<PAGE>

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

                                    FORM 10-Q

(Mark One)

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
         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
                                     0-23076

                          Sparta Pharmaceuticals, Inc.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)



                               Delaware 56-1755527
             ------------------------------------------------------
           (State of incorporation) (IRS Employer Identification No.)


                         111 Rock Rd. Horsham, PA 19044
             ------------------------------------------------------
          (Address of principal executive offices, including zip code)


                                 (215) 442-1700
             ------------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 _____

As of August 11, 1998, there were outstanding 3,560,500 shares of Common Stock,
$.001 par value per share.



                                        1

<PAGE>



                                    FORM 10-Q

                                QUARTERLY REPORT

                                   ----------

                                      INDEX


<TABLE>
<CAPTION>
Part I.   FINANCIAL INFORMATION                                                                                 Page No.
<S>       <C>       <C>                                                                                       <C>
          Item 1.   Consolidated Financial Statements (unaudited):
                    Consolidated Balance Sheets as of June 30, 1998 and
                        December 31, 1997                                                                           3
                    Consolidated Statements of Operations for the three-month and
                        six-month periods ended June 30, 1998 and 1997 and for the period
                        from June 12, 1990 (inception) to June 30, 1998                                             4
                    Consolidated Statements of Cash Flows for the six-month
                        periods ended June 30, 1998 and 1997 and for the period
                        from June 12, 1990 (inception) to June 30, 1998                                             5
                    Notes to Consolidated Financial Statements                                                      6

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


Part II.  OTHER INFORMATION

          Item 2.   Changes in Securities and Use of Proceeds                                                      12

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

          Item 5.   Other Information                                                                              13

          Item 6.   Exhibits and Reports on Form 8-K                                                               13


SIGNATURES                                                                                                         15
</TABLE>


                                        2

<PAGE>



PART I-FINANCIAL INFORMATION

ITEM 1.  CONSOLIDATED FINANCIAL STATEMENTS

                          SPARTA PHARMACEUTICALS, INC.
                          (A Development Stage Company)

                           Consolidated Balance Sheets
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                      June 30,                  December 31,
Assets                                                                  1998                       1997
                                                                  ----------------              -----------

<S>                                                                  <C>                      <C>         
Current assets:
  Cash and cash equivalents                                          $  4,140,490             $  4,767,317
  Short-term investments                                                     --                  1,473,275
  Prepaid expenses and other assets                                       158,741                   68,778
                                                                     ------------             ------------
         Total current assets                                           4,299,231                6,309,370

Fixed assets, net                                                         246,279                  336,695
Other assets:
  License agreements, net of amortization
    of $99,391 in 1998 and $92,912 in 1997                                 15,397                   21,876
  Restricted cash                                                         151,992                  148,310
                                                                     ------------             ------------
                                                                     $  4,712,899             $  6,816,251
                                                                     ============             ============

Liabilities and stockholders' equity Current liabilities:
  Accounts payable and accrued expenses                              $    506,666             $    741,240
                                                                     ------------             ------------
         Total current liabilities                                        506,666                  741,240
                                                                     ------------             ------------

Stockholders' equity:
  Preferred Stock, not designated, $.001 par value;
    authorized and unissued 8,818,491 shares                                 --                       --
  Series B' Convertible Preferred Stock, $.001 par value;
    authorized 2,181,509 shares; issued and outstanding
    877,981 shares in 1998 and 1,020,747 shares in 1997                       878                    1,021
  Common Stock, $.001 par value; authorized 72,000,000
    shares; issued and outstanding 3,507,168 shares in
    1998 and 3,116,154 shares in 1997                                       3,507                    3,116
  Additional paid-in capital                                           28,661,789               28,616,607
  Stock subscriptions receivable                                         (133,333)                (133,333)
  Deferred compensation                                                  (134,049)                (167,654)
  Deficit accumulated during the development stage                    (24,192,559)             (22,244,746)
                                                                     ------------             ------------
         Total stockholders' equity                                     4,206,233                6,075,011
                                                                     ------------             ------------
                                                                     $  4,712,899             $  6,816,251
                                                                     ============             ============

</TABLE>




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

                                        3

<PAGE>



                          SPARTA PHARMACEUTICALS, INC.
                          (A Development Stage Company)

