uniformly disperse the drug in the breath. At the mouthpiece, nearly all
the propellant is evaporated leaving only drug particles to be inspired,
allowing a significant increase in the amount of drug delivered to the lungs.
The Tempo system, like the Premaire system, is designed to reduce patient
coordination problems and enhance compliance with the prescribed treatment.

In June 1998, the Company sublicensed to Zambon Group SpA ("Zambon") worldwide
marketing and development rights to respiratory products to be delivered by the
Premaire in return for an equity investment in the Company (approximately 10%).
From June 1998 to September 2001, Zambon funded the development costs for the
respiratory compounds delivered by Premaire. In September 2001, the Company
amended its 1998 agreement with Zambon whereby Sheffield regained the rights to
the Premaire


                                       9

<PAGE>

previously granted to Zambon. As part of the amended agreement, Zambon provided
a low-interest, $2.5 million loan to Sheffield to progress the development of
the Premaire respiratory program. Upon commercialization, Zambon will be
entitled to certain royalties on payments received by Sheffield for albuterol,
ipratropium and cromolyn sales for specified periods.

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.

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. Currently, RSD is developing 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.

RESULTS OF OPERATIONS

Revenue

Contract research revenues primarily represented revenues earned from a
collaborative research agreement with Zambon relating to the development of
respiratory applications of Premaire. Contract research revenues for the first
quarter of 2002 and 2001 were $0 and $180,747, respectively. The decrease was
due to Sheffield no longer performing development work for Zambon as a result of
Sheffield regaining the Premaire respiratory rights in the third quarter of
2001. Costs of contract research revenue approximated such revenues in 2001 and
were included in research and development expenses. Future contract research
revenues and expenses are anticipated to fluctuate depending, on part, in
obtaining additional collaborative agreements and upon the success of current
clinical studies.

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 $1.2 million and $1.1 million for
the first quarter of 2002 and 2001, respectively. The increase of $.1 million
from 2001 primarily reflects higher development expenses related to RSD's
unit-dose ($.2 million) and Premaire steroid ($.1 million) products, partially
offset by lower expenses related to formulation work on certain Tempo
respiratory products ($.1 million) and formulation and feasibility work
associated with new product development in the area of polypeptides ($.1
million).

         The following details the status of each of the Company's development
         programs as of March 31, 2002:

         Premaire Respiratory Program:

         As a result of the Company regaining from Zambon the rights to the
         respiratory applications to the Premaire in September 2001, the
         sponsorship of the Premaire respiratory development programs was
         transferred from Zambon to the Company with the Food and Drug
         Administration ("FDA") being notified accordingly. In the fourth
         quarter of 2001, Sheffield reviewed all of the development work
         completed-to-date, identifying a number of deficiencies in the Zambon
         development program. To address these issues, Sheffield has made a
         number of internal management changes and moved the program to a group
         of highly experienced pulmonary clinical and regulatory experts. The
         Premaire device is currently in a to-be-marketed form and fully
         industrialized. As of March 31, 2002, the Company had spent $3.3
         million on developing the respiratory products discussed below.

         The Company's strategy is to out license the U.S. rights to the
         Premaire respiratory products to a third party which the Company
         anticipates concluding in 2003. As a result, the Company estimates a
         U.S. commercial launch of its first products in Premaire to occur in
         the last half of 2005 or first half of 2006. Sheffield will fund the
         continued development work for the Premaire respiratory products up
         through the period of outlicensing, currently estimated at
         approximately $10 million, after which time the licensee will assume
         funding responsibility for further development work.


                                       10

<PAGE>
                  Albuterol Sulfate. Zambon initiated a Phase II clinical trial
         in December 1999 that compared the Premaire-albuterol sulfate to a
         conventional albuterol-pMDI. Findings from Phase II studies indicated
         that Premaire-albuterol and pMDI-albuterol were comparable in improving
         lung function in the 24 adult patients. An end of Phase II meeting was
         held in February 2002 with the FDA where the results of the development
         activities-to-date, specifically the results of the Phase II trial,
         were reviewed. The Company is currently reviewing the FDA's comments
         and recommendations, integrating the information into the plans for the
         Phase III trial and NDA submission. The Company expects to begin
         pivotal clinical trials for the albuterol sulfate program by the end of
         2002.

                  Budesonide. Preclinical formulation development work is
         currently underway. A formulation developed by Nanosystems has proven a
         feasible candidate for delivery in the Premaire. The formulation is
         dependent on a proprietary nanocrystaline dispersion of budesonide in
         an aqueous carrier. Two other alternative formulation approaches are
         also under evaluation. Upon scale-up and production of clinical batches
         released under CMC protocol, an Investigational New Drug Application
         ("IND") will be prepared for filing with the FDA, which is currently
         planned for the first half of 2003.

