SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                   FORM 10-QSB

(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
    1934

                      For the quarter ended August 31, 1996

                                       OR

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
    OF 1934 

                 For the transition period from         to

                         Commission File Number 1-11047

                           SPARTA SURGICAL CORPORATION
        (Exact name of small business issuer as specified in its charter)

               Delaware                                   22-2870438
    (State or other jurisdiction                       (I.R.S. Employer
   of incorporation or organization)                 Identification Number)


                              Bernal Corporate Park
                 7068 Koll Center Parkway, Pleasanton, CA 94566
                    (Address of principal executive offices)

                                 (510) 417-8812
                           (Issuer's telephone number)


Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 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 31,  1996,  4,538,751  shares of Common  Stock,  164,723  shares of
Redeemable Convertible Preferred Stock and 28,068 shares of Series A Convertible
Redeemable Preferred Stock were outstanding.


<PAGE>


                           SPARTA SURGICAL CORPORATION

                                   Form 10-QSB


                                      INDEX

                                                                           Page
                                                                          Number
Part I.     Financial Information

            Item 1.      Financial Statements

                         Condensed Consolidated Balance
                         Sheet as of August 31, 1996 ................      1 - 2

                         Condensed Consolidated Statements
                         of Operations for the three months and
                         six months ended August 31, 1996 and 1995 ..          3

                         Condensed Consolidated Statements
                         of Cash Flows for the six months
                         ended August 31, 1996 and 1995 .............          4

                         Notes to Financial Statements ..............          5

            Item 2.      Management's Discussion and
                         Analysis of Financial Condition
                         and Results of Operations ..................      6 - 9

Part II.    Other Information and Signatures ........................    10 - 13


<PAGE>


                           SPARTA SURGICAL CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 August 31, 1996
                                   (Unaudited)

                                     ASSETS


Current Assets:
 Cash and cash equivalents ..................................       $        --
 Accounts receivable - trade, net of allowance
   for doubtful accounts of $32,559 .........................           256,722
 Inventories ................................................         2,555,689
 Prepaid expenses ...........................................            84,727
                                                                    -----------
    Total Current Assets ....................................         2,897,138
                                                                    -----------
Property and Equipment, at cost:
 Machinery and equipment ....................................            56,000
 Other equipment ............................................           492,425
 Leasehold improvements .....................................            15,733
                                                                    -----------
                                                                        564,158

Less accumulated depreciation ...............................          (265,255)
                                                                    -----------
    Net Property and Equipment ..............................           298,903
                                                                    -----------
Other Assets:
 Intangible assets, net of
  accumulated amortization ..................................           841,904
 Deposits and other .........................................            55,507
 Notes receivable - related entities ........................           562,888
                                                                    -----------
     Total Other Assets .....................................         1,460,299
                                                                    -----------
     Total Assets ...........................................       $ 4,656,340
                                                                    ===========


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


                                     - 1 -


<PAGE>


                           SPARTA SURGICAL CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                 August 31, 1996
                                   (Unaudited)
                                   (Continued)

                      LIABILITIES AND STOCKHOLDERS' EQUITY


Current Liabilities:
 Accounts payable - trade .......................................   $   707,190
 Accrued expenses:
  Payroll taxes and wages .......................................        67,363
  Interest and other ............................................        84,597
 Dividends payable ..............................................        17,543
 Notes payable ..................................................       650,000
 Royalties payable ..............................................        22,054
 Current portion of long-term debt ..............................        59,637
                                                                    -----------
     Total Current Liabilities ..................................     1,608,384
                                                                    -----------
Long-Term Debt, net of current portion above:
 Obligations under capital leases ...............................        85,337
 Financial institutions and other ...............................       916,185
                                                                    -----------
       Total Long-Term Debt .....................................     1,001,522
                                                                    -----------
Other liabilities ...............................................       373,111
                                                                    -----------
Commitments and contingencies ...................................            --

