<PAGE>



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


                               FORM 10-Q

(Mark One)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the quarterly period ended March 31, 1998

OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934
     For the transition period from         to           .
                                    --------   ----------


                    Commission file number:  0-28460

                    FUSION MEDICAL TECHNOLOGIES, INC.
         (Exact name of registrant as specified in its charter)



          Delaware                                 94-3177221
(State or other jurisdiction of       (I.R.S. Employer Identification No.)
 incorporation or organization)


                          1615 Plymouth Street
                        Mountain View, CA  94043
                (Address of principal executive offices)

                           (650) 903-4000
           (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports 
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 
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.  Yes  { X } No {  }

Indicate by check mark whether the registrant has filed all documents and 
reports required by Section 12, 13, or 15(d) of the Securities Exchange 
Act of 1934 subsequent to the distribution of the securities under a plan 
confirmed by the Court.  Yes  { X } No {  }


The number of outstanding shares of the registrant's Common Stock, $.001 
par value, was 7,152,565 as of May 11, 1998.


This Report on Form 10-Q includes 17 pages with the Index to Exhibits
located on page 15.



<PAGE>

<TABLE>
<CAPTION>
                    FUSION MEDICAL TECHNOLOGIES, INC.

                                  INDEX


                        PART I-FINANCIAL INFORMATION

<S>     <C>                                                       <C>                
Item 1. Financial Statements:                                       Page 

        Condensed Balance Sheets - March 31, 1998 (unaudited)
          and December 31, 1997 ...................................... 3

        Condensed Statements of Operations - Three Months Ended
          March 31, 1998 and 1997 (unaudited) ........................ 4

        Condensed Statements of Cash Flows - Three Months Ended
          March 31, 1998 and 1997 (unaudited) ........................ 5

        Notes to Condensed Financial Statements ...................... 6

Item 2. Management's Discussion and Analysis of Financial Condition
          and Results of Operations .................................. 7

PART II-OTHER INFORMATION

Item 1. Legal Proceedings ............................................15

Item 2. Changes in Securities ........................................15

Item 3. Defaults Upon Senior Securities ..............................15

Item 4. Submission of Matters to a Vote of Security Holders...........15

Item 5. Other Information ............................................15

Item 6. Exhibits and Reports on Form 8-K .............................15

         SIGNATURES ..................................................16

</TABLE>
                                     2
<PAGE>

                     PART I-FINANCIAL INFORMATION

Item 1. Financial Statements

<TABLE>
<CAPTION>

                   FUSION MEDICAL TECHNOLOGIES, INC.

                       CONDENSED BALANCE SHEETS
                            (in thousands) 
                             (unaudited)
 
                                               March 31,    December 31,
                                                 1998          1997
                                               ----------   -----------
<S>                                            <C>         <C>        
                               ASSETS
Current assets: 
   Cash and cash equivalents                    $  7,668     $  7,473 
   Available-for-sale-securities                   4,029        5,465 
   Other assets                                      201          228 
                                                --------     -------- 
     Total current assets                         11,898       13,166 

Long term assets                                   1,066        1,565 
Property and equipment, net                          731          809 
                                                --------     -------- 

       Total assets                             $ 13,695     $ 15,540 
                                                ========     ======== 

                LIABILITIES AND STOCKHOLDERS' EQUITY
  
Current liabilities                             $  1,165     $  1,316 
Long-term obligations                                292            - 
                                                --------     -------- 

     Total liabilities                             1,457        1,316 
                                                --------     -------- 

Common stock and other equity                     35,817       35,769 
Accumulated deficit                              (23,579)     (21,545)
                                                --------     --------
     Total stockholders' equity                   12,238       14,224 
                                                --------     -------- 

       Total liabilities and stockholders'
         equity                                 $ 13,695     $ 15,540 
                                                ========     ======== 
The accompanying notes are an integral part of these condensed financial 
statements.

</TABLE>
                                   3
<PAGE>

<TABLE>
<CAPTION>

                  FUSION MEDICAL TECHNOLOGIES, INC.

                 CONDENSED STATEMENTS OF OPERATIONS
               (in thousands except per share amounts)
                             (unaudited)



                                                 Three Months Ended 
                                                      March 31,     
                                                --------------------
                                                  1998        1997 
                                                --------    --------
<S>                                            <C>         <C>      
  Net sales                                                 $     50
                                                            --------
  Costs and expenses: 
    Cost of goods                                                158 
    Research and development                    $  1,572       1,241 
    Marketing, general and administrative            581       1,044
                                                --------    -------- 
      Total costs and expenses                     2,153       2,443 
                                                --------    -------- 
        Operating loss                            (2,153)     (2,393) 

  Interest income                                    157         327 
  Other expense                                      (38)        (24)
                                                --------    --------
        Net loss                                $ (2,034)   $ (2,090) 
                                                ========    ========
 
  Basic and diluted net loss per share          $  (0.29)   $  (0.30)
                                                ========    ======== 

  Shares used in computing basic and diluted
    net loss per share                             7,125       7,025 
                                                ========    ========

</TABLE>

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

                                    4
<PAGE>

<TABLE>
<CAPTION>
                    FUSION MEDICAL TECHNOLOGIES, INC.

