<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
         SEPTEMBER 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 October 26, 1998, there were outstanding 3,618,471 shares of Common Stock,
$.001 par value per share.



                                        1

<PAGE>



                                    FORM 10-Q

                                QUARTERLY REPORT



                                      INDEX
<TABLE>
<CAPTION>


<S>                                                                                           <C>   
Part I.   FINANCIAL INFORMATION                                                                Page No.

          Item 1.   Consolidated Financial Statements (unaudited):
                    Consolidated Balance Sheets as of September 30, 1998 and
                        December 31, 1997                                                          3
                    Consolidated Statements of Operations for the three-month and
                        nine-month periods ended September 30, 1998 and 1997 and for
                        the period from June 12, 1990 (inception) to September 30, 1998            4
                    Consolidated Statements of Cash Flows for the nine-month
                        periods ended September 30, 1998 and 1997 and for the period
                        from June 12, 1990 (inception) to September 30, 1998                       5
                    Notes to Consolidated Financial Statements                                     6

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

          Item 3.   Quantitative and Qualitative Disclosures About Market Risk                    11

Part II.  OTHER INFORMATION

          Item 5.   Other Information                                                             12

          Item 6.   Exhibits and Reports on Form 8-K                                              12


SIGNATURES                                                                                        13
</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>

                                                           September 30,     December 31,
Assets                                                         1998             1997      
<S>                                                         <C>             <C>     
Current assets:
  Cash and cash equivalents                                 $  3,358,413    $  4,767,317
  Short-term investments                                            --         1,473,275
  Prepaid expenses and other assets                              190,991          68,778
                                                            ------------    ------------
         Total current assets                                  3,549,404       6,309,370

Fixed assets, net                                                199,408         336,695
Other assets:
  License agreements, net of amortization
    of $102,631 in 1998 and $92,912 in 1997                       12,157          21,876
  Restricted cash                                                 92,972         148,310
                                                            ------------    ------------
                                                            $  3,853,941    $  6,816,251
                                                            ============    ============
Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable and accrued expenses                     $    644,395    $    741,240
                                                            ------------    ------------
         Total current liabilities                               644,395         741,240
                                                            ------------    ------------
Stockholders' equity:
  Preferred Stock, not designated, $.001 par value;
    authorized and unissued 8,845,231 shares                        --              --
  Series B' Convertible Preferred Stock, $.001 par value;
    authorized 2,154,769 shares; issued and outstanding
    851,241 shares in 1998 and 1,020,747 shares in 1997              851           1,021
  Common Stock, $.001 par value; authorized 72,000,000
    shares; issued and outstanding 3,578,472 shares in
    1998 and 3,116,154 shares in 1997                              3,578           3,116
  Additional paid-in capital                                  28,661,745      28,616,607
  Stock subscriptions receivable                                 (66,667)       (133,333)
  Deferred compensation                                         (117,246)       (167,654)
  Deficit accumulated during the development stage           (25,272,715)    (22,244,746)
                                                            ------------    ------------
         Total stockholders' equity                            3,209,546       6,075,011
                                                            ------------    ------------
                                                            $  3,853,941    $  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>



                                                                                                         Period From
                                                Three Months Ended              Nine Months Ended       June 12, 1990
                                                   September 30,                  September 30,         (Inception) to
                                                -------------------            --------------------      September 30,
                                                1998           1997            1998            1997           1998
                                                ----           ----            ----            ----           ----

<S>                                        <C>            <C>             <C>             <C>             <C>     
Revenue:
  Grant, contract and license fee income   $    138,451   $     16,568    $    554,303    $     39,074    $    837,379
  Interest income                                54,760        108,071         195,828         352,161       1,229,826
                                           ------------   ------------    ------------    ------------    ------------       
       Total revenue                            193,211        124,639         750,131         391,235       2,067,205
                                           ------------   ------------    ------------    ------------    ------------
Operating expenses:
  Research and development                      970,701        865,011       2,863,995       2,844,974      15,793,358
  General and administrative                    302,666        371,785         914,105       1,102,723       8,248,649
  Charge for acquired research
   and development                                 --             --              --              --         3,297,913
                                           ------------   ------------    ------------    ------------    ------------
Net loss                                   $ (1,080,156)  $ (1,112,157)   $ (3,027,969)   $ (3,556,462)   $(25,272,715)
                                           ============   ============    ============    ============    ============