                  Ipratropium Bromide. Zambon initiated a Phase I/II clinical
         trial in Europe in January 2000 assessing the safety and efficacy
         compared to a commercially available ipratropium bromide product
         delivered by a pMDI and placebo in patients with COPD. The results of
         the study indicated that both Premaire-ipratropium bromide and
         pMDI-ipratropium were tolerated and improved lung function in the COPD
         patients. An IND was filed by Zambon with the FDA in May 2000. During
         2001, the IND was transferred to the Company. The Company does not
         intend to further develop this product on its own as the program has
         progressed to the point where a potential licensing partner would be in
         a position to take the product into clinical studies.

                  Sodium Cromoglycate. An IND was filed by Zambon with the FDA
         in July 2000. No further development work is anticipated to be
         completed on this product as the projected market opportunity for
         sodium cromoglycate is currently deemed too small to justify further
         progression.

         Premaire Systemic Program:

         Through its development alliance with Elan and SPD, the Company
         evaluated certain drugs for systemic treatment by pulmonary delivery
         through Premaire. By identifying a market opportunity for a
         rapid-acting, non-invasive treatment for breakthrough pain, the first
         drug to be tested for delivery in Premaire was morphine. In July 1999,
         the Company completed a gamma scintigraphy/pharmacokinetic trial
         comparing morphine delivered using the Premaire to subcutaneous
         injection. The Premaire demonstrated good pulmonary deposition and very
         rapid absorption, more rapid peak blood levels vs. subcutaneous
         injection and low oral and throat deposition. As part of the
         development alliance with Elan, Elan has the first right of refusal on
         the development of any product developed by the joint venture. Elan has
         chosen not to license this product from the joint venture. As such, the
         joint venture continues to seek to attract a partner for the continued
         development and commercialization of this product. The Company has
         spent $.4 million to date to develop this product and does not
         anticipate incurring any future costs for further development until
         such time as a licensing partner is secured.

         Tempo Respiratory Program:

         In September 2000, the Company completed a pilot study using the Tempo
         to deliver an undisclosed, patented respiratory drug used to treat
         asthma. The study measured the distribution of this respiratory drug
         delivered by Tempo compared to the distribution of this same drug
         delivered through a commercially available pMDI in 12 healthy
         volunteers. Results of this study demonstrated that Tempo significantly
         increased drug deposition in all regions of the lung. Tempo delivered
         approximately 200% more drug to the lungs, deposited approximately 75%
         less drug in the mouth, and increased dosing consistency by
         approximately 55% compared to the currently marketed form of this same
         drug. As of March 31, 2002, the Company has incurred approximately $.9
         million to-date on this study. The Company is using the results of this
         study as a basis for conducting discussions for feasibility work and/or
         clinical studies with potential collaboration partners.

         Tempo Systemic Program:

         The development of systemic drugs using Tempo is being conducted as
         part of the Company's alliance with Elan. The initial product developed
         was targeted to address migraine headaches. The Company utilized
         ergotamine tartrate as a proof-of-principle product. In December 1999,
         the Company completed a gamma scintigraphy/pharmacokinetic trial
         comparing the Tempo to a conventional pMDI. The trial showed successful
         delivery of the drug to all regions of lung with significantly reduced
         mouth and throat deposition, and rapid drug absorption. As part of the
         development alliance

                                       11

<PAGE>
         with Elan, Elan has the first right of refusal on the development of
         any product developed by the joint venture. Elan has chosen not to
         license this product from the joint venture. As such, the joint venture
         continues to seek to attract a partner for the continued development
         and commercialization of this product. As of March 31, 2002, the
         Company has spent $1.0 million to date to develop this product and does
         not anticipate incurring any future costs for further development until
         such time as a licensing partner is secured.