                   CONDENSED STATEMENTS OF CASH FLOWS
                            (in thousands)
                             (unaudited)
                                                    Three Months Ended 
                                                         March 31,
                                                  ---------------------- 
1998          1997
                                                  ---------    --------- 
<S>                                               <C>         <C>        
Cash flows used for operating activities:  
  Net loss                                         $ (2,034)  $   (2,090)
  Adjustments to reconcile net loss to net
    cash used in operating activities:  
      Depreciation and amortization                      81          101
      Accretion of available-for-sale securities          3            -
      Amortization of deferred compensation              43           94
      Interest on notes receivable from stockholder      (1)           - 
      Change in assets and liabilities:  
        Accounts receivable                              18         (115)
        Prepaids and other current assets                 7          187
        Other assets                                     (8)           -
        Accounts payable                                 95          126
        Accrued expenses                               (329)        (398)
                                                  ---------    ---------
        Net cash used in operating activities        (2,125)      (2,095)
                                                  ---------    ---------
Cash flows from investing activities:  
  Acquisition of property and equipment                  (4)        (199)
  Purchases of available-for-sale securities         (1,511)     (14,294)
  Sales of available-for-sale securities              3,453       19,172
                                                  ---------    ---------
        Net cash provided by investing activities     1,938        4,679
                                                  ---------    ---------
Cash flows from financing activities:  
  Proceeds used from issuance of note                   408           49
  Repayment of notes payable                            (33)         (33)
  Proceeds from exercise of common stock                  7            -
                                                  ---------    ---------
         Net cash provided by financing activities      382           16
                                                  ---------    ---------

Net increase in cash and cash equivalents               195        2,600
Cash and cash equivalents, beginning of period        7,473       10,778
                                                  ---------    ---------
Cash and cash equivalents, end of period          $   7,668     $ 13,378
                                                  =========    =========
  
Supplemental disclosure of cash flow information:  
  Cash paid for interest                          $      11    $       5
                                                  =========    =========
  Cash paid for taxes                                          $      19
                                                               =========  
Supplemental disclosure of noncash investing and
     financing activities:  
Adjustment for cancellation of stock options      $     275 
                                                  ========= 

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

                                    5
<PAGE>


                   FUSION MEDICAL TECHNOLOGIES, INC.

                NOTES TO CONDENSED FINANCIAL STATEMENTS
                             March 31, 1998
                              (unaudited)


1.  Basis of presentation

The accompanying condensed financial statements of Fusion Medical 
Technologies, Inc. (the "Company" or "Fusion") have been prepared in 
accordance with generally accepted accounting principles for interim 
financial information and with the instructions for Form 10-Q and Article 
10 of Regulation S-X.  The balance sheet as of March 31, 1998, and the 
statements of operations for the three months ended March 31, 1998 and 
1997, and the statements of cash flows for the three month periods ended 
March 31, 1998 and 1997 are unaudited but include all adjustments 
(consisting of normal recurring adjustments) which the Company considers 
necessary for a fair presentation of the financial position at such dates 
and the operating results and cash flows for those periods.  Although the 
Company believes that the disclosures in these financial statements are 
adequate to make the information presented not misleading, certain 
information normally included in financial statements and related 
footnotes prepared in accordance with generally accepted accounting 
principles have been condensed or omitted pursuant to the rules and 
regulations of the Securities and Exchange Commission.  The accompanying 
financial statements should be read in conjunction with the financial 
statements as contained in the Company's Annual Report on Form 10-K for 
the year ended December 31, 1997.

Results for any interim period are not necessarily indicative of results 
for any other interim period or for the entire year.

2.  Net loss per share

The Company adopted SFAS No. 128 "Earnings Per Share" and the Securities 
and Exchange Commission Staff Accounting Bulletin No. 98 ("SAB No. 98") 
effective December 31, 1997; accordingly, all prior periods have been 
restated.  Basic and diluted loss per common share are computed using the 
weighted average number of shares of common stock outstanding.  Common 
equivalent shares from stock options are excluded from the computation of 
diluted net loss per common share as their effect is anti-dilutive.  No 
additional shares are considered to be outstanding for either computation 
under the provisions of SAB No. 98.  Stock options to purchase 912,501 and 
864,485 shares of common stock at prices ranging from $0.16 to $11.50 per 
share were outstanding at March 31, 1998 and 1997, respectively, but were 
not included in the computation of diluted income per share because they 
were antidilutive.

