<PAGE>    1


                              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 September 30, 1999

                                   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 [    ]

The number of outstanding shares of the registrant's Common Stock was 9,104,716
as of November 3, 1999.


     This Report on Form 10-Q includes 116 pages with the Index to Exhibits
located on page 21.


<PAGE>   2

                     FUSION MEDICAL TECHNOLOGIES, INC.

                                 INDEX TO
                            REPORT ON FORM 10-Q
                   FOR QUARTER ENDED SEPTEMBER 30, 1999


                                                                       Page
                                                                       ----

PART I.   FINANCIAL INFORMATION

Item 1.   Financial Statements:

           Condensed Consolidated Balance Sheets - September 30, 1999
            (unaudited) and December 31, 1998                            3

           Condensed Consolidated Statements of Operations - Three
            and Nine Months Ended September 30, 1999 (unaudited)
            and 1998 (unaudited)                                         4

           Condensed Consolidated Statements of Cash Flows - Nine
            Months Ended September 30, 1999 (unaudited) and 1998
            (unaudited)                                                  5

           Notes to Condensed Consolidated Financial Statements          6

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk    20


PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings                                             21

Item 6.   Exhibits and Reports on Form 8-K                              21

          Signatures                                                    22

                                     2
<PAGE>   3


PART I-FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

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

                   CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)


                                                September 30   December 31
                                                    1999         1998 (1)
                                                ------------   -----------
                                                (Unaudited)
                                 ASSETS
<S>                                              <C>           <C>
Current assets:
   Cash and cash equivalents                      $  7,149      $  4,151
   Available-for-sale-securities                     2,001         3,013
   Accounts receivable, net                             61             2
   Inventory                                           311             -
   Prepaids and other current assets                   165           133
                                                  --------      --------

     Total current assets                            9,687         7,299

Property and equipment, net                          1,013           735
Long-term assets                                        54            54
                                                  --------      --------

     Total assets                                 $ 10,754      $  8,088
                                                  ========      ========

                  LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable                                  $    559      $    201
Accrued expenses                                       403           856
                                                  --------      --------

Current liabilities                                    962         1,057

Long-term obligations                                  117           204
                                                  --------      --------

     Total liabilities                               1,079         1,261
                                                  --------      --------

Common stock and other equity                       44,536        36,059
Accumulated deficit                                (34,861)      (29,232)
                                                  --------      --------

     Total stockholders' equity                      9,675         6,827
                                                  --------      --------

     Total liabilities and stockholders' equity   $ 10,754      $  8,088
                                                  ========      ========
</TABLE>

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

(1)  Data extracted from audited consolidated financial statements dated
     December 31, 1998 of Fusion Medical Technologies, Inc.

                                     3
<PAGE>   4

<TABLE>
<CAPTION>

                      FUSION MEDICAL TECHNOLOGIES, INC.

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

                                   Three Months Ended   Nine Months Ended
                                      September 30         September 30
                                   ------------------   ------------------
                                     1999      1998       1999      1998
                                   --------  --------   --------  --------

<S>                               <C>       <C>        <C>       <C>
Revenues                           $     56  $      -   $     81  $      -
                                   --------  --------   --------  --------

Costs and expenses:

 Cost of goods sold and start
  -up manufacturing costs               234         -        379         -
 Research and development             1,364     1,654      3,719     4,875
 Marketing, selling, general
  and administrative                    730       474      1,948     1,671
                                   --------  --------   --------  --------

    Total costs and expenses          2,328     2,128      6,046     6,546
                                   --------  --------   --------  --------

    Operating loss                   (2,272)   (2,128)    (5,965)   (6,546)

Interest income                         128       156        353       485
Interest expense                         (6)       (9)       (20)      (62)
Other income, net                         -         3          3         3
                                   --------  --------   --------  --------

    Net loss                       $ (2,150) $ (1,978)  $ (5,629) $ (6,120)
                                   ========  ========   ========  ========

Basic and diluted net
 loss per share                    $  (0.24) $  (0.28)  $  (0.67) $  (0.86)
                                   ========  ========   ========  ========

Shares used in computing basic
 and diluted net loss per share       9,004     7,172      8,356     7,157
                                   ========  ========   ========  ========
</TABLE>


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

                                    4
<PAGE>   5

<TABLE>
<CAPTION>

                     FUSION MEDICAL TECHNOLOGIES, INC.

             CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)
                               (unaudited)

                                                        Nine Months Ended
                                                           September 30
                                                        ------------------
                                                          1999      1998
                                                        --------  --------
<S>                                                    <C>        <C>
Cash flows used for operating activities:
  Net loss                                              $ (5,629)  $(6,120)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization                             287       219
   Accretion of available-for-sale securities                  -        29
   Amortization of deferred compensation                     157       125
   Change in assets and liabilities:
    Accounts receivable                                      (59)       21
    Inventory                                               (311)        -
    Prepaids and other current assets                        (32)      (17)
    Other assets                                               -        46
    Accounts payable                                         358       (21)
    Accrued expenses                                        (453)      (79)
                                                        --------  --------

   Net cash used in operating activities                  (5,682)   (5,797)
                                                        --------  --------