                      Consolidated Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>



                                                  Three Months Ended              Six Months Ended                Period From
                                                       June 30,                       June 30,                   June 12, 1990
                                                  ---------------------          ---------------------          (Inception) to
                                                                                                                   June 30,
                                                   1998           1997            1998            1997               1998
                                                   ----           ----            ----            ----           -------------
<S>                                            <C>                   <C>              <C>              <C>              <C>         
Revenue:                                                                                                   
  Grant, contract and license fee income$         271,600     $      6,006     $    415,852     $     22,506     $    698,928
  Interest income                                  64,323          118,463          141,068          244,090        1,175,066
                                             ------------     ------------     ------------     ------------     ------------
       Total revenue                              335,923          124,469          556,920          266,596        1,873,994
                                             ------------     ------------     ------------     ------------     ------------

Operating expenses:
  Research and development                        961,717          993,587        1,893,294        1,979,963       14,822,657
  General and administrative                      326,872          387,792          611,439          730,938        7,945,983
  Charge for acquired research
   and development                                   --               --               --               --          3,297,913

Net loss                                     $   (952,666)    $ (1,256,910)    $ (1,947,813)    $ (2,444,305)    $(24,192,559)
                                             ============     ============     ============     ============     ============



Basic and diluted net loss per share         $       (.28)    $       (.63)    $       (.59)    $      (1.23)
                                             ============     ============     ============     ============


Basic and diluted weighted average
 number of shares outstanding (Note 4)          3,414,072        2,002,262        3,302,261        1,985,801
                                             ============     ============     ============     ============


</TABLE>

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

                                        4

<PAGE>



                          SPARTA PHARMACEUTICALS, INC.
                          (A Development Stage Company)
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                         
                                                                        Six Months ended June 30,         Period from June 12, 1990 
                                                                 --------------------------------------      (Inception) to         
                                                                       1998                  1997              June 30, 1998
                                                                 ------------------    ----------------   -------------------------
<S>                                                                <C>                    <C>                      <C>          
Operating activities:
Net loss........................................                   $ (1,947,813)          $  (2,444,305)           $(24,192,559)
Adjustments to reconcile net loss to net cash used in
operating activities:
    Loss on investments                                                    --                      --                     3,316
    Depreciation and amortization                                       101,241                 109,098               1,039,675
    Write down of license agreement                                        --                      --                    45,200
       Acquired research & development                                     --                      --                 3,197,913
    Issuance of convertible notes for services .                           --                      --                   220,474
    Issuance of stock for services                                       45,430                    --                   267,389
    Compensation expense related to stock options and
    warrants granted                                                     33,605                  89,980                 468,588
    Compensation expense related to forgiveness of stock
    subscriptions receivable                                               --                    16,667                  66,667
    Changes in operating assets and liabilities,
     net of effect from acquisition:
     Prepaid expenses and other assets                                  (89,963)               (132,715)               (158,741)
          Restricted cash                                                (3,682)                 (4,819)                 95,357
     Accounts payable and accrued expenses                             (234,574)                (57,906)                356,666
                                                                   ------------            ------------            ------------
            Net cash used in operating activities                    (2,095,756)             (2,424,000)            (18,590,055)
                                                                   ------------            ------------            ------------

Investing activities:
Payment of acquisition related fees & expenses .                           --                      --                  (128,842)
Purchases of available-for-sale securities                                 --                      --                (2,576,468)
Maturities of available-for-sale securities                           1,473,275                    --                 2,573,152
Purchases of fixed assets                                                (4,346)                 (8,988)               (147,943)
Acquisition of license agreements                                          --                      --                  (160,078)
                                                                   ------------            ------------            ------------
            Net cash provided by (used in) investing
             activities                                               1,468,929                  (8,988)               (440,179)
                                                                   ------------            ------------            ------------


Financing activities:
Proceeds from issuance of convertible notes and notes
payable                                                                    --                      --                 4,488,650
Repayment of notes payable                                                 --                      --                  (640,000)
Proceeds from issuance of Common Stock                                     --                      --                 4,992,031
Repurchase of Common Stock                                                 --                      --                       (45)
Proceeds from issuance of Preferred Stock                                  --                      --                14,800,038
Increase in debt issuance costs                                            --                      --                  (469,950)
                                                                   ------------            ------------            ------------
            Net cash provided by financing activitie                       --                      --                23,170,724
                                                                   ------------            ------------            ------------