3.  Cash, cash equivalents and available-for-sale securities

The Company classifies all highly liquid investments purchased with an 
original maturity of three months or less as cash equivalents.  Cash and 
cash equivalents include money market funds and various deposit accounts.

The Company classifies both short term and long term investments as 
available-for-sale.  Such investments are recorded at fair market value 
and unrealized gains and losses are recorded as a separate component of 
equity until realized.  Interest income is recorded using an effective 
interest rate, with associated premium or discount amortized to interest 
income.  The cost of securities sold is based upon the specific 
identification method.

4.  Debt

In December 1997, the Company signed an agreement with Imperial Bank for a 
loan facility to finance existing equipment and future equipment purchases 
up to a total of $2,500,000.  Subject to certain terms and conditions,


                                   6
<PAGE>


the facility finances a percentage of the invoice cost of existing 
equipment and all of the invoice cost of future equipment purchases. The 
equipment purchased serves as collateral.  As of March 31, 1998, the 
Company has an outstanding balance of  $408,734. 

5.  Comprehensive Income

Effective March 31, 1998, the Company adopted Statement No. 130 ("SFAS 
130"), "Reporting Comprehensive Income", which establishes standards for 
the reporting and display of comprehensive income and its components in a 
full set of general-purpose financial statements.  Comprehensive income is 
defined as the change in equity of a business enterprise during a period 
from transactions and other events and circumstances from non-owner 
sources.  As the components of comprehensive income are not material, the 
Company has not reflected the additional reporting and display provisions 
of SFAS 130 in the accompanying financial statements. 


                                     7
<PAGE>




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

This report on Form 10-Q contains, in addition to historical information, 
forward-looking statements that involve risks and uncertainties.  The 
Company's actual results could differ materially from those anticipated by 
these forward-looking statements as a result of certain factors, including 
those set forth in "Additional Factors That Might Affect Future Results" 
commencing on page 9.  Certain sections in this report have been 
identified as containing forward-looking statements.  The reader is 
cautioned that other sections not so identified may also contain forward-
looking statements.

OVERVIEW

Since its inception in October 1992, Fusion has been primarily engaged in 
the research and development of surgical sealants. As of March 31, 1998, 
the Company had an accumulated deficit of approximately $23.6 million.  
Operating losses are expected to continue at least through 2000 as the 
Company continues to fund early research, product development, clinical 
trials, regulatory submissions, and related administrative and support 
services. 
     
The Company made continued progress in the first quarter of 1998 on the 
development of FloSealTM Matrix (FloSeal Matrix).  Beginning in December 
1997, FloSeal Matrix was utilized in an applications evaluation series of 
patients to stop bleeding within a wide variety of major surgical 
procedures and bleeding conditions. FloSeal Matrix successfully stopped 
bleeding in 72 of 74 discrete applications (97%) in its first thirty-five 
patients.  Thirty (86%) of the patients had impaired coagulation due to 
anti-coagulant drug regimens, heart-lung machine stress or hemophilia.  
The patients underwent twenty different types of surgeries, which were 
performed at four medical centers in Canada and one medical center in the 
Netherlands.  The Company started clinical trials in the United States 
under an IDE in March 1998.

In addition, the Company is conducting an early stage research program to 
develop liquid adhesives for applications such as physical sealants during 
surgery.

Future revenues, if any, and the results of operations may fluctuate 
significantly from quarter to quarter and will depend upon, among other 
factors, the speed with which the Company's product or products proceed 
through clinical trials and the preparation of related regulatory 
submissions, the speed with which regulatory agencies review and 
potentially clear the Company's products, the rate at which the Company or 
its corporate partners for distribution establish product distribution 
networks and mobilize the available sales forces, the rate at which the 
Company's products gain market acceptance, the timing and impact of the 
introduction of competitive products for surgical sealant functions, the 
regulation and setting of relevant reimbursement levels and other factors 
relating to the commercialization of medical products.


RESULTS OF OPERATIONS

Three Months Ended March 31, 1998 and 1997

NET SALES

Due to the Company's exit of the RapiSeal Patch business in December 1997, 
the Company had no revenues in the three months ended March 31, 1998 as 
compared to $50,000 in revenues for the three months ended March 31, 1997. 


                                     8
<PAGE>




RESEARCH AND DEVELOPMENT

Research and development expenses increased 27% to $1,572,000 in the three 
months ended March 31, 1998 compared to $1,241,000 in the three months 
ended March 31, 1997.  The increase for the first quarter of 1998 is 
attributable to expenses related to clinical and preclinical activities 
necessary to support ongoing product development activities for FloSeal 
Matrix.  In 1998, research and development expenses are expected to be 
higher than those of 1997, as the Company supports its clinical trials and 
prepares FloSeal Matrix for market introduction.