Cash flows from investing activities:
  Acquisition of property and equipment                     (565)     (147)
  Purchases of available-for-sale securities              (4,493)   (2,025)
  Sales and maturities of available-for-sale securities    5,505     5,952
                                                        --------  --------

   Net cash provided by investing activities                 447     3,780
                                                        --------  --------

Cash flows from financing activities:
  Proceeds from issuance of notes payable                      -       408
  Proceeds from issuance of shareholder note receivable        -        54
  Repayment of notes payable                                 (87)     (101)
  Proceeds from issuance of common stock, net              8,070         -
  Proceeds from exercise of common stock options             250        53
                                                        --------  --------

   Net cash provided by financing activities               8,233       414
                                                        --------  --------

Net increase (decrease) in cash and cash equivalents       2,998    (1,603)
Cash and cash equivalents, beginning of period             4,151     7,473
                                                        --------  --------

Cash and cash equivalents, end of period                $  7,149  $  5,870
                                                        --------  --------

Supplemental disclosure of cash flow information:
  Cash paid for interest                                $     20  $     80
                                                        --------  --------
  Adjustment for cancellation of stock options          $     79  $      -
                                                        ========  ========
  Issuance of stock options to outside consultants      $    135  $      -
                                                        ========  ========
</TABLE>


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

                                    5
<PAGE>   6

                     FUSION MEDICAL TECHNOLOGIES, INC.

            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                             September 30, 1999
                                 (Unaudited)


1. Basis of presentation

The accompanying condensed consolidated 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
condensed consolidated balance sheet as of September 30, 1999, and the
condensed consolidated statements of operations for the three and nine month
periods ended September 30, 1999 and 1998, and the condensed consolidated
statements of cash flows for the nine month periods ended September 30, 1999
and 1998 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 consolidated
operating results and cash flows for those periods.  Although the Company
believes the disclosures in these condensed consolidated 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 condensed consolidated 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, 1998.

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

Certain previously reported balances have been reclassified to provide
consistency with current presentation.


2. Net loss per share

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 and warrants are excluded from the computation of diluted net
loss per common share as their effect is anti-dilutive. Stock options to
purchase 1,333,683 and 1,252,469 shares of common stock at prices ranging from
$0.16 to $11.75 per share were outstanding at September 30, 1999 and 1998,
respectively, but were not included in the computation of diluted income per
share. At September 30, 1999 and 1998, there was one warrant outstanding to
purchase 8,285 shares of common stock at an exercise price of $4.00 per share
but is excluded from the computation of diluted net loss per common share. In
addition, at September 30, 1999 and 1998, there was another warrant outstanding
to purchase 4,500 shares of common stock at an exercise price of $4.00 per
share but also is excluded from the computation of diluted net loss per common
share.


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.

                                    6
<PAGE>   7

                     FUSION MEDICAL TECHNOLOGIES, INC.

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                            September 30, 1999
                                (Unaudited)

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.   Inventory

As of March 31, 1999, the Company began capitalizing its inventories of raw
materials related to FloSealTM. Inventory is recorded at the lesser of cost or
market using the FIFO method.

<TABLE>
                                                September 30   December 31
                                                    1999           1998
                                                ------------   ------------
<S>                                              <C>            <C>
Finished goods                                    $     22       $      -
Work in process                                         94              -
Raw materials                                          195              -
                                                  --------       --------

                                                  $    311       $      -
                                                  ========       ========
</TABLE>


5.   Debt

In December 1997, the Company signed an agreement for a bank loan facility to
finance previously acquired equipment up to a total of $1,000,000, and future
equipment purchases for up to a total of $2,500,000. The facility, as amended,
is secured by the equipment financed. Available credit under this facility, as
amended, expired in February 1998. The outstanding loan balance is subject to a
floating interest rate equal to the bank's prime rate plus 1.5% per annum
(9.75% at September 30, 1999). As of September 30, 1999, the Company had drawn
down $291,953 on the equipment loan facility. In connection with this loan
facility, the Company issued a warrant to purchase 4,500 shares of common stock
at an exercise price of $4.00 per share. This warrant expires in December 2002.
These facilities are subject to specific positive and negative covenants that
include restrictions on the declaration or payment of any dividend or any other
distributions on any of its capital stock.  The Company was in compliance with
those covenants at September 30, 1999.


6.      Stockholders' Equity

On April 6, 1999, the Company closed a follow-on public offering of 1.8 million
shares of its common stock that resulted in net proceeds to the Company of
approximately $8.1 million.


                                    7
<PAGE>   8

                     FUSION MEDICAL TECHNOLOGIES, INC.

     NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                            September 30, 1999
                                (Unaudited)


7.   Segment Reporting

The Company operates in one reportable segment: surgical sealants and topical
hemostat products. The Company is compliant with the segment reporting
requirements of SFAS No.131 "Disclosures about Segments of an Enterprise and
Related Information," which establishes annual and interim reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers.


8.   Recent Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities",
which establishes accounting and reporting standards for derivative instruments
and hedging activities.  It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The Company, to date, has not engaged
in derivative and hedging activities.  The Company will adopt SFAS No. 133 as
required for its first quarterly filing of calendar year 2001.