Basic and diluted net loss per share       $       (.30)  $       (.52)   $       (.89)   $      (1.75)
                                           ============   ============    ============    ============  

Basic and diluted weighted average
 number of shares outstanding (Note 4)        3,549,770      2,129,547       3,385,670       2,031,607
                                           ============   ============    ============    ============  


</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>

                                                                   Nine Months ended September 30,      Period from June 12, 1990
                                                                    ------------------------------           (Inception) to 
                                                                        1998               1997            September 30, 1998  
                                                                    ------------       ------------        ------------------
Operating activities:                                                                                      
<S>                                                                 <C>                  <C>                  <C>         
Net loss ........................................................   $ (3,027,969)        (3,556,$62)          (25,272,715)
Adjustments to reconcile net loss to net cash used in                                                      
operating activities:                                                                                      
    Loss on investments .........................................           --                 --                   3,316
    Depreciation and amortization ...............................        151,352            162,940             1,089,786
    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             60,514               267,389
    Compensation expense related to stock options and                                                      
    warrants granted ............................................         50,408            104,970               485,391
    Compensation expense related to forgiveness of stock                                                   
    subscriptions receivable ....................................         50,000             66,667               116,667
    Changes in operating assets and liabilities,                                                           
          net of effect from acquisition:                                                                  
     Prepaid expenses and other assets ..........................       (122,213)          (151,804)             (190,991)
          Restricted cash .......................................         55,338             50,409               154,377
     Accounts payable and accrued expenses ......................        (96,845)           (56,179)              494,395
                                                                    ------------       ------------          ------------
                         Net cash used in operating activities ..     (2,894,499)        (3,318,945)          (19,388,798)
                                                                    ------------       ------------          ------------
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 ..........................           --               80,000             4,992,031
Repurchase of Common Stock ......................................           --                 --                     (45)
Proceeds from issuance of Preferred Stock .......................         16,666               --              14,816,704
Increase in debt issuance costs .................................           --                 --                (469,950)
                                                                    ------------       ------------          ------------
                         Net cash provided by financing activites         16,666             80,000            23,187,390
                                                                    ------------       ------------          ------------
                                                                                                           
Increase (Decrease) in cash and cash equivalents ................     (1,408,904)        (3,247,933)            3,358,413
Cash and cash equivalents at beginning of period ................      4,767,317         10,246,812                  --   
                                                                    ------------       ------------          ------------
Cash and cash equivalents at end of period ......................   $  3,358,413       $  6,998,879          $  3,358,413
                                                                    ============       ============          ============
                                                                                                           
</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 December 15, 1997. SFAS 128 requires


 
                                        6

<PAGE>



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 nine months and
three months ended September 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 nine
months and three months ended September 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 September 30, 1998, the Company's accumulated deficit was $25,272,715.

General

     In the third quarter, the Company was awarded a Phase I/II Fast-Track Small
Business Innovation Research ("SBIR") Grant by the National Cancer Institute.
The Fast-Track initiative is designed to expedite the decision and award of SBIR
Phase II funding for projects that have high potential for commercialization.
This is the second major SBIR grant to be received by the Company in the past
twelve months. Both awards together total $1.6 million.

     The new grant will be received over two and one-half years and totals
$850,000. This grant will provide funds for the development of IPdR, a prodrug
of IUdR, which has the potential to benefit patients receiving radiation therapy
for cancer. The specific goals of the grant are to take IPdR through toxicology
studies and the first two years of clinical trials. The Company anticipates that
the Phase I trial will begin in the first half of 1999.

