UNITED STATES
                      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 quarterly period ended June 30, 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 7,171,490 as of August 11, 1998.

<PAGE    1>


                       FUSION MEDICAL TECHNOLOGIES, INC.

                                     INDEX
<TABLE>
<CAPTION>

                         PART I-FINANCIAL INFORMATION
<S>                                                                  <C>

Item 1. Financial Statements:                                          Page 

        Condensed Balance Sheets - June 30, 1998 (unaudited)
        and December 31, 1997   .......................................  3

        Condensed Statements of Operations - Three Months Ended
        June 30, 1998 and 1997 and six months ended June 30, 1998
        and 1997 (unaudited)   ........................................  4

        Condensed Statements of Cash Flows - Six Months ended
        June 30, 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   .........................  8

                         PART II-OTHER INFORMATION

Item 1. Legal Proceedings   ........................................... 16

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

Item 3. Defaults Upon Senior Securities   ............................  16

Item 4. Submission of Matters to a Vote of Security Holders   ........  16

Item 5. Other Information   ..........................................  17

Item 6. Exhibits and Reports on Form 8-K   ...........................  17

        SIGNATURES   .................................................. 18
</TABLE>
                                       2
<PAGE>    2


                         PART I-FINANCIAL INFORMATION

Item 1. Financial Statements
<TABLE>
<CAPTION>
                      FUSION MEDICAL TECHNOLOGIES, INC.

                          CONDENSED BALANCE SHEETS
                               (in thousands)               

                                                    June 30,     December 31,
                                                      1998           1997(1)
                                                   -----------   ------------
                                                   (unaudited)
                                   ASSETS
<S>                                                 <C>          <C>
Current assets:
   Cash and cash equivalents                         $  7,641     $  7,473
   Available-for-sale-securities                        3,035        5,465
   Other assets                                           175          228
                                                     --------     --------

      Total current assets                             10,851       13,166

Long term assets                                           54        1,565
Property and equipment, net                               753          809
                                                     --------     --------

         Total assets                                $ 11,658     $ 15,540
                                                     ========     ========

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities                                  $  1,121     $  1,316
Long-term obligations                                     263        -
                                                     --------     --------

         Total liabilities                              1,384        1,316
                                                     --------     --------

Common stock and other equity                          35,961       35,769
Accumulated deficit                                   (25,687)     (21,545)
                                                     --------     --------

      Total stockholders' equity                       10,274       14,224
                                                     --------     --------

         Total liabilities and stockholders' equity  $ 11,658     $ 15,540
                                                     ========     ========
</TABLE>

(1)  Data extracted from audited financial statements dated December 31, 1997
     of Fusion Medical Technologies, Inc.

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

                                       3
<PAGE    3>

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

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



                                     Three Months Ended    Six Months Ended
                                          June 30,             June 30,
                                    -------------------    -----------------
                                     1998       1997        1998       1997
                                    -------   --------     -------  --------
<S>                                <C>        <C>         <C>       <C>
  Net Sales                                    $    28               $    78
                                               -------               -------
  Costs and expenses:
    Cost of goods                                  224                   382
    Research and development        $ 1,648      1,342    $ 3,220      2,583
    Marketing, general and
    administrative                      616      1,242      1,197      2,286
                                    -------    -------    -------    -------
     Total costs and expenses         2,264      2,808      4,417      5,251
                                    -------    -------    -------    -------
         Operating loss              (2,264)    (2,780)    (4,417)    (5,173)

  Interest income, net                  170        303        327        630
  Other expense                         (14)        (7)       (52)       (31)
                                    -------    -------    -------    -------
         Net loss                   $(2,108)   $(2,484)   $(4,142)   $(4,574)
                                    =======    =======    =======    =======

  Net loss per share -
  basic and diluted                 $ (0.29)   $ (0.35)   $ (0.58)   $ (0.65)
                                    =======    =======    =======    =======

Shares used in computing net
  loss per share - basic and diluted  7,153      7,063      7,149      7,044
                                    =======     ======    =======    =======
</TABLE>


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

                                       4
<PAGE>    4

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

                           STATEMENTS OF CASH FLOWS
                                (in thousands)
                                 (unaudited)

                                                      Six Months Ended      
                                                           June 30,
                                                   ------------------------
                                                       1998         1997   
                                                   -----------   ----------
<S>                                                <C>           <C>
Cash flows used for operating activities:
  Net loss                                          $ (4,142)    $  (4,574)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
    Depreciation and amortization                        160           216
    Accretion of available-for-sale securities            23           (78)
    Amortization of deferred compensation                 80           189 
    Change in assets and liabilities:   
      Accounts receivable                                 21           (14)
      Inventories                                         --            25 
      Prepaids and other current assets                  (23)          151 
      Other assets                                        45            --
      Accounts payable                                   (94)         (474)
      Accrued expenses                                  (175)          173 
                                                    --------      --------
        Net cash used in operating activities         (4,105)       (4,385)
                                                    --------      --------