9.	Subsequent Event

In October 1999, the Company entered into an agreement to lease property which
will become the Company's new headquarters.  The minimum lease commitments for
the next seven years are as follows: 2000, $794,679; 2001, $1,238,559; 2002,
$1,287,418; 2003, $1,338,231; 2004, $1,391,078; 2005, $1,446,038; and 2006,
$1,503,196.


                                    8

<PAGE>   9


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 13 and
those set forth under Item 1 in the Company's Annual Report filed on Form 10-K
for the Year Ended December 31, 1998.


OVERVIEW

     Since inception in October 1992, we have been primarily engaged in the
research and development of surgical sealants and topical hemostats. As of
September 30, 1999, we had an accumulated deficit of $34.8 million. We have not
achieved, nor do we expect to achieve, profitability before 2001.

     We commenced selling our first product, the RapiSeal patch, in late 1996.
After careful consideration, we reallocated our capital resources to the
development of FloSeal and in late 1997 discontinued sales of the RapiSeal
patch and disbanded our sales force.

     In 1998, we conducted a ten-center, 309-patient pivotal clinical trial to
demonstrate the safety and effectiveness of FloSeal. We received a CE mark
providing European regulatory clearance on April 20, 1999. Our premarket
approval ("PMA") application for FloSeal was accepted for filing by the U.S.
Food and Drug Administration ("FDA") and given streamlined review status on
April 27, 1999. We completed the expansion of our manufacturing facility to
meet the anticipated product supply requirements for commercial sale of
FloSeal. We spent a total of approximately $215,000 for the purchase of
production equipment and approximately $535,000 for the facilities' upgrade.

     In June 1999, we signed a multi-year distribution agreement with
Minneapolis-based Sulzer Spine-Tech. Founded in 1991,Sulzer Spine-Tech is a
business unit of Sulzer Medica AG whose total annual sales exceed $1.0 billion.
Under the agreement, Sulzer Spine-Tech becomes a worldwide distributor of
FloSeal for all spinal and cranial applications. The distribution agreement
covers most global markets with the primary exception of Japan.

     Future revenues, if any, and our results of operations may fluctuate
significantly from quarter-to-quarter and will depend upon the following, among
other factors:

     o our ability to obtain regulatory clearances for FloSeal,

     o our ability to successfully commercialize the product,

     o the speed with which the Company's future products proceed through
       clinical trials and the preparation of related regulatory
       submissions,

     o the speed with which regulatory agencies review and potentially
       clear the Company's products,

     o the rate at which the Company or its corporate partners for
       distribution establish product distribution networks and mobilize
       the available sales forces,

     o the rate at which the Company's products gain market acceptance,

                                    9

<PAGE>   10


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

     o the timing and impact of the introduction of competitive products
       for surgical sealant functions, and

     o other factors relating to the commercialization of medical products.


RESULTS OF OPERATIONS


Three and Nine Months Ended September 30, 1999 and 1998


NET SALES

     Net sales for the three and nine months ended September 30, 1999 were
$56,000 and $81,000, respectively, which represented the initial revenues
resulting from the introduction of our new product line, FloSeal, in Europe.
Due to our exit of the RapiSeal Patch business in 1997 and our current focus on
the development of FloSeal, the Company had limited revenues in the three and
nine months ended September 30, 1999 and no revenues in the same periods of
1998, respectively. We filed for European regulatory clearance and received CE
mark clearance on April 20, 1999.

COST OF GOODS SOLD AND START-UP MANUFACTURING COSTS

     Cost of goods sold and start-up manufacturing costs for the three and nine
months ended September 30, 1999 were $234,000 and $379,000, respectively, which
represented the costs associated with the introduction of our new FloSeal
product line in Europe. Our exit of the RapiSeal Patch business in 1997
resulted in the elimination of such costs during the comparable periods of
1998.

RESEARCH AND DEVELOPMENT

     Research and development expenses decreased 18% to $1.4 million in the
three months ended September 30, 1999 compared to $1.7 million in the three
months ended September 30, 1998. For the nine months ended September 30, 1999,
research and development expenses decreased 24% to $3.7 million compared to
$4.9 million for the similar 1998 period. The decrease for the three and nine
months ended September 30, 1999 is primarily attributable to completion of the
309 patient FloSeal clinical trial in December 1998. For the full fiscal year
1999, the Company believes research and development expenses are not likely to
exceed those of 1998. However, as the Company devotes more resources to the
support of new products based on the FloSeal Matrix technology, quarterly
research and development expenses should increase in the fourth quarter of
1999.

MARKETING, SELLING, GENERAL AND ADMINISTRATIVE

     Marketing, selling, general and administrative expenses increased 54% to
$730,000 in the three months ended September 30, 1999, compared to $474,000 for
the similar period in 1998. Marketing, selling, general and administrative
expenses increased 17% to $1.9 million for the nine months ended September 30,
1999 compared to $1.7 million for the similar 1998 period. The increase for the
three and nine months ended September 30, 1999, compared to the year earlier
periods, was primarily the result of increases in marketing and selling
expenses associated with commercialization of FloSeal.