MARKETING, GENERAL AND ADMINISTRATIVE

Marketing, general and administrative expenses decreased 44% to $580,000 
in the three months ended March 31, 1998, compared to $1,044,000 for the 
three months ended March 31, 1997. The decrease for the first quarter, 
compared to the year earlier period, was primarily the result of decreases 
in sales and administrative personnel as a part of the restructuring in 
the fourth quarter associated with the exit of the RapiSeal Patch 
business. 

INTEREST INCOME

Net interest income decreased 52% to $157,000 for the three months ended 
March 31, 1998 compared to $327,000 for the three months ended March 31, 
1997.  The decrease was attributable primarily to the declining balance of 
the Company's investment portfolio.

NET LOSS

As a net result of the items discussed above, net loss was $2,034,000 for 
the three months ended March 31, 1998.  This is an improvement of 3% or 
$56,000 over the net loss of $2,090,000 for the three months ended March 
31,1997. 

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 1998, the Company's cash, cash equivalents and available-for-
sale securities (classified as both long term and short term) were 
$12,709,000 compared to $14,460,000 at December 31, 1997. 

For the three months ended March 31, 1998 and 1997 the Company's operations 
consumed cash of $2,125,000 and $2,095,000, respectively.  The increase in cash 
consumed by operations was due primarily to an increase in research and 
development spending to support clinical and preclinical activities necessary 
for ongoing FloSeal Matrix development.  The Company expects the use of cash in 
operating activities to continue through 1998 and into 1999 as it continues 
clinical trials of FloSeal Matrix and develops other products.

Although Fusion believes that current cash balances, augmented by 
investment income, will be sufficient to meet the Company's operating and 
capital requirements at least through 1998, the Company may decide to seek 
additional financing within this time frame.  After lengthy discussion 
with the FDA, the Company has determined that the FloSeal Matrix will 
follow the PMA regulatory pathway.  Although a PMA has the substantial 
commercial advantage of broader labeling, it is also a lengthy and 
expensive process.  Thus, the PMA determination will significantly 
increase the cash required before commercialization of the FloSeal, in 
comparison to a 510(k).  Fusion's future liquidity and capital 
requirements will depend on numerous factors, including the cost and time 
to conduct clinical trials, the receipt of and the time required to obtain 
regulatory clearances and approvals for the FloSeal, the resources the 
Company devotes to developing, manufacturing and marketing its products 
and other factors.  There can be no assurance that additional financing, 
if required, will be available on satisfactory terms or at all.  Any 
additional equity financing may be dilutive to stockholders, and debt 
financing, if available, may include restrictive covenants.


                                     9

<PAGE>



ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS

Technology and Development Risk.  To be successful, the Company's products 
under development including FloSeal Matrix, must act effectively in humans 
in comparison to current standard of care control products.  The 
physiological processes, which must be favorably altered, are very 
complex.  The effects that these products seek to provide are very 
difficult to achieve and are dependent upon many independent and 
interacting variables, which are not fully understood.  The products must 
be effective in treating the substantial variations involved from patient 
to patient, as well as with regard to the differing techniques and 
procedures employed by surgeons.  The technologies related to these 
potential products are evolving and are not fully developed.  As a result, 
the predictability and success rate of the technological design process 
with respect to these products is highly uncertain.  As a consequence of 
the above factors and many additional factors, the time and expense 
required to design and develop a product is highly uncertain and cannot be 
predicted reliably.  With respect to any particular product under 
development, the desired physiological effects or product specifications 
may not be fully achieved, if at all.  Even if the products are 
successfully developed, there can be no assurance that clinically relevant 
effects will be achieved, that successful regulatory clearances will be 
secured, or that the products will become economically viable.  If the 
Company is not successful in developing its planned products, its business 
prospects, financial condition and results of operations would be 
materially and adversely affected.