     During the third quarter, the Company completed negotiations with
Astra-Merck for the return to the Company of all rights to develop and
commercialize LEX032. This return of rights provides the Company the ability to
license LEX032 for targets such as stroke and other cardiovascular disorders.
The $750,000 Phase II SBIR Grant from the National Institute of Neurological
Disorders and Stroke awarded to the

                                        7

<PAGE>



Company in September, 1997 (the "Phase II SBIR Grant") currently funds
pre-clinical development of LEX032 targeted for stroke.

     The Company expects to conclude its current clinical trials with both 5-FP
and RII retinamide in the fourth quarter of 1998. If evaluation of the trial
results is favorable, the Company will seek to identify those pharmaceutical
companies interested in licensing these compounds for further clinical
development.

     The Company is completing preparations for the initiation of its pivotal
trial for Spartaject busulfan and its initial clinical activity with
Pyrazinoylguanidine ("PZG"). Both trials are expected to begin within the next
few months.

Results of Operations

Three Months Ended September 30, 1997 and 1998

     Revenue increased from $124,639 for the three months ended September 30,
1997 to $193,211 for the three months ended September 30, 1998 due to a higher
level of grant income. The Company recorded grant income of $138,451 for the
three months ended September 30, 1998 under the Phase II SBIR grant awarded in
1997, and contract income of $16,568 for the three months ended September 30,
1997 related to a feasibility study being conducted for a pharmaceutical company
("feasibility study"). Interest income decreased from $108,071 in the third
quarter of 1997 to $54,760 in the third quarter of 1998 due to a lower level of
funds available for investment as the Company consumes funds for continuing
operations. Interest income 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 increased from $865,011 in the third
quarter of 1997 to $970,701 in the third quarter of 1998. This increase is
attributable to increased drug development and license agreement costs,
partially offset by decreased legal expenses, primarily for patent filings, and
decreased insurance expense. 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 $371,785 in the third
quarter of 1997 to $302,666 in the third quarter of 1998. This decrease is
primarily due to a decrease in professional fees, personnel expenses, facility
expenses, and insurance expense.

     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.

Nine Months Ended September 30, 1997 and 1998

     Revenue increased from $391,235 for the nine months ended September 30,
1997 to $750,131 for the nine months ended September 30, 1998 due to a higher
level of grant income and license fee income. The Company recorded grant income
of $404,303 under the Phase II SBIR Grant awarded in September, 1997 and license
fee income from Schering-Plough Ltd. and Schering Corporation of $150,000 for
the nine months ended September 30, 1998, and contract income of $39,074 for the
nine months ended September 30, 1997 related to the feasibility study. Interest
income decreased from $352,161 in the first nine months of 1997 to $195,828 in
the first nine months of 1998 due to a lower level of funds available for
investment as the Company consumes funds for continuing operations. Interest
income is likely to continue to decrease in

                                        8

<PAGE>



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 increased slightly from $2,844,974 in the
first nine months of 1997 to $2,863,995 in the first nine months of 1998. This
increase is attributable to (a) increased drug development and license fee
costs, and (b) increased personnel expenses, mostly offset by (a) decreased
legal expenses, primarily for patent filings, (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, and (c) insurance expense. 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 $1,102,723 in the first
nine months of 1997 to $914,105 in the first nine months of 1998. This decrease
is due to a decrease in (a) personnel expenses, (b) legal expenses, (c) public
relations expense, (d) facilities expense as a result of the sublease of a
portion of the Company's office facility in the second quarter of 1997, and (e)
insurance expense.

Liquidity and Capital Resources

     The Company has used $19,388,798 to fund operations from inception through
September 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 October 12,
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 $30,000
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 $1,024,000 during the terms of the agreements that
were in effect as of October 12, 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 $215,000 is still owed as of
October 12, 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 $90,000 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

                                        9

<PAGE>



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 September
30, 1998, after giving effect to the reverse stock split, the outstanding Series
B' Preferred Stock was convertible into 2,269,976 shares of Common Stock.

     As of September 30, 1998, the Company had cash and cash equivalents of
$3,358,413, accounts payable and accrued expenses of $644,395, and working
capital of $2,905,009.