                                    10

<PAGE>   11


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

INTEREST INCOME AND EXPENSE

     Interest income decreased 18% to $128,000 for the three months ended
September 30, 1999 compared to $156,000 for the three months ended September
30, 1998. For the nine months ended September 30, 1998, interest income
decreased 27% to $353,000 compared to $485,000 in the prior year.  The
decreases for the three and nine months ended September 30, 1999 were
attributable primarily to the reduction in general interest rates in the
related periods 1999 (see "Liquidity and Capital Resources").  Interest expense
decreased 33% to $6,000 for the three months ended September 30, 1999 compared
to $9,000 for the three months ended September 30, 1998. For the nine months
ended September 30, 1998, interest expense decreased 68% to $20,000 compared to
$62,000 in the prior year. The decline in interest expense for the three and
nine months ended September 30, 1999 was due to declines in interest-bearing
debt.


NET LOSS

     As a net result of the items discussed above, the net loss was $2.2
million for the three months ended September 30, 1999.  This is an increase of
nine percent or $172,000 over the net loss of $2.0 million for the similar
period in 1998. The net loss was $5.6 million for the nine months ended
September 30, 1999.  This is an improvement of 8% or $491,000 over the net loss
of $6.1 million for the similar period in 1998.


LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 1999, our cash, cash equivalents and available-for-sale
securities were $9.2 million compared to $7.2 million at December 31, 1998.
Since our inception, we have funded the business with proceeds from private
security placements, our initial public offering of common stock and, most
recently, with a follow-on public offering of 1.8 million shares of our common
stock on April 6, 1999.

     For the nine months ended September 30, 1999 and 1998, our operations
consumed cash of $5.7 million and $5.8 million, respectively.  The decrease in
cash consumed by operations was due primarily to a decrease in net loss of
$491,000 resulting from reductions in clinical trial spending and in research
and development spending.  In addition, during 1999, we recorded a $311,000
increase in inventory and a $453,000 reduction in accrued expenses which were
partially offset by a $358,000 increase in accounts payable. We expect the use
of cash in operating activities to increase through calendar year 1999 and into
2000 as we continue to devote resources to the commercialization of FloSeal
and develop other products based on the FloSeal technology.

     For the nine months ended September 30, 1999, investing activities
provided net cash of $447,000 and net cash of $3.8 million for the similar
period in 1998. Year-to-date in 1999, sales and maturities of available-for-
sale securities provided $5.5 million of cash which was partially offset by the
acquisition of property and equipment of $565,000 and purchases of available-
for-sale securities of $4.5 million. For the nine months ended September 30,
1998, sales and maturities of available-for-sale securities provided $6.0
million of cash which was partially offset by the acquisition of property and
equipment of $147,000 and purchases of available-for-sale securities of $2.0
million.


                                    11

<PAGE>   12


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

     For the nine months ended September 30, 1999 and 1998, financing
activities provided net cash of $8.2 million and $414,000, respectively. The
net cash provided by financing activities for the nine months ended September
30, 1999 was due primarily to net proceeds from the issuance of common stock
and exercises of stock options which totaled $8.3 million. The net cash
provided by financing activities for the nine months ended September 30, 1998
was due primarily to net proceeds from the issuance of notes payable which
totaled $408,000.

     In December 1997, the Company signed an agreement for a bank loan facility
to finance previously acquired equipment up to a total of $1,000,000, and
future equipment purchases for up to a total of $2,500,000. The facility, as
amended, is secured by the equipment financed. Available credit under this
facility, as amended, expired in February 1998. The outstanding loan balance is
subject to a floating interest rate equal to the bank's prime rate plus 1.5%
per annum (9.75% at September 30, 1999). As of September 30, 1999, the Company
had drawn down $291,953 on the equipment loan facility. In connection with this
loan facility, the Company issued a warrant to purchase 4,500 shares of common
stock at an exercise price of $4.00 per share. This warrant expires in December
2002. These facilities are subject to specific positive and negative covenants
that include restrictions on the declaration or payment of any dividend or any
other distributions on any of its capital stock.  The Company was in compliance
with those covenants at September 30, 1999.

     We closed a follow-on public offering of 1.8 million shares of our common
stock on April 6, 1999. The follow-on offering resulted in net proceeds to us
of approximately $8.1 million. We believe our existing cash, cash equivalents
and available-for-sale securities will be sufficient to fund our operations
into the third quarter of the year 2000. However, the amount and timing of our
capital requirements cannot be predicted with certainty. Our future capital
requirements will depend on numerous factors, including the following:

     o timing of regulatory actions on FloSeal,

     o our ability to enter into additional distribution agreements,

     o the timing of our manufacturing scale-up,

     o the extent and timing of any future FloSeal sales, and

     o the nature, timing and success of other products under development.

     We expect to commit substantial capital resources to the development of
commercial-scale manufacturing for FloSeal. The working capital requirements
for the development and commercial launch of our other products are also
expected to be substantial. If we are unable to secure corporate partners to
distribute our products, we will incur substantial additional expenditures in
sales and marketing capability. Given these factors, we anticipate that we will
need additional financing before the end of the second quarter of the year
2000.