         As a result of the work performed on the ergotamine product noted
         above, in April 2002, the Company announced the initiation of a
         pulmonary migraine therapy program with Inhale Therapeutic Systems
         ("Inhale"), a world-renowned expert in particle design. Sheffield will
         combine Inhale's supercritical fluid technology with Sheffield's
         proprietary drug delivery technologies to develop a systemically acting
         dyhydroergotamine ("DHE") administered through the pulmonary route. The
         Company plans to study DHE in sub-categories of migraine where DHE
         administered by injection is often used to relieve migraine symptoms.
         These sub-categories are the more serious forms of migraine and often
         require either hospitalization or treatment in pain or headache
         clinics. Under the terms of the agreement, Inhale will supply the
         particle engineering technology and receive R&D funding, milestone
         payments, and royalties upon commercialization. Sheffield is
         responsible for all other aspects of clinical development and marketing
         of the product. As part of this agreement, Inhale will produce DHE
         particles using Good Manufacturing Practices (GMP) for clinical
         development and commercial sale. The treatment of migraine represents a
         worldwide prescription market valued at $2.4 billion. As of March 31,
         2002, the Company has incurred approximately $.2 million to-date
         related to this project. Future costs related to this project are
         dependent upon, among other factors, the timing of securing a
         development partner. The Company estimates incurring approximately $3.0
         million in 2002 related to the development of the DHE project.

         Unit Dose Nebulizer Program:

         As part of an alliance with Elan, RSD is developing a product for
         inhalation delivery in a standard commercial tabletop device using the
         steroid budesonide, formulated using the NanoCrystal technology. A
         Phase I, double-blind safety and pharmacokinetic study of nebulized
         nanobudesonide in 16 healthy volunteers was satisfactorily completed at
         Thomas Jefferson University Hospital in February 2002. This study
         compared single doses of Pulmicort Respules ("Pulmicort"), the
         Company's proprietary nanobudesonide in two different single dose
         strengths and placebo. The study resulted in no significant adverse
         events with either of the Company's dosage strengths or the Pulmicort
         reference drug. Data from the study is currently undergoing final data
         and statistical analysis. After such data has been analyzed, the
         Company plans on initiating discussions with potential partners
         regarding the outlicensing of this opportunity. As of March 31, 2002,
         the Company incurred approximately $2.6 million to-date on this
         project. Sheffield will fund the continued development work for this
         program up through the period of outlicensing, currently estimated at
         approximately $1.9 million, after which time it is anticipated that the
         licensee will assume funding responsibility for further development
         work.

General and Administrative

General and administrative expenses were $1.9 million for the first quarter of
2002 as compared to $.8 million for the first quarter of 2001. The increase of
$1.1 million from 2001 was primarily due to higher consulting costs, legal fees
and severance-related costs. The higher consulting costs and legal fees were
associated with expanded business development, and merger and acquisition
activities in the area of licensing and partnering of the Company's delivery
systems, as well as potential acquisitions of complementary pulmonary delivery
technologies and companies ($.6 million). The severance costs were associated
with the resignation of two executive officers in the first quarter of 2002 and
include the costs incurred pursuant to their respective separation agreements
for severance payments and ongoing benefit coverage ($.3 million) and
modification of the terms of certain stock options ($.2 million).

Interest

Interest income was $2,662 for the first quarter of 2002 as compared to $28,383
for the first quarter of 2001. The decrease in interest income from 2001 was
primarily due to less cash available for investment and lower yields on those
investments.

Interest expense was $149,831 for the first quarter of 2002 as compared to
$57,849 for the first quarter of 2001. The increase of $91,982 from 2001
resulted primarily from interest associated with the borrowings of $4 million on
the August 2001 Note Purchase Agreement with Elan Pharma.


                                       12

<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2002, the Company had $1.1 million in cash and cash equivalents
compared to $.9 million at December 31, 2001. The increase of $.2 million
primarily reflects the receipt of $1.0 million from the issuance of 1,000 shares
of the Company's Series E Cumulative Convertible Preferred Stock and $1.0
million from the proceeds of a secured loan from Zambon, partially offset by
cash disbursements of $1.8 million used primarily to fund operating activities.

In addition to the $1.1 million of cash and equivalents at March 31, 2002, the
Company received a total of $2.5 million of additional funding in April 2002. On
April 5, 2002, Elan exercised a portion of a warrant that it had received in
June 1998 as part of a strategic alliance with the Company and purchased 495,000
shares of Sheffield's common stock at $2.00 per share. Sheffield received
approximately $1.0 million in proceeds as a result of the exercise of a portion
of this warrant. In addition, the Company amended its Note Purchase Agreement
dated August 14, 2001 with Elan Pharma, receiving $1 million in proceeds on
April 5, 2002 (see below). Also, on April 5, 2002, the Company received the
final installment of $.5 million on its Loan and Security Agreement with Zambon
(see below).