Increase (Decrease) in cash and cash equivalents                       (626,827)             (2,432,988)              4,140,490
Cash and cash equivalents at beginning of period                      4,767,317              10,246,812                    --
                                                                   ------------            ------------            ------------
Cash and cash equivalents at end of period......                   $  4,140,490            $  7,813,$24            $  4,140,490
                                                                   ============            ============            ============

</TABLE>








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

                                        5

<PAGE>



                          SPARTA PHARMACEUTICALS, INC.
                          (A Development Stage Company)

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.   Company Background

     Sparta Pharmaceuticals, Inc. (and together with its subsidiary, the
"Company"), a development stage biopharmaceutical company incorporated in 1990,
is engaged in the business of acquiring rights to, and developing for
commercialization, technologies and drugs for the treatment of a number of life
threatening diseases, including cancer, cardiovascular disorders, chronic
metabolic diseases and inflammation.

     The Company has generated no product revenues to date and has incurred
losses since its inception. The Company anticipates incurring additional losses
over at least the next several years and such losses are expected to increase as
the Company expands its research and development activities. Substantial
financing will be needed by the Company to fund its operations and to develop
its products commercially. There is no assurance that such financing will be
available when needed. Operations of the Company are subject to certain risks
and uncertainties including, among others, uncertainty of product development,
technological uncertainty, dependence on collaborative partners, uncertainty
regarding patents and proprietary rights, comprehensive government regulations,
marketing and sales capability and experience, limited clinical trial
experience, and dependence on key personnel.

2.   Basis of Presentation

     The consolidated financial statements include the accounts of Sparta
Pharmaceuticals, Inc. and Orizon Pharmaceuticals, Inc., a 95% owned subsidiary.
The Company recognizes 100% of Orizon's net loss in its consolidated results of
operations. All intercompany balances and transactions have been eliminated.

     The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair presentation,
have been included in the accompanying unaudited financial statements. For more
complete financial information, these financial statements should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997. Results for the interim periods are not necessarily indicative of the
results for any other interim period or for the full fiscal year.

3.   Recapitalization

     At the Company's Annual Meeting of Stockholders held on May 11, 1998, the
stockholders approved an amendment to the Company's Restated Certificate of
Incorporation effecting a one-for-five reverse stock split of its Common Stock.
The Company's Common Stock began trading on a post-reverse split basis at the
commencement of trading on May 13, 1998. All Common Stock and per share amounts
in the accompanying Consolidated Financial Statements have been retroactively
restated to reflect the reverse stock split.

 4.  Net Loss Per Share of Common Stock

     The Company has adopted SFAS No. 128 ("SFAS 128"), "Earnings per Share,"
which supersedes APB Opinion No. 15 ("APB 15"), "Earnings per Share," and which
is effective for all periods ending after

                                        6

<PAGE>



December 15, 1997. SFAS 128 requires dual presentation of basic and diluted
earnings per share ("EPS") for complex capital structures on the face of the
Statements of Operations. Basic EPS is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of securities
into common stock. For the six months and three months ended June 30, 1998 and
1997, the effects of the (i) exercise of outstanding stock options and warrants
and (ii) conversion of the outstanding shares of convertible preferred stock (as
if converted on their dates of issuance) were excluded from the calculation of
diluted EPS because their effect was antidilutive.

5.   Recent Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income" ("SFAS No. 130"), which
requires that all items that are required to be recognized under accounting
standards or components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 became effective for fiscal years beginning after
December 15, 1997, with initial application as of the beginning of the Company's
1998 fiscal year. SFAS No. 130 requires comparative financial statements
provided for earlier periods to be reclassified to reflect application of the
provisions of this new standard.

     The Company has reviewed SFAS No. 130 and has determined that for the six
months and three months ended June 30, 1998 and 1997, no items meeting the
definition of comprehensive income as specified in SFAS No. 130 existed in the
financial statements. As a result, no disclosure is necessary to comply with
SFAS No. 130.

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

     Sparta is a development stage pharmaceutical company engaged in the
business of acquiring rights to, and developing for commercialization,
technologies and drugs for the treatment of a number of life-threatening
diseases including cancer, cardiovascular disorders, chronic metabolic diseases
and inflammation. Sparta has not derived revenues from the sale of any products
and expects to incur substantial operating losses for the next several years. As
of June 30, 1998, the Company's accumulated deficit was $24,192,559.