     On November 2, 1999, we announced we had entered into agreements to
provide for the private sale of a total of 872,000 shares of newly issued
common stock to selected institutional and other accredited investors.  The
purchase price per share under these agreements was $9.50.  The closing of this
financing is expected to occur concurrently with the declaration of
effectiveness by the Securities and Exchange Commission of a resale
registration statement relating to the shares.



                                    12

<PAGE>   13


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

ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS

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
under Item 1 in the Company's Annual Report filed on Form 10-K for the Year
Ended December 31, 1998.


We did not generate any revenues in 1998 and only modest revenues in 1999.  We
have a history of losses and we expect losses to continue in the future.

     We did not generate any revenues in 1998 and have generated only limited
revenues so far in 1999.  We have a history of losses and we expect losses to
continue in the future.  We have not achieved, nor do we expect to achieve,
profitability before 2001. We incurred net losses of $7.0 million, $9.9 million
and $7.7 million for the years ended December 31, 1996, 1997 and 1998,
respectively.  As of September 30, 1999, we had an accumulated deficit of $34.9
million. We have reported revenues of $81,000 in European sales for the second
and third quarters of 1999.  We have not had significant revenues in any period
since our inception. We expect to increase our operating expenses in the near
future, including sales and marketing, manufacturing and research and
development expenses, as we approach U.S. commercialization of FloSeal and
continue development of our other products.  As a result, we will need to
generate significant revenues to achieve and maintain profitability.  The
amount of future net losses and the time required to achieve profitability are
highly uncertain.  If we do achieve profitability in any period, we cannot be
certain we will sustain or increase such profitability on a quarterly or
annual basis.

If we do not obtain FDA approval, we cannot sell FloSeal in the United States,
which would significantly harm our business.

     FloSeal is considered to be a medical device and is regulated by the
Center for Devices and Radiological Health, a division of the FDA, and, as such
will be subject to extensive regulation in the United States.  Before we can
market FloSeal or any of our other products under development in the United
States, we must show in clinical trials our products are safe and effective,
and obtain approval from the FDA, which cannot be guaranteed.

     We must obtain a PMA from the FDA for FloSeal before we can market it.  In
1998, we conducted a ten-center, 309-patient pivotal clinical trial to
demonstrate the safety and effectiveness of FloSeal.  Our PMA application for
FloSeal was accepted for filing by the FDA and given streamlined review status
on April 19, 1999.  We cannot guarantee either the timing or receipt of
approval.  The FDA may also limit the commercial claims and uses of FloSeal or
any of our other products.  Delays in the FloSeal approval process, limitation
of labeling claims or denial of our PMA would cause our business to be
materially and adversely affected.  We will face a similar process and similar
risks for any new product we wish to market.

If we do not successfully commercialize FloSeal, our business will suffer.

     We are dependent upon the success of our lead product under development,
FloSeal.  We have not yet received necessary regulatory approval for the
commercial sale of FloSeal in the United States.  We received the European CE
mark on April 20, 1999 and, as required by statute, have notified the FDA that
we have begun to export FloSeal to Europe.  Our PMA application for FloSeal was
accepted for filing by the FDA and given streamlined review status on April 19,
1999.  Our success after regulatory approval, if any, will depend on the
medical community's acceptance of FloSeal and our ability to successfully scale
up commercial manufacturing and develop an effective sales, marketing and
distribution capability.  We cannot predict how quickly, if at all, the medical
community will accept FloSeal, or if accepted, the extent of its use.  A
surgeon's use of FloSeal will require the surgeon to change from his or her
usage of more familiar currently available products.  For FloSeal to achieve
market acceptance, it will have to be priced competitively and offer clinically
significant advantages over other commercially available products.  Even if the
market generally accepts FloSeal, surgeons may

                                    13

<PAGE>   14


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

choose to use it in fewer procedures than projected.  If FloSeal does not
achieve significant market adoption, our business will be materially and
adversely affected.
Significant increases in operating expenses in the future may adversely affect
our operating results and financial condition.

     We plan to significantly increase our operating expenses to expand our
sales and marketing operations and broaden our customer support capabilities as
we approach commercial introduction of FloSeal and fund greater levels of
product development.  Our operating expenses, which include sales and
marketing, research and development and general and administrative expenses,
are based on our expectations of future revenues and are relatively fixed in
the short term.  If revenues fall below our expectations, we will not be able
to quickly reduce our spending in response, which would materially adversely
affect our operating results and financial condition.

Our limited operating history, dependence upon an unapproved product and lack
of experience in manufacturing and marketing FloSeal may result in significant
fluctuations of our financial results.

     Our limited operating history, dependence upon FloSeal to provide future
revenue and our lack of experience in manufacturing and marketing FloSeal may
likely cause our operating results to fluctuate dramatically.  As a result of
these fluctuations and uncertainties in our operating results, we believe
quarter-to-quarter or annual comparisons of our operating results are not a
good indication of our future performance.  In addition at some point in the
future, these fluctuations may likely cause us to perform below the
expectations of public market analysts and investors.  If our results were to
fall below market expectations, the price of our common stock would likely
fall.  Our limited operating results have varied widely in the past, and we
expect they will continue to vary significantly from quarter-to-quarter as we
attempt to commercially produce and establish our products in the market after
the appropriate governmental approvals are received.