Competition and Uncertainty as to Technological Change.  The surgical 
sealant market is highly competitive, and the Company expects competition 
in its targeted markets to intensify.  The Company expects to encounter 
direct competition from companies (or medical institutions) offering a 
wide variety of competing products including but not limited to topical 
hemostats, fibrin glues, home-brew cryoprecipitates, synthetic adhesives, 
synthetic hydrogels, pericardial strips, synthetic strips, synthetic 
fibrin glues and femoral artery closure systems/devices.  In addition, 
several large companies targeting the surgical sealant market may be 
developing products (unknown to the market at present) that would compete 
with the Company's products.  The Company is also aware of several 
potential competitors that are working on biological tissue sealants.  
Many of the competitors or potential competitors have greater name 
recognition, broader product lines, greater distribution capabilities, 
substantially greater capital resources and larger marketing, research and 
development staffs and facilities than the Company.  Broad product lines 
may give the Company's competitors or potential competitors the ability to 
negotiate exclusive, long-term medical device supply contracts and, 
consequently, the ability to offer comprehensive pricing for their 
products, including those that may compete with the Company's products.  
By offering a broader product line, these potential competitors may also 
have a significant advantage in marketing competing products to group 
purchasing organizations and other managed care organizations that 
increasingly seek to reduce costs through centralization of purchasing 
functions.  There can be no assurance that the Company will be able to 
effectively compete against such competitors or potential competitors.  In 
addition, there can be no assurance that the Company's current competitors 
or other companies will not succeed in developing technologies and 
products that are more effective than the Company's or that would render 
the Company's technology or products obsolete or unable to compete.

Dependence on Patents and Proprietary Technology.  The Company's ability 
to compete effectively will depend in part on its ability to develop and 
maintain the proprietary aspects of its technology.  The Company has 
pursued its own patents covering its technologies in various forms.  In 
addition, the Company has licensed technology to further broaden its 
patent portfolio.  The Company owns three and has licensed three issued 
United States patents, and has 20 pending United States patent 
applications relating to its patch, gel and liquid formulations.  There 
can be no assurance that the pending surgical sealant patent applications 
will issue, or that the issued patent or any patents that may issue in the 
future will provide any competitive advantages for the Company's products 
or that they will not be successfully challenged, invalidated or 
circumvented in the future.  Moreover, litigation or interference 
proceedings associated with enforcing or defending patents or trade 
secrets is expensive and can divert the efforts of technical and 
management personnel.  The Company has filed certain corresponding patent 
applications in certain foreign countries and may file additional patent 
applications outside the United States.  The Company believes that 
obtaining foreign patents may be more difficult than obtaining domestic 
patents because of differences in patent laws and believes the protection 
provided by foreign patents, if obtained, and any other foreign 
intellectual property protection may be weaker than that provided 

                                     10
<PAGE>


domestically.  In addition, there can be no assurance that competitors 
will not seek to apply for and obtain patents that will prevent, limit or 
interfere with the Company's ability to make, use and sell its products.  
A number of medical device and other companies, universities and research 
institutions have filed patent applications or have issued patents 
relating to the compositions and methods for surgical sealants.  In 
addition, the medical device industry has been characterized by extensive 
litigation regarding patents and other intellectual property rights, and 
many companies in the medical device industry have employed intellectual 
property litigation to gain competitive advantage.  There can be no 
assurance that suits will not be brought against the Company in the future 
challenging its patent rights or claiming infringement on patents held by 
third parties.

An adverse determination in litigation or interference proceedings to 
which the Company may become a party could subject the Company to 
significant liabilities to third parties, require disputed rights to be 
licensed from third parties or require the Company to cease using such 
technology.  Although patent and intellectual property disputes in the 
medical device area have often been settled through licensing or similar 
arrangements, costs associated with such arrangements may be substantial 
and could include ongoing royalties.  Furthermore, there can be no 
assurance that necessary licenses would be available to the Company on 
satisfactory terms, if at all.  Adverse determinations in a judicial or 
administrative proceeding or failure to obtain necessary licenses on 
satisfactory terms, if at all, could prevent the Company from 
manufacturing and selling its products, which would have a material 
adverse effect on the Company's business prospects, financial condition 
and results of operation.

Risks Related to FloSeal Matrix.  Following the end of the third quarter 
1997, the Company decided to shift essentially all discretionary resources 
then committed to the support of the RapiSeal patch to its hemostatic 
sealant, FloSeal Matrix.  Subsequently, the Company decided to exit the 
RapiSeal business and to disband its small test sales force. FloSeal 
Matrix, which the Company believes to have substantially greater market 
potential than RapiSeal, thus was reinforced as the Company's lead product 
in terms of potential strategic impact on the Company's operations. 
FloSeal Matrix began human clinical trials in the United States in March 
of 1998.  The Company is in the process of scaling up production for these 
trials and planning for commercial production.  There can be no assurance 
that production scale-up can be successfully completed, that the 
product(s) will be successful in human trials, that the product(s) will 
gain regulatory clearance, or that the product(s) will be accepted in the 
marketplace.  There can be no assurance that strategic corporate 
partnerships can be concluded to aid in the development or the 
distribution of the product or that such alliances can be concluded on 
favorable terms.  There can be no assurance that future revenues, if any, 
will provide a reasonable return, if any, on the cost of development.  
Unless FloSeal Matrix is successfully introduced and marketed on a timely 
basis, the Company's business prospects, financial condition and results 
of operations will be materially and adversely affected.