Cash flows from investing activities:
  Acquisition of property and equipment                 (104)         (326)
  Purchases of available-for-sale securities          (2,025)       (2,557)
  Sales of available-for-sale securities               5,953         8,595 
                                                    --------      --------
        Net cash provided by investing activities      3,824         5,712 
                                                    --------      --------
Cash flows from financing activities:
  Proceeds used from issuance of note                    462            (1)
  Repayment of notes payable                             (72)          (78)
  Proceeds from exercise of common stock options          59            51 
                                                    --------      --------
        Net cash provided by (used in) financing
          activities                                     449           (28)
                                                    --------      --------
Net increase in cash and cash equivalents                168         1,299
Cash and cash equivalents, beginning of period         7,473        10,778
                                                    --------      --------

Cash and cash equivalents, end of period            $  7,641      $ 12,077
                                                    ========      ========

Supplemental disclosure of cash flow information:
  Cash paid for interest                            $     80      $      5
                                                    ========      ========

  Cash paid for taxes                                     --      $     19
                                                    ========      ========

Supplemental disclosure of noncash investing and
  financing activities:
  Adjustment for cancellation of stock options      $    300      $     --
                                                    ========      ========
  

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

<PAGE>    5





                      FUSION MEDICAL TECHNOLOGIES, INC.

                   NOTES TO CONDENSED FINANCIAL STATEMENTS
                               June 30, 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 June 30, 1998, and the statements 
of operations for the three and six months ended June 30, 1998 and 1997, and 
the statements of cash flows for the six month periods ended June 30, 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 1,251,854 and 852,786 shares of common 
stock at prices ranging from $.16 to $11.50 per share were outstanding at 
June 30, 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>    6

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 June 30, 1998, the Company has an 
outstanding balance of  $379,539.

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>   7


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 committed to developing 
and commercializing innovative biomaterials for treating surgical wounds. As 
of June 30, 1998, the Company had an accumulated deficit of approximately 
$25.7 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 half of 1998 on the 
development of FloSeal(tm) Matrix (FloSeal).  Beginning in December 1997, 
FloSeal was utilized in an applications evaluation series of patients to stop 
bleeding within a wide variety of major surgical procedures and bleeding 
conditions. FloSeal successfully stopped bleeding in 116 of 120 discrete 
applications (97%) in its first sixty-one surgical patients.  Forty (66%) of 
the patients had impaired coagulation due to anti-coagulant drug regimens, 
heart-lung machine stress or hemophilia.  The patients underwent thirty 
different types of surgeries, which were performed at seven medical centers 
in Canada, two medical centers in the Netherlands and one medical center in 
Switzerland.  The Company started clinical trials in the United States under 
an IDE in March 1998 at ten medical centers in the areas of cardiac, vascular,
and spinal surgery.

     In addition, the Company is developing a specialized applicator to use 
FloSeal for sealing vascular access sites, especially in the femoral artery.

     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 and six Months Ended June 30, 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 and six months ended June 30, 1998 
as compared to $28,000 in revenues for the three months ended June 30, 1997 
and $78,000 in revenues for the six months ended June 30, 1997. 


                                       8
<PAGE>    8




RESEARCH AND DEVELOPMENT

Research and development expenses increased 23% to $1,648,000 in the three 
months ended June 30, 1998 compared to $1,342,000 in the three months ended 
June 30, 1997.  For the six months ended June 30, 1998, research and 
development expenses increased 25% to $3,220,000 as compared to expenses of 
$2,583,000 for the six months ended June 30, 1997.  The increase for the 
second quarter and the six months ended June 30, of 1998 is attributable to 
expenses related to clinical and preclinical activities necessary to support 
ongoing product development activities for FloSeal.  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 for market 
introduction.

MARKETING, GENERAL AND ADMINISTRATIVE

Marketing, general and administrative expenses decreased 50% to $616,000 in 
the three months ended June 30, 1998, compared to $1,242,000 for the three 
months ended June 30, 1997. For the six months ended June 30, 1998 marketing, 
general and administrative expenses decreased 48% to $1,197,000 as compared 
to $2,286,000 for the six months ended June 30, 1997.  The decrease for the 
second quarter, compared to the year earlier period, and the six months ended 
June 30, 1998 compared to the six months ended June 30, 1997, 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

Net interest income decreased 44% to $170,000 for the three months ended June 
30, 1998 compared to $303,000 for the three months ended June 30, 1997 and by 
48% to $327,000 in the first six months of 1998 from $630,000 in the first 
six months of 1997.  The decrease was attributable primarily to the declining 
balance of the Company's investment portfolio. Interest expense increased 
225% to $13,000 for the three months ended June 30, 1998 compared to $4,000 
for the three months ended June 30, 1997 and by 550% to $52,000 for the first 
six months of 1998 from $8,000 for the first six months of 1997.  The 
increase was attributable to the financing of the Company's Directors and 
Officers insurance and the expense on the loan facility agreement that the 
Company agreed to in December of 1997.