We may need to raise additional money before we expect to achieve
profitability.  If we fail to raise any such needed additional money, our
business will suffer.

     Our current cash, cash equivalents and available-for-sale securities plus
 the net proceeds, if any, from the private sale of common stock announced on
November 2, 1999, should be sufficient to fund our planned operations through
the 2001.  If the private sale of common stock can not be concluded or if we
fail to achieve profitability by 2002, we would need to raise additional funds
in order to be successful.  Future financing strategies may include, but are
not limited to:

     o partnering relationships with larger medical device companies,

     o bank facilities, or

     o debt or additional equity offerings.

     If we are unable to raise additional funds when needed, we may not be able
to market FloSeal as planned, or continue development of our other products,
which would materially and adversely affect our business.

Additional funding may not be available to us or, if available, may not be
available on commercially reasonable terms.

     If we need to raise additional money to fund our operations, we cannot be
certain that funding from any source will be available to us on acceptable
terms, or at all.  The amount and the timing of raising additional funds will
depend primarily upon our ability to obtain needed regulatory clearances and

                                    14

<PAGE>   15


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

generate revenues from the sale of FloSeal.  Our inability to obtain any needed
additional funding on reasonable terms will materially and adversely affect our
business.

We may have to incur significant costs in attaining and maintaining compliance
with regulations governing our manufacturing operations.

     We are required to demonstrate compliance with the good manufacturing
practice requirements for medical devices incorporated into the FDA's Quality
System Regulations ("QSR") before approval of FloSeal, and maintain compliance
after approval.  The  QSR are similar to good manufacturing practices and
relate to product testing and quality assurance, as well as the maintenance of
records and documentation.  The FDA enforces the QSR through pre-approval and
periodic post-approval inspections. We can provide no assurance we will be able
to maintain compliance on an ongoing basis.  If we or any third party
manufacturer of our products does not conform to the QSR and cannot be brought
up to such a standard, we will be required to find alternative manufacturers
that do conform.  This may be a long and difficult process.  Those
manufacturers must be approved by the FDA before they can commercially
manufacture our products.  We may have to incur significant costs to comply
with such laws and regulations and our failure to comply with them could lead
to penalties that could have a material and adverse affect on our business.

International sales of our products will also be subject to extensive
regulation.

     Marketing of FloSeal in jurisdictions outside of the U.S. requires
compliance with additional local regulations. We cannot guarantee we will be
able to comply with such local regulations and thus cannot guarantee that we
will be allowed to sell FloSeal to any or all of these markets.

If we fail to maintain regulatory approvals after FloSeal is commercialized,
our business will suffer.

     After regulatory approval of FloSeal, we will continue to be subject to
extensive regulatory requirements.  These regulations are wide-ranging and
govern, among other things:

     o product changes or modifications,

     o product manufacturing,

     o Quality System requirements,

     o Medical Device Reporting regulations,

     o FDA's restrictions on promoting products for unapproved, off-label
       uses,  and

     o product sales and distribution.

     If we fail to comply or maintain compliance with medical device laws or
regulations, we may be fined and barred from selling our products.  If the FDA
believes that we are not in compliance with the law, it can:

     o detain or seize our products,

     o issue a recall,

     o enjoin future violations, and

     o assess civil and criminal penalties against us.

                                    15

<PAGE>   16


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

     Our failure to comply with regulatory requirements could have a material
adverse effect on our business.  Regulations are also subject to change.  We
cannot predict the effect, if any, that such changes might have on our
business.

Our ability to achieve any significant revenue will depend on our ability to
establish effective sales, marketing and distribution capabilities.

     If we fail to establish a sufficient marketing and distribution or direct
sales force to commercialize FloSeal or any of our other products, our ability
to enter new or existing markets will be impaired.  Our inability to
effectively enter these markets would materially and adversely affect our
business.  The alternatives for selling our products are:

     o distribution agreements,

     o collaborative arrangements with corporate strategic partners, or

     o our own direct sales force.

     Although we entered into a multiyear distribution agreement with Sulzer
Spine-Tech, Inc. in June 1999, we cannot be certain we will be able to enter
into additional distribution agreements or collaborative arrangements on a
timely basis or at all, or that these relationships will be successful.  We
have only limited experience in establishing and managing a direct sales force,
from selling the RapiSeal patch, a discontinued product line, and we cannot be
certain we can establish and manage a direct sales force for FloSeal.  Our
ability to achieve any significant revenue will depend heavily upon our success
in establishing effective sales and market capabilities, through a combination
of distribution or collaboration arrangements and a direct sales force.

We may be unable to effectively commercialize FloSeal because the market for
surgical bleeding control products is highly competitive.

     The market for products that control surgical bleeding is highly
competitive. A wide variety of approved products such as Gelfoam plus thrombin
and fibrin glues, exist today and will compete directly with FloSeal, which has
not yet received approval for U.S. sale. Many competitive products are produced
by companies that have competitive advantages over us, such as:

     o greater name recognition,

     o broader product lines,

     o greater distribution capabilities,

     o substantially greater capital resources, and

     o larger marketing, research and development staffs and facilities.