On August 14, 2001, the Company entered into a Note Purchase Agreement
("Agreement") with Elan Pharma, pursuant to which Elan Pharma agreed to lend the
Company up to $4 million. On April 4, 2002, the Company amended the Agreement.
Under the terms of the amended Agreement, Elan Pharma agreed to increase the
principal amount of the loan available from $4 million to $5 million and extend
the maturity date from November 14, 2002 to April 4, 2004. On April 5, 2002, the
Company received proceeds on the loan of $1 million, increasing the total
borrowings to $5 million. All borrowings under the Agreement are evidenced by a
$5 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. Due to the modification of the maturity date, the borrowings under the
Agreement, totaling $4 million at March 31, 2002, have been classified in the
Company's balance sheet as long-term debt.

In September 2001, in connection with the amendment of its 1998 agreement with
Zambon, the Company entered into a Loan and Security Agreement ("Loan
Agreement") with Zambon, pursuant to which Zambon agreed to lend the Company
$2.5 million. The Company received $1.0 million upon signing of the Loan
Agreement and $1.0 million on January 2, 2002. On April 5, 2002, the Company
received the final installment on the loan of $.5 million. The Loan Agreement
provides for interest on principal and annually compounded interest at a fixed
rate of 2% per annum and is secured by certain security interests in respiratory
products developed in the Premaire. One third of the principal balance, together
with interest, is payable by the Company upon the Company's execution of an
agreement with one or more third parties to develop, co-promote and/or sell
certain products in North America, with all remaining unpaid principal and
interest due on December 31, 2005. On October 17, 2001, as part of the amendment
of its 1998 agreement with Zambon, the Company repurchased from Zambon, 214,997
shares of common stock for $3.0233 per share ("Repurchase Price"). In addition,
the Company received an option, expiring December 31, 2002, to repurchase the
remaining shares of the Company's common stock held by Zambon at the Repurchase
Price. In the event the Company completes a sublicense for the North American
rights or a sublicense for the non-North American rights to certain Premaire
respiratory products prior to December 31, 2002, the Company will repurchase
from Zambon 882,051 shares of the Company's common stock on each of the events.

In October 1999, as part of a licensing agreement with Elan, the Company
received gross proceeds of $17,015,000 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 $1.0 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. The proceeds from these advances are
not restricted as to their use by the Company. As part of the amendment of its
1998 agreement with Zambon, the terms of the milestone advances were modified in
that the Company shall repay $1.0 million of the advance milestone payments upon
the earlier of December 31, 2003, or upon the first regulatory approval for
either albuterol or an inhaled steroid delivered in the Premaire. The remaining
$1.0 million advance shall be repaid by the Company on the earlier of December
31, 2005, or the regulatory approval of the second product (albuterol or an
inhaled steroid) delivered in the Premaire. Due to the modification in the
repayment terms, the advances have been reclassified in the Company's balance
sheet as long-term debt.


                                       13

<PAGE>
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 $86.0 million through March 31, 2002, of which
approximately $30.0 million has been spent to acquire certain in-process
research and development technologies, and $35.9 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.

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 may not be adequate or the Company may 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, including without
limitation, risks set forth in Part I of the Company's Form 10-K for the year
ended December 31, 2001. The Company specifically disclaims any


                                       14

<PAGE>

obligation to update or revise any forward-looking information, whether as a
result of new information, future developments, or otherwise.


Item 3.  Quantitative and Qualitative Disclosure About Market Risk

         The Company has no material market risk exposure.

























                                       15

<PAGE>
           PART II:    OTHER INFORMATION

Item 2.           Changes in Securities

                  The following unregistered securities were issued by the
                  Company during the quarter ended March 31, 2002:


<TABLE>
<CAPTION>
                                                              Number of
                                                               Shares
                                           Description       Subject to
                        Date of           of Securities      Options or          Exercise
                     Sale/Issuance            Issued          Warrants      Price per Share ($)     Purchaser or Class
                     -------------            ------          --------      -------------------     ------------------
<S>                                     <C>                  <C>            <C>                   <C>
                  January 2002          Warrants to            30,537             $4.69           Consultant in lieu of
                                        purchase Common                                           cash consideration.
                                        stock.
</TABLE>

                  The issuance of these securities is claimed to be exempt from
                  registration pursuant to Section 4(2) of the Securities Act of
                  1933, as amended, as transactions by an issuer not involving a
                  public offering. There were no underwriting discounts or
                  commissions paid in connection with the issuance of any of
                  these securities.


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

                  No reports on Form 8-K were filed during the quarter ended
                  March 31, 2002.











                                       16

<PAGE>

                                   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.


                                 SHEFFIELD PHARMACEUTICALS, INC.


Dated:  May 13, 2002                /s/ Scott A. Hoffmann
                                    ---------------------
                                    Scott A. Hoffmann
                                    Vice President & Chief Financial Officer
                                    (Principal Financial and Accounting Officer)























                                       17

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