Stockholders' Equity:
 Preferred stock: $4.00 par value, 5,000,000 shares authorized;
   Non-cumulative Convertible Redeemable Preferred Stock:
    1,500,000 shares authorized,  164,723 shares issued
     and outstanding ............................................       658,892
   Series A Cumulative Convertible Preferred Stock:
    250,000 shares authorized, 28,068 shares issued
     and outstanding ............................................       112,272
 Common Stock: $.002 par value, 30,000,000 shares authorized,
   4,538,751 shares issued and outstanding ......................         9,078
 Additional paid in capital .....................................     7,881,681
 Accumulated deficit ............................................    (6,988,600)
                                                                    -----------
      Total Stockholders' Equity ................................     1,673,323
                                                                    -----------
      Total Liabilities and Stockholders'  Equity ...............   $ 4,656,340
                                                                    ===========


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


                                     - 2 -


<PAGE>
<TABLE>


                                                     SPARTA SURGICAL CORPORATION
                                           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                             (Unaudited)
<CAPTION>
                                                                      Three Months Ended                    Six Months Ended
                                                                          August 31,                           August 31,
                                                               ------------------------------        ------------------------------
                                                                   1996               1995               1996               1995
                                                                   ----               ----               ----               ----
<S>                                                            <C>                <C>                <C>                <C>        
Net Sales ..............................................       $   472,678        $ 1,931,481        $ 1,057,631        $ 3,700,943
Cost of sales ..........................................           198,086            854,171            440,737          1,716,219
                                                               -----------        -----------        -----------        -----------
     Gross Profit ......................................           274,592          1,077,310            616,894          1,984,724

Selling, general and administrative
 expenses ..............................................           552,051            686,657          1,064,292          1,173,147
Research and development expense .......................             8,525             10,314             26,500             47,078
Depreciation and amortization ..........................            60,638            165,879            118,227            329,030
 Settlement of litigation ..............................           695,712                 --            695,712                 --
                                                               -----------        -----------        -----------        -----------
  Income (Loss) From Operations ........................        (1,042,334)           214,460         (1,287,837)           435,469
                                                               -----------        -----------        -----------        -----------
Other Income (Expense):
  Interest and other income ............................             3,164              3,581              7,349              8,188
  Interest expense .....................................           (96,359)          (200,096)          (128,138)          (400,190)
                                                               -----------        -----------        -----------        -----------
     Total Other Income (Expense) ......................           (93,195)          (196,515)          (120,789)          (392,002)
                                                               -----------        -----------        -----------        -----------
Income (Loss) Before Provision
 for Income Taxes ......................................        (1,135,529)            17,945         (1,408,626)            43,467
Provision for income taxes .............................                --                 --                 --                 --
                                                               -----------        -----------        -----------        -----------
Net Income (Loss) ......................................        (1,135,529)            17,945         (1,408,626)            43,467
Preferred stock dividends ..............................           (88,951)           (31,381)           (93,085)           (38,345)
                                                               -----------        -----------        -----------        -----------
Net Income (Loss) Applicable to
 Common Stockholders ...................................       $(1,224,480)       $   (13,436)       $(1,501,711)       $     5,122
                                                               ===========        ===========        ===========        ===========
Net Income (Loss) Per Share of
 Common Stock:
  Primary:
   Weighted average number of
    common shares outstanding ..........................         4,489,039          3,665,307          4,314,586          3,502,826
                                                               ===========        ===========        ===========        ===========
    Net income (loss) per common share .................       $      (.27)       $        --        $      (.35)       $        --
                                                               ===========        ===========        ===========        ===========
  Fully diluted:
   Weighted average number of
    common shares outstanding ..........................         4,489,039          3,889,574          4,314,586          3,871,297
                                                               ===========        ===========        ===========        ===========
    Net income (loss) per common share .................       $      (.27)       $        --        $      (.35)       $        --
                                                               ===========        ===========        ===========        ===========