Regulatory Uncertainty.  The regulatory processes for the approval of 
medical devices, such as the Company's products, are highly uncertain.  
The time and expense required to obtain clearances are difficult to 
forecast and can vary widely.  In certain cases, a clearance may not be 
ever gained.  In particular, the regulatory process in the United States 
is arduous and demanding.  A major factor in the time and expense required 
for a device clearance to market is the type of submission required, 
510(K) or PMA.  While the Company generally seeks the faster 510(K) 
regulatory pathway whenever it believes this pathway is appropriate, the 
decision as to pathway is essentially within the sole discretion of the 
FDA and there can be no assurance that a 510(K) pathway will be obtained.  
A PMA pathway is significantly longer and more expensive.  Likewise, the 
FDA sets the requirements for the size and structure of clinical trials 
after input from the Company.  There can be no assurance that the clinical 
requirements of the FDA for submissions will be favorable for the Company 
or within its expense and time estimates or result in an economically 
viable program.  The clinical or other requirements can change during the 
process resulting in new requirements or standards which can materially 
increase the time and expense of the regulatory process.  The FDA may 
require additional clinical trials or tests and new requirements after the 
initial submissions.  The time required for review and clearance at the 
FDA can vary widely depending on the quality of the submission, the 
perceived importance of the product, and many other factors.  Many of the 
factors affecting the time and expense for the regulatory process

                                     11

<PAGE>



are outside the control of the Company.  Longer and more expensive 
clinical trials and regulatory processes can have a material adverse 
effect on the business prospects, financial condition and results of 
operations of the Company.  The regulatory process outside the United 
States can also vary widely in the time and expense of clearance and may 
result in no clearance at all.  In summary, there can be no assurance that 
marketing clearances will ever be granted for any of the Company's 
products in the development process or that the time and expense of the 
regulatory process can be reliably predicted or will result in an 
economically viable investment.

Uncertainty of Market Acceptance.  The Company's success will depend upon 
the medical community's active sponsorship and ultimate acceptance of the 
FloSeal Matrix and the Fusion liquid adhesives.  The Company is unable to 
predict how quickly, if at all, the medical community will accept its 
products or, if accepted, the number of products that will be used.  Use 
of the Company's products may require changes in surgical practices, and 
there can be no assurance that surgeons will be willing to make such 
changes.  To achieve market acceptance of its products, the Company must 
also demonstrate that the Company's products offer clinically significant 
advantages. Moreover, limited experience with patients may initially make 
it difficult for the Company to ascertain those factors most relevant to 
the surgeon's decision whether to use the Company's products.  Even if 
generally accepted, surgeons may choose to use the Company's products in a 
smaller minority of procedures than projected thus leading to lower sales.  
Failure of FloSeal Matrix and the Fusion liquid adhesives to achieve 
significant clinical adoption would have a material adverse effect on the 
Company's business prospects, financial condition and results of 
operations.

Uncertainty Relating to Third Party Reimbursement.  In the United States, 
health care providers that purchase medical devices, such as FloSeal 
Matrix and the Fusion liquid adhesives, generally rely on third-party 
payors, principally federal Medicare, state Medicaid and private health 
insurance plans to reimburse all or part of the cost of the procedure in 
which the medical device is being used.  The Company's success will be 
dependent, in part, upon its ability to obtain satisfactory third-party 
reimbursement from health care payors for surgical procedures that may use 
FloSeal Matrix and the Fusion liquid adhesives.  The Company anticipates 
that in a prospective payment system, such as the diagnostic related group 
system utilized by Medicare, and in many managed care systems used by 
private health care payors, the cost of the Company's products will be 
incorporated into the overall cost of the procedures and there will not be 
separate reimbursement for the Company's products.  Regardless of the type 
of reimbursement system, the Company believes that surgeon advocacy of the 
FloSeal Matrix and the Fusion liquid adhesives will be required to obtain 
reimbursement.  There can be no assurance that any reimbursement will be 
sufficient to assure profitability.  Failure by physicians, hospitals and 
other users of the Company's products to obtain sufficient reimbursement 
from health care payors for procedures in which the Company's products are 
used or adverse changes in governmental and private third-party payors' 
policies toward reimbursement for such procedures would have a material 
adverse effect on the Company's business prospects, financial condition 
and results of operations.

If the Company obtains the necessary foreign regulatory approvals, market 
acceptance of the Company's products in international markets would be 
dependent, in part, upon the availability of reimbursement within 
prevailing health care payment systems for the Company's products or the 
procedures in which the products are used.  Reimbursement and health care 
payment systems in international markets vary significantly by country, 
and include both government-sponsored health care and private insurance.  
The Company intends to seek international reimbursement approvals.  There 
can be no assurance that any such approvals will be obtained in a timely 
manner, if at all, and failure to receive international reimbursement 
approvals could have a material adverse effect on market acceptance of the 
Company's products in the international markets in which such approvals 
are sought.