     Such companies include, for example Pharmacia & Upjohn AB and Johnson &
Johnson.  We cannot be certain FloSeal or our other products will be able to
successfully compete against these products and companies, or any other
companies which may enter the marketplace.  In addition, we cannot be certain
that current competitors or other companies will not succeed in developing
technologies and other products that are more effective or that would render
our technology or products obsolete or unable to compete.

We have one issued patent and five pending patent applications.  Our failure to
obtain additional issued patents and, consequently, to protect our proprietary
technology, could impair our competitive position.

                                    16

<PAGE>   17


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

     We regard elements of FloSeal as proprietary and we attempt to protect
them through patent and trade secret laws and restrictions, as well as licenses
and contractual confidentiality provisions.  Any steps we take to protect our
intellectual property may be inadequate and expensive.  Despite our efforts, we
may be unable to prevent third parties from infringing upon or misappropriating
our intellectual property.  We have one issued U.S. patent and five pending
U.S. patent applications relating to FloSeal and other products under
development. We also have two corresponding international patent applications
filed under the Patent Cooperation Treaty and may file additional patent
applications outside the United States at a later date.  Obtaining foreign
patents may be more difficult than obtaining U.S. patents because of
differences in patent laws.  Protection provided by foreign patents, if
obtained, and any other foreign intellectual property protection may be weaker
than provided domestically.  Any existing or new patent applications, domestic
or international, may not result in:

     o the priority of our patent applications over others' applications or
       issued patents,

     o the issuance of any patents, or

     o any competitive advantage.

     Furthermore, our competitors may independently develop similar technology
in the future that substantially limits the value of our intellectual property.

We may not be able to commercialize FloSeal or our other products under
development if they infringe existing patents or patents that have not yet
issued, which would materially harm our business.

     We have conducted searches to determine whether our patent applications
interfere with existing patents.  Based upon these searches, we believe that
our patent applications and products do not interfere with existing patents.
However, we cannot be sure that relevant patents have not been issued that
could block our ability to obtain patents or commercialize our products.
Moreover, since U.S.  patent applications are not a matter of public record, a
patent application could currently be on file that would stand in our way of
obtaining an issued patent.  In addition, a number of medical device and other
companies, universities and research institutions have filed patent
applications or have issued patents relating to compositions and methods for
surgical sealing.  The issuance of any of these potentially competing patents
could materially and adversely affect our business.

The European fear of "mad cow disease" could adversely impact acceptance of our
products in Europe.

     There is uncertainty as to the European acceptance of products that
incorporate elements derived from cows.  This uncertainty is due to concerns
over transmission of disease from cows to humans.  This disease in cows is
commonly referred to as "mad cow disease." Transmission of this disease to
humans may cause serious illness or death.  FloSeal and our other products
under development contain thrombin and gelatin derived from bovine tissue only
from traceable U.S. herds.  There have been no cases of mad cow disease
associated with cattle from traceable U.S. herds.  Despite this fact, concerns
over transmission of this disease to humans may prevent or substantially delay
the acceptance of FloSeal in Europe.  A delay could materially and adversely
affect our business.

We cannot be certain that we will be able to manufacture FloSeal in high
volumes at commercially reasonable costs.

     We have produced FloSeal for use in Europe and our clinical trials.
However, we have no experience manufacturing FloSeal or any of our other
products under development in the amounts necessary to achieve significant
commercial sales. We have expanded our manufacturing capacity, but we

                                    17

<PAGE>   18


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

cannot be certain we will be capable of reliable, high-volume manufacturing at
commercially reasonable costs.  We could encounter problems related to:

     o capacity constraints,

     o production yields,

     o quality control, and

     o shortages of qualified personnel.

     Such problems could affect our ability to adequately scale-up production
of our products and fulfill customer orders on a timely basis, which could
materially and adversely affect our business.

     Our manufacturing facilities will be subject to QSR, international quality
standards and other regulatory requirements, including preapproval inspection
for FloSeal and periodic post-approval inspections for all products. Our
failure to implement and maintain our facilities in accordance with these
regulatory requirements and standards will result in a delay or termination of
production.  Any delay or termination of production would materially and
adversely affect our business.

We do not have long-term supply arrangements with our key suppliers.  There is
a risk we could lose one or more of our key suppliers, which would disrupt our
business.

     We currently purchase bovine hides and thrombin, essential elements of
FloSeal, as well as sterilization services for the end product, from single
suppliers.  We purchase bovine hides from Spear Products and thrombin from
GenTrac, Inc.  We do not have long-term supply arrangements with any of these
suppliers.  In the event any of our current single source suppliers become
unavailable for any reason, we will be required to obtain regulatory approval
of alternative suppliers and our business would be disrupted. Any disruption
caused by a loss of one of these suppliers could materially and adversely
affect our business.

Failure of our end-users to obtain adequate third party reimbursement for the
procedures utilizing FloSeal or our other products could adversely affect our
business.