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


                                                                - 3 -
</TABLE>


<PAGE>


                           SPARTA SURGICAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                           Six Months Ended
                                                              August 31,
                                                     --------------------------
                                                         1996           1995
                                                         ----           ----
Cash Flows From Operating Activities:
 Net income (loss) ...............................   $(1,408,626)   $    43,467
 Adjustments to reconcile net income (loss) to net
  cash provided (used) by operating activities:
    Depreciation and amortization ................       118,227        329,030
    Settlement of litigation .....................       433,212             --
    Changes in assets and liabilities:
     (Increase) Decrease in accounts receivable ..        31,695       (216,521)
     (Increase) Decrease in inventories ..........        53,698        (87,549)
     (Increase) Decrease in prepaid expenses
      and other ..................................        (2,932)        21,945
     (Increase) in deposits and other ............        (3,298)       (12,796)
     (Decrease) in accounts payable and
      accrued expenses ...........................      (168,687)      (214,801)
                                                     -----------    -----------
     Net Cash (Used) By Operating Activities .....      (946,711)      (137,225)
                                                     -----------    -----------
Cash Flows From Investing Activities:
 Capital expenditures ............................        (1,705)       (15,358)
 Increase in intangible assets ...................       (36,438)        (1,042)
 Increase in receivables from related entities ...        (3,693)        (5,616)
                                                     -----------    -----------
     Net Cash Provided (Used) By
      Investing Activities .......................       (41,836)       (22,016)
                                                     -----------    -----------
Cash Flows From Financing Activities:
 Proceeds from  borrowing ........................     2,092,969      3,807,768
 Principal payments on notes payable .............    (1,181,719)    (3,581,676)
 Principal payments on accrued royalties .........       (40,203)       (46,953)
 Issuance of common stock upon exercise
  of Warrants ....................................       117,500             --
                                                     -----------    -----------
     Net Cash Provided By Financing Activities ...       988,547        179,139
                                                     -----------    -----------
     Net Increase (Decrease) in Cash and
      Cash Equivalents ...........................            --         19,898
     Cash and Cash Equivalents at Beginning
      of Period ..................................            --          5,526
                                                     -----------    -----------
     Cash and Cash Equivalents at End of Period ..   $        --    $    25,424
                                                     ===========    ===========
Supplemental Disclosure of Cash Flow
 Information:
  Cash paid during the period for:
    Interest .....................................   $    52,522    $   362,036
    Income taxes .................................            --             --

Supplemental Disclosure of Noncash
 Investing and Financing Activities:
   Conversion of Preferred Stock into
    Common Stock .................................   $   511,908    $   599,316
   Dividends payable on Series A
    Convertible Preferred Stock ..................        17,543         31,381
   Stock dividends paid on Series A
    Convertible Preferred Stock ..................         4,134          6,964
   Stock dividends paid on Redeemable
    Preferred Stock ..............................        71,409             --


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


                                     - 4 -


<PAGE>


                           SPARTA SURGICAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.   The  accompanying  financial  information  of the  Company is  prepared  in
     accordance with the rules prescribed for filing condensed interim financial
     statements and,  accordingly,  does not include all disclosures that may be
     necessary for complete  financial  statements  prepared in accordance  with
     generally accepted  accounting  principles.  The disclosures  presented are
     sufficient,  in  management's  opinion,  to make  the  interim  information
     presented not misleading.  All adjustments,  consisting of normal recurring
     adjustments,  which are necessary so as to make the interim information not
     misleading,  have been made. Results of operations for the six months ended
     August 31, 1996 are not  necessarily  indicative  of results of  operations
     that  may be  expected  for  the  year  ending  February  28,  1997.  It is
     recommended  that this  financial  information  be read  with the  complete
     financial statements included in the Company's Annual Report on Form 10-KSB
     for the year ended February 29, 1996  previously  filed with the Securities
     and Exchange Commission.


                                     - 5 -


<PAGE>


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

     On December 7, 1995,  the Company  sold its  medical  product  line,  which
consisted  primarily of wound care gauze dressings,  to Tecnol Medical Products,
Inc.  ("Tecnol"),  which  resulted in the Company's  elimination  of the medical
product line from its business operations  approximately three months before the
year ended  February 29, 1996 ("Fiscal  1996").  Following  this  disposition of
assets,  the Company  implemented a restructuring  plan involving a reduction of
personnel, the reorganization of the sales department,  and the consolidation of
operating facilities. Therefore, the results for the six months ended August 31,
1996  ("Six  Months  Fiscal  1997") do not  reflect  the  medical  product  line
operations, whereas for the six months ended August 31, 1995 ("Six Months Fiscal
1996") the results of the medical product line operations are reflected. For the
reason  stated  above,  the results  for the Six Months  Fiscal 1997 and the Six
Months Fiscal 1996 are not strictly comparable.