Limited Sales, Marketing and Distribution Experience.  To date, the 
Company has not generated any revenues from sales of either FloSeal Matrix 
of Fusion liquid adhesives.  The company has a small marketing 
organization that provides market analysis, marketing strategy, and 
expertise in product development and positioning.  The Company intends to 
sell its products primarily through agreements with distributors or by 
means of collaborative arrangements with corporate strategic partners.  As 
of March 31, 1998, the Company

                                     12

<PAGE>



had not entered into any such agreements or arrangements with respect to 
FloSeal Matrix or other future products.  There can be no assurance that 
the Company will be able to enter into agreements with distributors or 
collaborative arrangements on a timely basis or at all, or that such 
distributors or collaborators will devote adequate resources to selling 
the Company's products.  In addition, to the extent that the Company 
enters into distribution agreements or collaborative arrangements for the 
sale of its products, the Company will be dependent upon the efforts of 
third parties, and there can be no assurance that such efforts will be 
successful.  Should the Company decide to use a direct sales strategy for 
general or for specialty applications, there can be no assurance that the 
Company will be able to build a direct sales force or marketing 
organization, that establishing a direct sales force or marketing 
organization will be cost effective, or that the Company's sales and 
marketing efforts will be successful.  Failure to build an effective sales 
and marketing organization or to establish effective distribution or 
collaborative arrangements would have a material adverse effect on the 
Company's business prospects, financial condition and results of 
operations.

Product Liability Risk, Limited Insurance Coverage.  The medical device 
industry has historically been litigious, and the Company faces an 
inherent business risk of financial exposure to product liability claims 
in the event that the use of its products results in personal injury.  
Although the Company has not experienced any claims to date, there can be 
no assurance that the Company will not experience losses due to product 
liability claims in the future.  The Company currently maintains liability 
insurance with combined coverage limits of $3.0 million on a claims-made 
basis.  There can be no assurance that the coverage limits of the 
Company's insurance policies will be adequate.  Such insurance is 
expensive, difficult to obtain and may not be available in the future as 
acceptable terms, or at all.  Any claims against the Company regardless of 
their merit or eventual outcome, could have a material adverse impact upon 
the Company's business, financial condition and results of operations.

Uncertainty as to Bovine (Animal) Sourced Products in Europe.  There is 
substantial uncertainty as to the acceptance of bovine sourced products in 
Europe due to concerns over potential contamination with Transmissible 
Spongiform Encephalopathies (TSE), which is the same or closely related to 
the disease which strikes cows known as Bovine Spongiform Encephalopathies 
(BSE) or commonly as "Mad Cow Disease".  The first generation of FloSeal 
Matrix is made from bovine-sourced thrombin and bovine-sourced gelatin.  
However unscientific in the Company's judgement the fear of TSE might be, 
if TSE concerns prevent or substantially delay the marketing of FloSeal 
Matrix in Europe, there would be a material and adverse effect on the 
Company's business prospects, financial condition and results of 
operations.  There can be no assurance that alternative sources of human 
thrombin or alternative (non-bovine) sources of the gel component can be 
obtained with the timing, cost, capacity, and other factors necessary to 
support a timely introduction of a second generation product into Europe.

Limited Manufacturing Experience, Scale-up Risk.  The Company has received 
a manufacturing license from the CDHS and commenced shipment of FloSeal 
Matrix for use in its application evaluation cases in December 1997.  
However, the Company has no experience manufacturing FloSeal Matrix or any 
other products in the volumes necessary to achieve significant commercial 
sales, and there can be no assurance that reliable, high-volume 
manufacturing can be achieved at a commercially viable cost.  The Company 
may encounter difficulties in scaling up production, including problems 
involving production yield, quality control and assurance, and shortages 
of qualified personnel.  The Company's manufacturing facilities will be 
subject to QSR, international quality standards and other regulatory 
requirements.  Difficulties encountered by the Company in manufacturing 
scale-up or failure by the Company to implement and maintain its 
facilities in accordance with QSR, international quality standards or 
other regulatory requirements would entail a delay or termination of 
production, which could have a material adverse effect on the Company's 
business, financial condition and results of operations.  Any 
manufacturing difficulties involving production yields, quality control 
and assurances, supplies of components or shortages of qualified personnel 
encountered by the Company could also have a material adverse effect on 
its business prospects, financial condition and results of operations.  
There can be no assurance that the Company will be able to manufacture and 
supply sufficient quantities of products to meet product requirements for 
United States and international clinical trials and commercial sales.