General

     In May 1998, Sparta completed the patient treatment phase of its Phase I
clinical trial in adults using the Company's SpartajectTM technology for the
intravenous delivery of busulfan. At the end of the month, the FDA accepted the
Company's plans for pivotal, Phase II/III human clinical trials using the
Company's Spartaject technology for the intravenous delivery of busulfan. In
June 1998, Sparta completed patient enrollment for Sparta's RII retinamide Phase
I/II trial. RII retinamide is a retinoid compound which is being evaluated by
Sparta in patients with myelodysplastic syndromes. On June 11, 1998, Sparta
announced the start of a Phase I trial using Spartaject busulfan intrathecally
for the treatment of neoplastic meningitis in adults and children. The study is
being performed under an investigator-sponsored IND held by Henry Friedman,
M.D., Professor of Pediatrics and Chief of the Division of Pediatric
Neuro-Oncology at Duke University Medical Center, who is the principal
investigator. On June 24, 1998, Sparta commenced a Phase I trial using
Spartaject busulfan in pediatric patients being prepared for bone marrow
transplantation (BMT) at St. Jude Children's Research Hospital in Memphis,
Tennessee. The principal investigator of the study is John Rodman, Pharm.D. Dr.
Rodman is Vice Chairman of the Pharmaceutical Department at St. Jude and is an
internationally recognized investigator in the pharmacology of drugs used in the
treatment of cancer. Sparta also announced that it will not exercise its option
to obtain license rights to asulacrine, a compound previously under development
at the Cancer Research Campaign ("CRC") in the U.K. Neither the Company

                                        7

<PAGE>



nor CRC believe further clinical development is warranted based on results of a
recently concluded clinical trial.

Results of Operations

Three Months Ended June 30, 1997 and 1998

     Revenue increased from $124,469 for the three months ended June 30, 1997 to
$335,923 for the three months ended June 30, 1998 due to a higher level of grant
income and license fee income. The Company recorded grant income of $121,600 for
the three months ended June 30, 1998 under a Phase II Small Business Innovation
Research grant ("Phase II SBIR grant") awarded in 1997. The Company also
recorded license fee income from Schering-Plough Ltd. and Schering Corporation
of $150,000 for the three months ended June 30, 1998. Interest income decreased
from $118,463 in the second quarter of 1997 to $64,323 in the second quarter of
1998 due to a lower level of funds available for investment as the Company has
consumed funds for continuing operations and is likely to continue to decrease
in subsequent quarters unless the Company is able to secure additional funding.
The amount of total revenue may vary significantly from year-to-year and
quarter-to-quarter and will depend on, among other factors, the timing and
amount of future financings and the potential awarding of future grants and
contracts.

     Research and development expenses decreased from $993,587 in the second
quarter of 1997 to $961,717 in the second quarter of 1998. This decrease is
attributable to (a) decreased legal expenses, primarily for patent filings, (b)
decreased clinical trial costs, and (c) decreased personnel expense, partially
offset by increases in license agreement costs. Subject to the availability of
funding, the Company expects research and development expenses to increase
during the next several years as product development, preclinical activity,
clinical trials, and regulatory activities increase.

     General and administrative expenses decreased from $387,792 in the second
quarter of 1997 to $326,872 in the second quarter of 1998. This decrease is
principally due to a decrease in (a) public relations expense, and (b) personnel
expenses, partially offset by professional fees related to the reverse stock
split.

     The Company expects to incur substantial operating losses over the next
several years. The amount of net losses may vary significantly from year-to-year
and quarter-to-quarter and depend on, among other factors, the timing of
research and the progress of preclinical and clinical development programs.

Six Months Ended June 30, 1997 and 1998

     Revenue increased from $266,596 for the six months ended June 30, 1997 to
$556,920 for the six months ended June 30, 1998 due to a higher level of grant
income and license fee income. The Company recorded grant income of $265,852 for
the six months ended June 30, 1998 under the Phase II SBIR grant awarded in
1997. The Company also recorded license fee income of $150,000 for the six
months ended June 30, 1998. Interest income decreased from $244,090 in the first
half of 1997 to $141,068 in the first half of 1998 due to a lower level of funds
available for investment as the Company has consumed funds for continuing
operations and is likely to continue to decrease in subsequent quarters unless
the Company is able to secure additional funding. The amount of total revenue
may vary significantly from year-to-year and quarter-to-quarter and will depend
on, among other factors, the timing and amount of future financings and the
potential awarding of future grants and contracts.