RESULTS OF OPERATIONS

Three months ended August 31, 1996
as Compared to Three months ended August 31, 1995

     Net sales for the three  months  ended  August 31,  1996  ("Second  Quarter
Fiscal 1997") were  $472,678,  a 75.5% decrease from net sales of $1,931,481 for
the three month period ended August 31, 1995 ("Second Quarter Fiscal 1996"). The
net sales  decrease  during the Second  Quarter  Fiscal  1997 as compared to the
Second  Quarter  Fiscal  1996 is the result of (I) a decrease of  $1,223,364  in
medical  product  sales which  resulted  from the  disposition  of the Company's
medical  product line in December 1995;  (ii) a decrease of $41,812 or 13.18% in
surgical  product  sales from  $317,216  to  $275,404;  and (iii) a decrease  of
$193,627 or 49.5% in electrotherapy product sales from $390,901 to $197,274. The
net loss for the Second  Quarter  Fiscal 1997 was  $1,135,529 as compared to net
income of $17,945 for the Second Quarter Fiscal 1996. The decrease in net income
for the Second Quarter Fiscal 1997 as compared to the Second Quarter Fiscal 1996
is primarily due to the decrease in net sales and the corresponding  decrease in
gross profit coupled with a one time $695,712  expense related to the settlement
of the litigation  described below and legal expenses in the approximate  amount
of  $100,000  which were  incurred  in  connection  with the  Company's  various
litigation proceedings.

Six months ended August 31, 1996
as Compared to Six months ended August 31, 1995

     Net sales for the Six Months Fiscal 1997 were $1,057,631,  a 71.4% decrease
from net sales of  $3,700,943  for the Six  Months  Fiscal  1996.  The net sales
decrease  during the Six Months Fiscal 1997 as compared to the Six Months Fiscal
1996 is the result of (I) a decrease  of  $2,221,529  in medical  product  sales
which  resulted from the  disposition of the Company's  medical  product line in
December 1995; (ii) a decrease of $62,763 or 9.6% in surgical product sales from
$653,306   to   $590,543;   and  (iii)  a  decrease  of  $359,020  or  43.5%  in
electrotherapy  product sales from  $826,108 to $467,088.  The decrease in sales
for  the  electrotherapy  product  line  can  be  primarily  attributed  to  the
completion  in July 1995 of a one year,  non-cancelable  $500,000  contract with
Henley  Healthcare  ("Henley")  in which the  Company  provided  Henley with its
Spectrum  Max-SD  TENS unit.  During the Six Months  Fiscal 1996 the Company had
approximately $282,000 in sales to Henley which were not repeated during the Six
Months  Fiscal  1997.  However,  the  Company is  expecting  to enter into a new
contract  with Henley as Henley  continues to satisfy a three year contract with
its customer.  The Company  intends to concentrate its efforts on increasing its
level of sales to  achieve  profitable  operations.  In  addition,  the  Company
intends  to  consider  growth  through  selective   strategic   acquisitions  in
complementary lines of business.

     Gross profit was  $616,894 or 58.3% of net sales for the Six Months  Fiscal
1997 as compared to  $1,984,724  or 53.6% of net sales for the Six Months Fiscal
1996.  The  increase  in  gross  profit  percentage  is  primarily  due  to  the
disposition  of the medical  product  line in  December  1995.  In general,  the
medical  product  line  generated  lower gross  profits  than the  surgical  and
electrotherapy  product lines.  The decrease in gross profit is primarily due to
the overall  decrease in net sales resulting from the disposition of the medical
product line. 


                                     - 6 -


<PAGE>


     Selling,  general and  administrative  ("SG&A") expenses for the Six Months
Fiscal 1997 were  $1,064,292,  a 9.3%  decrease from SG&A expenses of $1,173,147
for the Six Months Fiscal 1996. The decrease in SG&A expenses for the Six Months
Fiscal 1997 as compared to the Six Months  Fiscal 1996 is  primarily  due to the
overall  decrease in operating  expenses  resulting from the  disposition of the
medical product line. This decrease is despite an increase in legal expenses for
the Six Months Fiscal 1997 from approximately  $75,000 for the Six Months Fiscal
1996 to approximately $208,000 incurred in connection with the Company's various
litigation  proceedings.  In addition,  the Company has  increased its sales and
marketing efforts to broaden its customer base and target  distributors for each
of our product lines.