NET LOSS

As a net result of the items discussed above, net loss was $2,108,000 for the 
three months ended June 30, 1998.  This is an improvement of 15% or $376,000 
over the net loss of $2,484,000 for the three months ended June 30,1997. The 
net loss for the six months ended June 30, 1998 was $4,142,000.  This is an 
improvement of 9% or $432,000 over the net loss of $4,574,000 for the six 
months ended June 30, 1997.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1998, the Company's cash, cash equivalents and available-for-sale 
securities were $10,676,000 compared to $14,460,000 at December 31, 1997. 

For the six months ended June 30, 1998 and 1997 the Company's operations 
consumed cash of $4,105,000 and $4,385,000, respectively.  The decrease in 
cash consumed by operations was due primarily to a decrease in personnel 
costs, and a reduction in overall administrative spending.  The Company 
expects the use of cash in operating activities to continue through 1998 and 
into 1999 as it continues clinical trials of FloSeal and develops other 
products.

                                       9

<PAGE>    9


Although Fusion believes that current cash balances, augmented by investment 
income, and the balance of its loan facility (the balance available for use 
is $2,000,000) 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 discussions with the U.S. 
Food and Drug Administration (FDA), the Company has determined that FloSeal 
will follow the Pre-Market Approval (PMA) regulatory pathway.  A PMA is a 
lengthy and expensive process.  Thus, the PMA determination will 
significantly increase the cash required before commercialization of 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 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.

ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS

Technology and Development Risk.  To be successful, the Company's products 
under development including FloSeal, 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.

                                       10
<PAGE>    10


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 patents 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 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.  Subsequently, the Company decided to exit the RapiSeal 
business and to disband its small test sales force. FloSeal, 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 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 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.

                                       11
<PAGE>    11

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. 
FloSeal will follow the PMA pathway.  A PMA pathway, in general, is 
significantly longer and more expensive than a 510(K) pathway.  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 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 FloSeal. 
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 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, 
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.  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 FloSeal 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.

                                       12
<PAGE>    12

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 FloSeal.  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 June 30, 1998, the Company had not entered into any such agreements or 
arrangements with respect to FloSeal 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 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 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 California Department of Health Services 
(CDHS) and commenced shipment of FloSeal to Canada

                                       13
<PAGE>    13

and Europe for use in its application evaluation cases in December 1997.  
However, the Company has no experience manufacturing FloSeal 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 Quality 
System Regulations (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.

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.  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

                                       14
<PAGE>    14

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.

                                       15
<PAGE>    15

                          PART II-OTHER INFORMATION

Item 1.   Legal Proceedings.
          None.

Item 2.   Changes in Securities and Use of Proceeds.

          The net proceeds to the Company after deducting expenses associated
          with the Company's initial public offering in June of 1996 was 
          $24,418,512.  From June 7, 1996 to June 30, 1998 the Company used 
          such net offering proceeds, in direct or indirect payments to 
          others, as follows:

<TABLE>
<CAPTION>

         <S>                                                  <C>
          Purchase and installation of machinery and equipment $    629,937
          Working capital                                        13,338,226
          Repayment of debt                                         306,973
          Investments in short term, interest-bearing
            Obligations                                          10,143,376
                                                               ------------
          Total                                                $ 24,418,512
                                                               ============
</TABLE>

Item 3.   Defaults upon Senior Securities.
          None.

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

          The Company Annual Meeting of Stockholders was held May 21, 1998.
          The results of the voting were as follows:

          Proposal 1:    Election of the Board of Directors of the Company.

<TABLE>
<CAPTION>

         <S>                          <C>                <C>
          Election of Class I
          Directors:
                Nominee                Votes For          Votes Withheld
                -------                ---------          --------------
          Lawrence G. Mohr Jr.         6,404,611          30,850
          Olav B. Bergheim             6,404,811          30,650

          Election of Class II
          Directors:
                Nominee                Votes For          Votes Withheld
                -------                ---------          --------------
          Douglas E. Kelly, M.D.       6,404,811          30,650
          Richard S. Schneider, Ph.D.  6,404,811          30,650

          Election of Class III
          Directors:
                Nominee                Votes For          Votes Withheld
                -------                ---------          --------------
          Gordon W. Russell            6,404,811          30,650
          Philip M. Sawyer             6,404,811          30,650
          Vaughn D. Bryson             6,404,811          30,650

          Proposal II:    Approve an Amendment to the 1993 Stock Option Plan:

                For          Against          Abstain          Non-Vote
                ---          -------          -------          --------

             4,479,479       564,326          197,429          1,194,277

          Proposal III:    Ratify the Appointment of PricewaterhouseCoopers
          LLP as Independent Accountants:

                For          Against          Abstain          Non-Vote
                ---          -------          -------          --------

             6,429,836        4,700             925                0

</TABLE>

Item 5.   Other Information.
          None.

Item 6.   Exhibits and Reports on Form 8-K.
          Exhibit 27.1 Financial Data Schedule.

                                       16
<PAGE>    16


                                   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:     August 14, 1998               By: /s/ Philip M. Sawyer
                                        -----------------------------------
                                           Philip M. Sawyer
                                           President, Chief Executive Officer

                                      17
<PAGE>    17