     Research and development expenses decreased from $1,979,963 in the first
half of 1997 to $1,893,294 in the first half of 1998. This decrease is
attributable to (a) decreased legal expenses, primarily for patent filings, and
(b) decreased facilities expenditures as a result of the sublease of a portion
of the Company's office facility in the second quarter of 1997, partially offset
by increases in personnel expenses and license agreement costs. Subject to the
availability of funding, the Company expects research and development

                                        8

<PAGE>



expenses to increase during the next several years as product development,
preclinical activity, clinical trials, and regulatory activities increase.

     General and administrative expenses decreased from $730,938 in the first
half of 1997 to $611,439 in the first half of 1998. This decrease is principally
due to a decrease in (a) legal expenses, (b) facilities expense as a result of
the sublease of a portion of the Company's office facility in the second quarter
of 1997, and (c) professional fees and personnel expenses.

     The Company expects to incur substantial operating losses over the next
several years. The amount of net losses may vary significantly from year-to-year
and quarter-to-quarter and depend on, among other factors, the timing of
research and the progress of preclinical and clinical development programs.

Liquidity and Capital Resources

     The Company has used $18,590,055 to fund operations from inception through
June 30, 1998. The Company has financed its operations to date from the proceeds
of its private placements concluded in 1996, its initial public offering in
1994, prior placements of equity and convertible debt securities and investment
income. In 1998, the Company is obligated under its license agreements to make
minimum royalty payments and an annual maintenance fee in the aggregate amount
of $352,000, of which $177,000 had been paid as of July 29, 1998. Under a
collaboration and option agreement, the term of which has been extended, the
Company may have to make payments of up to approximately $29,000 based on the
fulfillment of certain benchmarks during the term of said agreement.

     The Company is a party to several research agreements, clinical trial
production contracts and agreements with clinical research organizations which
require future payments in cash, and under the terms of one agreement, with a
combination of cash and Common Stock. The Company anticipates making aggregate
payments of approximately $1,189,000 during the terms of the agreements that
were in effect as of July 29, 1998. Provided that there is adequate financing,
the amount of the Company's obligations under research agreements can be
expected to increase. In addition, the Company is a party to employment
agreements with three of its executive officers as well as certain consulting
agreements which provide for aggregate annual, minimum payments of $546,000 and
$229,000, respectively, of which approximately $348,000 is still owed as of July
29, 1998. The Company is a party to an operating lease agreement which will
require the Company to make payments of approximately $108,000 in 1998, of which
approximately $62,000 has already been paid. The agreement also requires the
Company to pay a certain amount of contingent rentals based upon operating,
maintenance, management, and repair expenses incurred by the lessor.

     The Series B' Preferred Stock is convertible at any time at the option of
the holder into shares of the Company's Common Stock at a conversion price of
$3.75 per share, after giving effect to the reverse stock split, effective May
13, 1998, such that 10,000 shares of the Company's Series B' Preferred Stock are
convertible into 26,667 shares of the Company's Common Stock. In the event of a
Liquidation Event (as defined in the Certificate of Designation relating to the
Series B' Preferred Stock), the holders of the Series B' Preferred Stock are
entitled to be paid out of the assets of the Company available for distribution
to its stockholders an amount equal to $13.00 per share, plus an amount equal to
all declared and unpaid dividends thereon, before any payment is made in respect
of stock junior to the Series B' Preferred Stock, including Common Stock.
Holders of Series B' Preferred Stock are also entitled to dividends, if any, as
shall be declared on the Company's Common Stock or on any other class of
preferred stock, unless holders of at least 66 2/3% of the outstanding Series B'
Preferred Stock consent otherwise. The Company has the option to order mandatory
conversion of the Series B' Preferred Stock into fully paid shares of Common
Stock if the closing price of the Common Stock exceeds $7.50 for 20 out of any
30 consecutive trading days. At June 30, 1998, after giving effect to the
reverse stock split, the outstanding Series B' Preferred Stock was convertible
into 2,341,312 shares of Common Stock.