     In the United States, health care providers that purchase medical devices,
such as FloSeal and our other products under development, generally rely on
third party payors, such as federal Medicare, state Medicaid and private health
insurance plans, to reimburse some or all of the cost of the procedure in which
the medical device was used. We expect in a prospective payment system, such as
the one utilized by the Health Care Financing Administration which manages the
federal Medicare program, and whose polices are followed by state Medicaid and
private third party payors, our products' costs will be incorporated into the
overall cost of the procedures, and there will not be separate reimbursement
for our products. Our success depends, in part, upon health care providers
obtaining satisfactory reimbursement from third party payors for surgical
procedures that may use FloSeal and our other products under development.
Failure by our products' users to obtain sufficient reimbursement from third
party payors for procedures in which our products are used or adverse changes
in governmental and private third party payors' policies toward reimbursement
for such procedures could mean that they reduce or eliminate purchases of our
products, which would materially and adversely affect our business.

     If we obtain the necessary foreign regulatory approvals, international
market acceptance of our products would be dependent, in part, upon the
availability of reimbursement for our products or procedures that use our
products by the prevailing health care payment systems. Reimbursement and
health care payment systems in international markets vary significantly by
country and include both government-sponsored health care and private
insurance. We intend to seek international reimbursement

                                    18

<PAGE>   19


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

approvals where applicable. We cannot be certain any such approvals will be
obtained in a timely manner, if at all. Failure to receive international
reimbursement approvals could materially and adversely affect our business.

We may face product liability claims related to the use or misuse of our
products.

     We face an inherent business risk of product liability claims in the event
the use or misuse of our products results in personal injury or death. We have
not experienced any such claims to date, but we cannot be certain, in
particular after commercial introduction of our products, that we will not
experience losses due to product liability claims. We currently maintain
liability insurance with combined coverage limits of $3.0 million on a claims-
made basis. We cannot be certain that the insurance policies' coverage limits
are adequate. The insurance is expensive, difficult to obtain and may not be
available in the future on acceptable terms, or at all. Any claims against us,
regardless of their merit, could materially and adversely affect our business.

The Year 2000 Computer Problem

     We may be adversely affected by the Year 2000 computer problem.  Beginning
on January 1, 2000, computer systems and software will produce erroneous
results or fail unless they have been modified or upgraded to process date
information correctly.  Our primary exposure with respect to this problem
involves third party software we have purchased or licensed for our financial
systems, network and telecommunications equipment.  Our financial systems
software is Year 2000 compliant.  We have implemented the software needed to
make our network Year 2000 compliant.  We have analyzed the Year 2000 risk with
regard to our telecommunications equipment and have concluded that there is no
material Year 2000 risk.

     We have surveyed all our major vendors and have found their preparedness
to be sufficient.  We have expended approximately $25,000 in our internal
review and will continue to make certain investments, estimated not to exceed
$50,000, in our software systems and applications to ensure our information
systems are ready for the year 2000.  The necessary funds to support these
renovations have come from our operating budget and we do not anticipate that
we will need to allocate special future funding outside of historical levels
for this item.  The financial impact of our year 2000 readiness effort has not
been and is not anticipated to be material to our financial position or results
of operations in any given year.  To date, we have not encountered any material
Year 2000 problems with software and information systems provided to us by
third parties.  We have contacted our suppliers of bovine hides and thrombin,
the two essential materials we require for FloSeal and have confirmed that
there is no material Year 2000-associated risk of a delay in supply from these
sources.  We could be materially adversely affected if third parties, upon whom
we depend in order to run our day-to-day business, experience Year 2000
problems.  A worst case scenario would involve a complete disruption in the
delivery of materials,



                                      19

<PAGE>   20


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


power, heat and water to our facilities, which would prevent us from being able
to manufacture and ship our products.  We have not developed contingency plans
for operation of our business in the event of a complete disruption of
utilities and other services nor do we believe it is feasible to do so.  Other
than problems that would be experienced by businesses generally, we do not
anticipate any Year 2000 problems unique to our company.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk, in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998. The average interest rate for our
available-for-sale securities, as of September 30, 1999, was 6.31% compared
to 7.72% reported in the Form 10-K for the year ended December 31, 1998. The
average interest rate for our cash and cash equivalents as of September 30,
1999 was 5.10% as compared to 4.90% reported in the Form 10-K for the year
ended December 31, 1998. No other material changes have occurred since the
filing by the Registrant on Form 10-K for the year ended December 31, 1998.

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.

                                    20
<PAGE>   21



                 PART II -  OTHER INFORMATION


ITEM 1.   LEGAL PROCEEDINGS

          None.


ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

     (a)   Exhibits.
           ---------

               Exhibit
               Number                       Description
               ------    --------------------------------------------------

                10.1     Lease Agreement between the Registrant and
                           Tarlton/Wohl Venture Nine LLC dated October 15,
                           1999.
                27.1     Financial Data Schedule.


     (b)   Reports on Form 8-K. The Company did not file any Reports on
           -------------------
           Form 8-K during the quarter ended September 30, 1999.


                                    21
<PAGE>   22


                                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.
                                                  (Registrant)


Date:   November 5, 1999              By:  /s/   LARRY J. STRAUSS
                                         ----------------------------
                                                 Larry J. Strauss
                                           Vice President, Finance and
                                             Chief Financial Officer
                                             (Authorized Officer and
                                           Principal Financial Officer)

                                    22
<PAGE>   23