     Research and  development  ("R&D")  expenses for the Six Months Fiscal 1997
were $26,500,  a 43.7%  decrease from R&D expenses of $47,078 for the Six Months
Fiscal 1996.  The  decrease in R&D  expenses  for the Six Months  Fiscal 1997 as
compared to the First Quarter Fiscal 1996 is primarily due to the elimination of
the R&D  efforts  related to the  medical  product  line.  During the Six Months
Fiscal 1997 the R&D  continues  to be focused on the  redesign of the  Company's
TENS  units in an effort  to  reduce  the  product  cost for the  electrotherapy
product line.

     Depreciation  and  amortization  ("D&A") expenses for the Six Months Fiscal
1997 were  $118,227,  a 64.1% decrease from D&A expenses of $329,030 for the Six
Months Fiscal 1996.  During the Six Months Fiscal 1997,  D&A expenses  decreased
due to the elimination of the  depreciation  expense on the medical product line
manufacturing equipment sold to Tecnol in December 1995. As a result of the sale
of the medical  product line,  the Company's D&A expenses will be  substantially
reduced for the fiscal year ending February 28, 1997 ("Fiscal 1997").

     Settlement  of  litigation  expenses  for the Six Months  Fiscal  1997 were
$695,712.  On August 6, 1996 the Company  settled  three  related  civil actions
involving  disputes  between  the  Company;  Thomas  F.  Reiner,  the  Company's
Chairman,  President and Chief Executive Officer; and Gerald S. Kramer, a former
officer and Chairman of the  Company's  Board of Directors  which  concerned Mr.
Kramer's  termination  as  an  officer  and  director,  disputes  regarding  his
employment agreement and various monetary obligations between the parties. Under
the  settlement,  the Company  paid to Mr.  Kramer  $262,500 and issued to him a
promissory note in the amount of $62,500,  payable over five years. In addition,
the parties exchanged general releases and forgave all debts to each other which
included   obligations  from  Mr.  Kramer  to  the  Company  in  the  amount  of
approximately  $371,000.  The Company's  management  believes that it would have
ultimately  prevailed in the  lawsuit,  but took the  opportunity  to settle the
litigation  before  substantial  additional  legal fees and management time were
expended.

     Net interest  expense for the Six Months Fiscal 1997 was $120,789,  a 69.2%
decrease  from net interest  expense of $392,002 for the Six Months Fiscal 1996.
The decrease in net interest  expense is primarily  due to the repayment of most
of its  outstanding  debt in December 1995 from the cash proceeds of the medical
product  line sale.  The  repayment  of debt in December  1995 should  result in
substantially reduced interest expenses in Fiscal 1997.

     As a result of the  foregoing,  the net loss for the Six Months Fiscal 1997
was $1,408,626,  a decrease of $1,452,093 from net income of $43,467 for the Six
Months Fiscal 1996. The decrease in net income for the Six Months Fiscal 1997 as
compared to the Six Months  Fiscal 1996 is primarily  due to the decrease in net
sales and the  corresponding  decrease in gross  profit  coupled with a one time
$695,712 expense related to the settlement of the litigation described above and
legal  expenses in the  approximate  amount of $208,000  which were  incurred in
connection with the Company's various litigation proceedings.

     Primary loss per share was $.35 for the Six Months  Fiscal 1997 as compared
to a primary loss per share of $-- for the Six Months Fiscal 1996. Fully diluted
loss per share,  which assumes all dilutive  preferred share conversions and the
exercise of all dilutive stock options and warrants, was $.35 for the Six Months
Fiscal  1997 as  compared  to fully  diluted  loss of $-- per  share for the Six
Months Fiscal 1996. The primary and fully diluted  income per share  computation
for the Six Months  Fiscal 1997 reflect  dividends  on the Series A  Convertible
Preferred Stock and on the Redeemable  Preferred Stock which were paid in Common
Stock in June and July 1996 and accrued  dividends  on the Series A  Convertible
Preferred Stock which were paid in Common Stock in September 1996.


                                     - 7 -


<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     Since inception, the Company's primary sources of working capital have been
revenues  from  operations,  bank and private  party loans and proceeds from the
sale of securities.

     As of February 29, 1996,  the Company had net operating loss carry forwards
of  approximately  $5,000,000.  Availability of the Company's net operating loss
carry forwards,  if not utilized,  will expire at various dates through the year
2011.