                                     13
<PAGE>


Dependence on Single Source Suppliers.  The Company acquires several 
components of its products from single source suppliers.  Generally, the 
Company believes that there are alternative suppliers of equivalent 
materials available, and that the company could substitute suppliers with 
minimal regulatory consequences from this substitution.  However, there 
can be no assurance that such substitute suppliers will be available, that 
such substitutions could be made in a timely manner or on commercially 
reasonable terms.  In the case of hides for processing into gelatin, there 
are only a few suppliers that could meet the Company's requirements.  The 
company currently relies exclusively on one supplier of such hides and 
expects to continue to do so through at least the end of 1999.  The 
Company and this supplier have entered into a long-term supply agreement.  
However, if this supplier were unable to meet the Company's demands there 
can be no assurance that the Company would be able to secure alternative 
sources of hides of sufficient quality and quantity to produce sufficient 
product to meet its customers' needs.  A transition to alternate 
arrangements could involve additional costs and delays in production.  
There can be no assurance that such transition would be successful in 
entering into alternate arrangements on commercially reasonable terms if 
at all.  Sterilization of the Company's product is performed by a single 
vendor.  While the Company believes alternative sterilization vendors are 
readily available, there can be no assurance that such vendors would be 
available or that such a transition could be made in a timely, cost-
effective manner.  The Company relies upon a single vendor for its bovine 
thrombin, which is a critical element in the mechanism of action of 
FloSeal Matrix.  This supplier is currently the only FDA approved 
manufacturer of bovine thrombin in the United States.  While the Company 
believes that this vendor is reliable and has adequate capacity to serve 
the Company's requirements, there can be no assurance that this vendor 
will supply adequate thrombin or that alternative vendors will enter the 
market and prove to be reliable suppliers.  In the event the Company is 
not able to acquire sufficient supplies from its current sources or to 
locate alternate sources on commercially reasonable terms, the Company may 
not be able to manufacture its products on a timely and cost-competitive 
basis, or at all, which would have a material adverse effect on the 
Company's business prospects, financial condition and results of 
operations.

Computer Systems Readiness for Year 2000.  Many existing computer systems 
and applications, and other control devices, use only two digits to 
identify a year in the date field, without considering the impact of the 
upcoming change at the end of the millennium.  They could fail or create 
erroneous results unless corrected so that they can process data related 
to the year 2000.  The Company relies on its systems, applications and 
devices in operating and monitoring all major aspects of its business, 
including financial systems (such as general ledger, accounts payable and 
payroll modules), manufacturing systems, customer services, 
infrastructure, embedded computer chips, networks, and telecommunications 
equipment.  The Company also relies on external systems of business 
enterprises such as customers, suppliers, creditors, financial 
organizations, and of governments, both domestically and globally, for 
accurate exchange of data and information.  The Company's current estimate 
is that the costs associated with the Year 2000 issue will not have a 
material adverse affect on the result of operations or financial position 
of the Company in any given year.  However, despite the Company's efforts 
to address the Year 2000 impact on its internal systems, the Company is 
not certain that is has fully identified such impact or that the Company 
can resolve the impact without disruption of its business and without 
incurring significant expense.  In addition, even if the internal systems 
of the Company are not materially affected by the Year 2000 issue, the 
Company could be affected through disruption in the operation of the 
enterprises with which the Company interacts.


Fusion Medical Technologies Inc. and RapiSeal are registered trademarks of 
Fusion Medical Technologies, Inc. FloSeal Matrix and FloSeal are 
trademarks of Fusion Medical Technologies, Inc.

                                   14
<PAGE>



PART II-OTHER INFORMATION

Item 1.   Legal Proceedings.
          None.

Item 2.   Changes in Securities.
          None.

Item 3.   Defaults upon Senior Securities.
          None.

Item 4.   Submission of Matters to a Vote of Security Holders.
          None.

Item 5.   Other Information.
          None.

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

<TABLE>
(a) Exhibits.

              <S>         <C>
               Exhibit
                Number               Description             
               --------    ----------------------------------
                 27.1      Financial Data Schedule.

</TABLE>

          (b)  Reports on Form 8-K.

               The Registrant did not file any reports on Form 8-K with
               the Securities and Exchange Commission during the quarter
               ended March 31, 1998.



                                   15
<PAGE>


                            SIGNATURES

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



                 FUSION MEDICAL TECHNOLOGIES, INC.



Date:     May 15, 1998             By:/s/ Philip M. Sawyer 
                                      -------------------------------
                                   Philip M. Sawyer
                                   President, Chief Executive Officer 


                                          By: /s/ Raymond W. Anderson
                                      -------------------------------
                                   Raymond W. Anderson
                                   Vice President, Finance and 
                                   Chief Financial Officer  


                                   16