                                        9

<PAGE>



     As of June 30, 1998, the Company had cash and cash equivalents of
$4,140,490, accounts payable and accrued expenses of $506,666, and working
capital of $3,792,565.

     The Company currently anticipates that the available cash, cash
equivalents, and investments will be sufficient to fund operations through the
first quarter of 1999. However, the Company may be required to obtain additional
financing to continue operations during such period in the event of cost
overruns or unanticipated expenses. Continuing development of the Company's
product candidates is critical and will require substantial additional funds to
finance such activities on an ongoing basis. The Company's future capital
requirements will depend on numerous factors, including, but not limited to,
progress in its research and development programs, including preclinical and
clinical trials, costs of filing and prosecuting patent applications and, if
necessary, enforcing issued patents or obtaining additional licenses of patents,
competing technological and market developments, the cost and timing of
regulatory approvals, the ability of the Company to establish collaborative
relationships, and the cost of establishing manufacturing, sales and marketing
capabilities. The Company has no current commitment to obtain additional funding
and is unable to state the amount or potential source of such additional funds.
Moreover, because of the Company's potential long-term capital requirements, it
may undertake additional equity offerings whenever conditions are favorable,
even if it does not have an immediate need for additional capital at that time.
There can be no assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, will be obtainable on
reasonable terms. Any such additional funding may result in significant dilution
to existing stockholders. If adequate funds are not available, the Company may
be required to delay, reduce or eliminate research and development programs,
capital expenditures, and other operating expenses. Additionally, the Company
continues to evaluate expressions of interest from other pharmaceutical and
biotech companies related to strategic alliances and transactions including, but
not limited to, the potential licensing or acquisition of the Company's
technologies and/or product candidates. The Company may be required to obtain
funds through arrangements with collaborative partners that may require the
Company to relinquish certain material rights to its products that it would not
otherwise relinquish.

     The Company's ability to raise funds is likely to be adversely affected if
it is unable to continue to meet the listing criteria on the Nasdaq SmallCap
Market. The Nasdaq Stock Market ("Nasdaq") has implemented a $1.00 minimum bid
price listing requirement for all common stock securities listed on the Nasdaq
SmallCap Market. If the bid price of the Company's Common Stock is below $1.00
for any thirty consecutive trading days, the Company will not meet the minimum
bid price requirement. In accordance with the current Nasdaq Marketplace Rules,
the Company will be notified promptly of its non-compliance and granted a 90
calendar day period within which the minimum bid price requirement must be met
for a minimum of 10 consecutive business days. In the event that the Company is
unable to meet the $1.00 minimum bid price requirement, the Company's securities
would likely be removed from the Nasdaq SmallCap Market and moved to the OTC
Bulletin Board. As a result of the Common Stock being traded on the OTC Bulletin
Board, investors could find it difficult to obtain accurate quotations as to the
price of the Common Stock, and the other publicly-traded securities of the
Company. Additionally, if delisting occurs, the Company's securities may also
become "penny stock" as defined in the Securities Exchange Act of 1934, as
amended, which may also adversely affect the Company's ability to raise funds.

Impact of Year 2000

     The "Year 2000 Issue" is the result of computer programs being written
using two digits rather than four to define the applicable year. Some computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in systems failures
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.

     Based on a recent assessment, the Company believes that the exposure of its
internal systems to the Year 2000 Issue is immaterial as internal systems are
Year 2000 compliant. The Company continues to

                                       10

<PAGE>



assess compliance of its significant suppliers to determine the extent to which
the Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issues. To date, the Company is unaware of any situations of
noncompliance that would adversely affect its operations. However, there can be
no assurance that a failure to convert by another company would not have a
material adverse effect on the Company.

----------

     This quarterly report contains certain forward-looking statements within
the meaning of the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, including without limitation, the length of time that
available cash and equivalents will be sufficient to fund operations. Such
statements are made based on management's current expectations and beliefs, and
actual results may vary from those currently anticipated based upon a number of
factors, including uncertainties inherent in the drug development process,
progress in the Company's research and development programs, including
preclinical and clinical trials, costs of filing and prosecuting patent
applications and, if necessary, enforcing issued patents or obtaining additional
licenses of patents, competing technological and market developments, the cost
and timing of regulatory approvals, the ability of the Company to establish
collaborative relationships, and the cost of establishing manufacturing, sales
and marketing capabilities. The Company undertakes no obligation to release
publicly any revisions which may be made to reflect events or circumstances
after the date hereof.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not Applicable.