     The  Company's  working  capital at  February  29, 1996 was  $1,246,470  as
compared  to  $1,288,754  at August 31,  1996.  The  Company's  working  capital
position  increased by $42,284  primarily due to the receipt of a Revolving Line
of Credit from FINOVA  Capital  Corporation  and the  subsequent  elimination of
certain current liabilities.

     On December  7, 1995,  the Company  sold its  impregnated  wound care gauze
dressings  product line to Tecnol  Medical  Products,  Inc., a medical  products
manufacturer  headquartered  in Fort  Worth,  Texas  (the  "Tecnol  Sale").  The
purchase price was  $5,675,000,  of which  approximately  $5,010,000 was paid in
cash,  with the balance  being paid  primarily in the form of a promissory  note
bearing interest at prime rate and due in September 1997 upon certain conditions
being met. In addition to wound care inventory,  equipment and other assets, the
Company's operations in Hammonton, New Jersey were included in the sale.

     The Company has used the cash  proceeds of the Tecnol Sale to repay most of
its  outstanding  debt  including  (I)  $2,282,505  owed to  Congress  Financial
Corporation  under a  revolving  credit  facility;  (ii)  $111,602  owed for the
purchase of certain manufacturing  equipment which was subject to a lease; (iii)
$469,710  owed to Asset  Factoring,  Inc.,  consisting  of the  principal due on
certain  promissory  note plus accrued  interest;  (iv)  $600,000  owed to Storz
Instrument  Company relating to a $1,050,000 note payable in connection with the
Company's  acquisition  of certain assets of Storz' Oral  Maxillofacial  product
line; and (v)  $1,000,000 to Arbora,  A.G.  ("Arbora"),  which together with the
return of a $809,500  promissory  note issued to the Company by an  affiliate of
Arbora, served as principal  consideration to redeem and cancel 4,761,842 shares
of the  Company's  Common Stock.  The 4,761,842  shares were issued to Arbora on
December 4, 1995 in  consideration  of the conversion of a $1,000,000  note into
equity and the  issuance  to the Company of a  promissory  note in the amount of
$809,500 by an affiliate of Arbora  pursuant to an agreement  reached between it
and the Company. In connection with this transaction,  the Company also canceled
a warrant to purchase  1,000,000  shares of the Company's  Common Stock at $1.40
per share held by Arbora and issued Arbora and its affiliated  parties  warrants
to purchase up to 750,000 shares of the Company's common stock at $.47 per share
at any time until November 8, 1998. In addition, a voting trust was entered into
which provided the Company's  Chairman,  President and Chief Executive  Officer,
Thomas F.  Reiner,  with voting  rights as to such  shares.  On April 22,  1996,
250,000  shares of Common  Stock were  issued to Arbora in  connection  with the
exercise of 250,000 Common Stock purchase warrants.

     On March 11,  1996,  FINOVA  Capital  Corporation  ("FINOVA")  provided the
Company  with a  36-month  Revolving  Line of  Credit of up to  $1,500,000  (the
"Loan").  The Company agreed to pay FINOVA  interest on the average  outstanding
principal  amount of the Loan at a per annum  rate of prime plus 4%. The Loan is
advanced to the Company based on a percentage of eligible  assets and is secured
by a first lien on all of the assets of the Company.  Accordingly, the amount of
available funds under the Loan may be  substantially  less than  $1,500,000.  In
addition, $450,000 of the Loan is personally guaranteed by Thomas F. Reiner, the
Company's  Chairman,  President and Chief  Executive  Officer.  As of August 31,
1996,  the  outstanding  balance  on the Loan was  $820,976  and no  credit  was
available.  The Loan is being used to provide  additional  working  capital  for
current operations and growth.

     In  July  1996,  the  Company   borrowed   $200,000  from  Asset  Factoring
International,  Inc.  ("Asset  Factoring'),  a company  controlled by Charles C.
Johnston, a principal stockholder of the Company, evidenced by a promissory note
bearing  12%  interest  per  annum  due in July  1997.  The  promissory  note is
subordinated to FINOVA and is personally guaranteed by Mr. Reiner. In connection
with the financing,  the Company issued Asset Factoring a warrant to purchase up
to 125,000 shares of its Common Stock  exercisable at $.50 per share at any time
until  July 18,  1999.  The  Company  also  entered  into a one year  consulting
agreement  with Asset  Factoring  in which the  Company is required to pay Asset
Factoring $25,000 for one year of consulting services.