     The Company is considering strategic transactions with, and is continuing
to evaluate expressions of interest from, other pharmaceutical and biotechnology
companies involving the Company and its technologies and/or product candidates,
which could result in, among other things, the possible licensing or sale of
those technologies and product candidates, whether individually or in the
aggregate. The Company has retained an investment banking firm to assist the
Company in identifying and evaluating these alternatives.

     Continuing development of the Company's product candidates will require
substantial additional funds to finance such activities on an ongoing basis.
Based on implementation of its current plan for operations and absent cost
overruns or unanticipated expenses, at this time, the Company anticipates that
its available cash and cash equivalents will be sufficient to fund such
operations through the second quarter of 1999. If additional funding is not
obtained in an amount sufficient to maintain operations at the level called for
in such plan, or the Company is unable to enter into a strategic relationship
that provides access to additional capital, the Company will be required to
delay, reduce or eliminate research and development programs and other operating
expenses. Other than funds available to it under its two SBIR grants, the
Company has no commitments for additional funding at this time and there can no
assurances given that such additional funding will become available to the
Company, or such funding, if available would be obtainable on reasonable terms
or without significant dilution to existing securityholders.

     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. The Company has been advised by Nasdaq of its failure to meet
the minimum bid price listing requirement for the Company's Common Stock (SPTA).
The Company has until November 30, 1998, to comply with the $1.00 minimum bid
price requirement. If at any time within the period ending November 30, 1998,
the Common Stock reports a closing bid price of $1.00 or greater for ten
consecutive trading days, it will have complied with the minimum bid price
requirement. In the event that the Company fails to meet the $1.00 minimum bid
price within the period ending November 30, 1998, 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. 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. The Company's Class A, B, and C Common Stock Warrants and Units (SPTAW,
SPTAZ, SPTAL and SPTAU) were delisted on October 9, 1998 due to the failure of
the securities to maintain a minimum of two active market makers.

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

                                       10

<PAGE>



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 assess compliance of its
significant contractors 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 5.       Other Information

     On September 22, 1998, Sparta issued the press release filed as Exhibit
     99.35 hereto announcing the award of a Phase I/II Fast-Track Small Business
     Innovation Research Grant by the National Cancer Institute.

     On October 7, 1998, Sparta issued the press release filed as Exhibit 99.36
     hereto announcing the receipt of a notice from Nasdaq related to continued
     listing requirements and announcing that the Company has retained an
     investment banking firm to evaluate strategic alternatives.

ITEM 6.   Exhibits and Reports on Form 8-K

     (a) Exhibits

Exhibit No.       Description

     27    -- Financial Data Schedule.
  
     99.35 -- Press Release, dated as of September 22, 1998, announcing the
              award of a Phase I/II Fast-Track Small Business Innovation
              Research Grant by the National Cancer Institute.
 
     99.36 -- Press Release, dated as of October 7, 1998, announcing the receipt
              of a notice from Nasdaq related to continued listing requirements
              and announcing that the Company has retained an investment
              banking firm to evaluate strategic alternatives.

---------------


       (b) Reports on Form 8-K

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

       None.

                                       12

<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.


 October 30, 1998                 By:  /s/ Jerry B. Hook   
 ----------------                      ------------------------------------
 Date                                     Jerry B. Hook, Ph.D.
                                          Chairman of the Board,
                                          President and Chief Executive Officer
                                          (principal  executive officer)




October 30, 1998                  By: /s/ Ronald H. Spair  
----------------                      ------------------------------------
Date                                      Ronald H. Spair
                                          Sr. Vice President and 
                                          Chief Financial Officer
                                          (principal financial officer)







                                       13

<PAGE>



                                              EXHIBIT INDEX



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

99.35  --   Press Release, dated as of September 22, 1998, announcing the award
            of a Phase I/II Fast-Track Small Business Innovation Research (SBIR)
            Grant by the National Cancer Institute (NCI).

99.36  --   Press Release, dated as of October 7, 1998, announcing the receipt
            of a notice from Nasdaq related to continued listing requirements 
            and announcing that the Company has retained an investment bank to
            evaluate strategic alternatives.