                                       11

<PAGE>



PART II-OTHER INFORMATION

ITEM 2.    Changes in Securities and Use of Proceeds

     (a) At the Company's Annual Meeting of Stockholders held on May 11, 1998,
     the stockholders approved an amendment to the Company's Restated
     Certificate of Incorporation effecting a one-for-five reverse stock split
     of its Common Stock. The Company's Common Stock began trading on a
     post-reverse split basis at the commencement of trading May 13, 1998.

     The Company's outstanding Class A Common Stock Warrants ("Class A
     Warrants") and Class B Common Stock Warrants ("Class B Warrants") were
     affected by the reverse stock split. The number of shares of Common Stock
     issuable upon exercise of each warrant decreased from 1.2 shares of Common
     Stock to .24 shares of Common Stock. The total number of each class of
     warrants outstanding and the current exercise prices remain the same.

     In connection with the approval of the reverse split, and as provided for
     under the terms of the governing Warrant Agreement, the Company elected to
     effect a one-for-five reverse split of its Class C Common Stock Warrants
     ("Class C Warrants") such that each Class C Warrant currently outstanding
     is exercisable for one share of post reverse split common stock, at an
     exercise price of $7.50 per warrant.

     The adjustments made to the Common Stock, Class A Warrants and Class B
     Warrants as a result of the Reverse Split have had a corresponding effect
     on the Units. Prior to the reverse split, each Unit consisted of one share
     of Common Stock, one Class A Warrant and one Class B Warrant. After giving
     effect to the reverse split, each Unit consists of two-tenths of a share of
     Common Stock, one Class A Warrant and one Class B Warrant.

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

     (a) The annual meeting of the stockholders of Sparta Pharmaceuticals, Inc.
     was held on May 11, 1998.

     (b) Election of Directors. Peter Barton Hutt and Richard L. Sherman were
     reelected to the Board of Directors in an uncontested election.

         Votes were cast as follows:

         For all candidates:  15,506,020
         Withheld for each candidate:  158,840

     Lindsay A. Rosenwald, M.D. and Jerry B. Hook, Ph.D. continue to serve as
     directors with a term ending at the annual stockholder's meeting in the
     year 1999. William M. Sullivan, Sir John Vane, FRS and Colin B. Bier, Ph.D.
     continue to serve as directors with a term ending at the annual
     stockholder's meeting in the year 2000.

     (c) Matters Voted Upon:

     Proposal to approve an amendment to the Company's Certificate of
     Incorporation to effect a one-for-five reverse stock split of the Company's
     outstanding Common Stock.

         Votes were cast as follows:

         For:  15,376,061
         Against:  244,715
         Abstain:  44,083
         Broker non-votes:  None

                                       12

<PAGE>


     Proposal to ratify the appointment of Arthur Andersen LLP as the Company's
     independent public accountants for the fiscal year ending December 31,
     1998.

         For:  15,638,110
         Against:  20,000
         Abstain:  6,750
         Broker non-votes:  None

ITEM 5.    Other Information

     On May 13, 1998, Sparta issued the press release filed as Exhibit 99.29
     hereto announcing the completion of the patient treatment phase of its
     Phase I clinical trial in adults using the Company's SpartajectTM
     technology for the intravenous delivery of busulfan.

     On May 28, 1998, Sparta issued the press release filed as Exhibit 99.30
     hereto announcing that the FDA has accepted the Company's plans to begin
     pivotal, Phase II/III human clinical trials using the Company's
     SpartajectTM technology for the intravenous delivery of busulfan.

     On June 1, 1998, Sparta issued the press release filed as Exhibit 99.31
     hereto announcing that patient enrollment for Sparta's RII Retinamide Phase
     I/II trial is complete.

     On June 11, 1998, Sparta issued the press release filed as Exhibit 99.32
     hereto announcing that the Nasdaq trading symbols for the Company have
     returned to their original SPTA, SPTAU, SPTAW, SPTAZ and SPTAL.

     On June 11, 1998, Sparta issued the press release filed as Exhibit 99.33
     hereto announcing the commencement of a Phase I trial using SpartajectTM
     busulfan intrathecally for the treatment of neoplastic meningitis in adults
     and children.