                                     - 8 -


<PAGE>


     On  September  27, 1996,  the Company was served with a complaint  filed by
Storz  Instrument  Company seeking to collect the remaining  balance of $450,000
relating  to  a  $1,050,000  note  payable  in  connection  with  the  Company's
acquisition  of certain  assets of Storz' Oral  Maxillofacial  product line. The
Company has not yet filed its answer in this proceeding.

     In March 1995, the Financial Accounting Standards Board issued Statement of
Financial  Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived  Assets  and for  Long-Lived  Assets to Be  Disposed  Of,"  which the
Company will adopt  prospectively  as required in Fiscal 1997.  Pursuant to this
Statement,  companies  are  required to  investigate  potential  impairments  of
long-lived assets, certain identifiable intangibles, and associated goodwill, on
an  exception  basis,   when  there  is  evidence  that  events  or  changes  in
circumstances  have made  recovery of an asset's  carrying  value  unlikely.  An
impairment loss would be recognized when the sum of the expected future net cash
flows is less than the carrying amount of the asset. The adoption of SFAS 121 is
not expected to have a significant impact on the Company's financial position or
result of operations.

     In October 1995, the Financial  Accounting Standards Board issued Statement
of Financial  Accounting  Standard  (SFAS) No. 123,  "Accounting for Stock-Based
Compensation,"  SFAS 123 will be adopted  by the  Company  as  required  for its
Fiscal 1997 financial  statements and is not expected to have a material  effect
on the Company's  financial position or results of operations.  Upon adoption of
SFAS 123,  the company  will  continue to measure  compensation  expense for its
stock-based  employee  compensation  plans  using  the  intrinsic  value  method
prescribed by APB Opinion No. 25,  "Accounting  for Stock Issued to  Employees,"
and will provide pro forma  disclosures  of net income and earnings per share as
if the fair  value-based  method  prescribed  by SFAS 123 had  been  applied  in
measuring compensation expense.

     The Company may make  additional  acquisitions  of companies,  divisions of
companies  or  products  in the  future.  Acquisitions  entail  numerous  risks,
including  difficulties  or an inability  to  successfully  assimilate  acquired
operations  and products,  diversion of  management's  attention and loss of key
employees of acquired businesses,  all of which the Company has encountered with
previous  acquisitions.  Future acquisitions by the Company may require dilutive
issuances of equity  securities and the  incurrence of additional  debt, and the
creation  of  goodwill  or  other   intangible   assets  that  could  result  in
amortization expense.  These factors could have a material adverse effect on the
Company's business, operating results and financial condition.

     The Company's current operations continue to be cash flow negative, further
straining  the  Company's  working  capital  resources.  The  Company's  capital
requirements will depend on numerous  factors,  including the acquisition of new
product lines and/or other business operations and the continued  development of
existing  product sales,  distribution and marketing  capabilities.  In order to
continue its current level of  operations,  it will be necessary for the Company
to obtain additional  working capital,  whether from debt or equity sources.  If
the Company is unable to obtain additional working capital from the placement of
debt  or  equity  instruments  or the  sale of  some  of its  assets,  it may be
necessary for the Company to  restructure  its  operations to reduce its ongoing
expenditures.

     Statements, either written or oral, which express the Company's expectation
for the future with respect to financial performance or operating strategies can
be  identified  as  forward-looking  statements.  These  statements  are made to
provide the public  with  management's  assessment  of the  Company's  business.
Caution must be taken to consider  these  statements  in light of the  following
factors: the Company assumes that key customers will continue to make purchases;
the  Company  will be able to  secure  long-term  contracts  for the sale of its
products;  the Company will make acquisitions which contribute to profitability;
and the Company will continue its implementation of cost reduction measures.  In
the event  any of the above  factors  do not  occur as  management  anticipates,
actual results could differ  materially from the  expectations  expressed in the
forward-looking statements.