     On June 24, 1998, Sparta issued the press release filed as Exhibit 99.34
     hereto announcing the commencement of a Phase I trial using SpartajectTM
     busulfan in pediatric patients being prepared for bone marrow
     transplantation (BMT) at St. Jude Children's Research Hospital in Memphis,
     Tennessee.

ITEM 6.   Exhibits and Reports on Form 8-K

     (a) Exhibits

Exhibit No.       Description

  3.4    --       Restated Certificate of Incorporation, as amended on May 11, 
                  1998.
  27     --       Financial Data Schedule.
  99.29  --       Press Release, dated as of May 13, 1998, announcing the 
                  completion of the patient treatment phase of its Phase I 
                  clinical trial in adults using the Company's SpartajectTM 
                  technology for the intravenous delivery of busulfan.
  99.30  --       Press Release, dated as of May 28, 1998, announcing that
                  the FDA has accepted the Company's plans to begin pivotal,
                  Phase II/III human clinical trials using the Company's
                  SpartajectTM technology for the intravenous delivery of
                  busulfan.
  99.31  --       Press Release, dated as of June 1, 1998, announcing that 
                  patient enrollment for Sparta's RII Retinamide Phase I/II 
                  trial is complete.

                                       13

<PAGE>



  99.32  --       Press Release, dated as of June 11, 1998, announcing that the 
                  Nasdaq trading symbols for the Company have returned to their 
                  original SPTA, SPTAU, SPTAW, SPTAZ and SPTAL.
  99.33  --       Press Release, dated as of June 11, 1998, announcing the
                  commencement of a Phase I trial using SpartajectTM busulfan
                  intrathecally for the treatment of neoplastic meningitis in
                  adults and children.
  99.34  --       Press Release, dated as of June 24, 1998, announcing the
                  commencement of a Phase I trial using SpartajectTM busulfan in
                  pediatric patients being prepared for bone marrow
                  transplantation (BMT) at St. Jude Children's Research Hospital
                  in Memphis, Tennessee.
         ---------------


       (b) Reports on Form 8-K

The Company filed the following reports on Form 8-K during the quarter:

       None.

                                       14

<PAGE>



Signatures

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



                                         Sparta Pharmaceuticals, Inc.


 August 12, 1998                         By: /s/ Jerry B. Hook
----------------                             -----------------------------------
 Date                                    Jerry B. Hook, Ph.D.
                                         Chairman of the Board, 
                                         President and Chief Executive
                                         Officer  (principal executive officer)




 August 12, 1998                         By: /s/ Ronald H. Spair
----------------                             -----------------------------------
 Date                                    Ronald H. Spair
                                         Sr. Vice President and Chief Financial
                                         Officer  (principal financial officer)







                                       15

<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

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



<S>            <C>                                                                   
3.4            -- Restated Certificate of Incorporation, as amended on May 11, 1998. 


99.29          -- Press Release, dated as of May 13, 1998, announcing the completion
                  of the patient treatment phase of  its Phase I clinical trial in adults
                  using the Company's SpartajectTM technology for the intravenous
                  delivery of busulfan.

99.30          -- Press Release, dated as of May 28, 1998, announcing that the FDA has
                  accepted the Company's plans to begin pivotal, Phase II/III human
                  clinical trials using the Company's SpartajectTM technology for the
                  intravenous delivery of busulfan.

99.31          -- Press Release, dated as of June 1, 1998, announcing that patient
                  enrollment for Sparta's RII Retinamide Phase I/II trial is complete.

99.32          -- Press Release, dated as of June 11, 1998, announcing that the Nasdaq
                  trading symbols for the Company have returned to their original SPTA,
                  SPTAU, SPTAW, SPTAZ and SPTAL.

99.33          -- Press Release, dated as of June 11, 1998, announcing the
                  commencement of a Phase I trial using SpartajectTM busulfan
                  intrathecally for the treatment of neoplastic meningitis in adults
                  and children.

99.34          -- Press Release, dated as of June 24, 1998, announcing the
                  commencement of a Phase I trial using SpartajectTM busulfan in
                  pediatric patients being prepared for bone marrow transplantation
                  (BMT) at St. Jude Children's Research Hospital in Memphis, Tennessee.

27             -- Financial Data Schedule.

</TABLE>







                                       16