                                     - 9 -


<PAGE>


Part II. Other Information

Item 1. Legal Proceedings
            On August 6, 1996,  the Company  settled three related civil actions
            entitled Sparta Surgical Corporation v. Gerald S. Kramer ("Kramer"),
            Docket No. 94-0372,  Plymouth County Superior Court,  Massachusetts;
            Gerald S. Kramer v. Sparta Surgical Corporation and Thomas F. Reiner
            ("Reiner"),  Civil Action No.  94-CO-6337T,  United States  District
            Court,  Western District,  New York; and Sparta Surgical Corporation
            v. Gerald S. Kramer, Docket No. 96-10716-RGS, United States District
            Court,  Eastern  District,  Massachusetts.  These  actions  involved
            disputes  between  the  Company;  Reiner,  the  Company's  Chairman,
            President and Chief Executive Officer;  and Kramer, a former officer
            and  Chairman of the  Company's  Board of  Directors  and  concerned
            Kramer's termination as an officer and director,  disputes regarding
            his employment  agreement and various monetary  obligations  between
            the  parties.  Under  the  settlement,  the  Company  paid to Kramer
            $262,500  and  issued  to him a  promissory  note in the  amount  of
            $62,500, payable over five years. In addition, the parties exchanged
            general  releases and forgave all debts to each other which included
            obligations   from   Kramer  to  the   Company   in  the  amount  of
            approximately $371,000.

Item 2. Changes in Securities
            None

Item 3. Defaults Upon Senior Securities
            None

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

Item 5. Other Information
            None

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

            Computation of Primary Earnings Per Share (Page 11)
            Computation of Fully Diluted Earnings Per Share (Page 12)
            Exhibit 27 - Financial Data Schedule

       B.   Reports on Form 8-K

            The Company  filed a Form 8-K dated  August 6, 1996,  to report that
            the Company  settled three related  civil  actions  entitled  Sparta
            Surgical  Corporation  v.  Gerald S.  Kramer  ("Kramer");  Gerald S.
            Kramer  v.  Sparta   Surgical   Corporation  and  Thomas  F.  Reiner
            ("Reiner"); and Sparta Surgical Corporation v. Gerald S. Kramer.


                                     - 10 -


<PAGE>
<TABLE>


                                                     SPARTA SURGICAL CORPORATION
                                              COMPUTATION OF PRIMARY EARNINGS PER SHARE

<CAPTION>

                                                                          Three Months Ended                 Six Months Ended
                                                                               August 31,                        August 31,
                                                                     ----------------------------     ----------------------------
                                                                         1996             1995             1996             1995
                                                                         ----             ----             ----             ----
<S>                                                                  <C>              <C>              <C>              <C>         
Shares outstanding at beginning of period ......................       4,403,523        3,837,983        3,846,826        3,228,408

Shares issued during the period (weighted average) .............          85,514           14,824          467,760          461,918

Dilutive shares contingently issuable upon exercise of
options and warrants(weighted average) .........................              --               --               --               --

Less shares assumed to have been purchased for treasury
with assumed proceeds of stock warrants and options
(weighted average) .............................................              --               --               --               --

Less shares placed in escrow which are issuable only if
certain  income or stock price criteria are met
(weighted average) .............................................              --         (187,500)              --         (187,500)
                                                                     -----------      -----------      -----------      -----------
Total Primary Shares ...........................................       4,489,039        3,665,307        4,314,586        3,502,826
                                                                     ===========      ===========      ===========      ===========
Net Income (Loss) Applicable to Common Stockholders ............     $(1,224,480)     $   (13,436)     $(1,501,711)     $     5,122
                                                                     ===========      ===========      ===========      ===========
Net Income (Loss) Per Primary Share ............................     $      (.27)     $        --      $      (.35)     $        --
                                                                     ===========      ===========      ===========      ===========


                                                               - 11 -


</TABLE>
<PAGE>


<TABLE>


                                                     SPARTA SURGICAL CORPORATION
                                           COMPUTATION OF FULLY DILUTED EARNINGS PER SHARE

<CAPTION>
                                                                           Three Months Ended                Six Months Ended
                                                                                August 31,                       August 31,
                                                                      ----------------------------      ---------------------------
                                                                          1996             1995             1996            1995
                                                                          ----             ----             ----            ----
<S>                                                                   <C>              <C>              <C>             <C>         
Shares outstanding at beginning of period .......................       4,403,525        3,837,983        3,846,826        3,228,408

Shares issued during the period (weighted average) ..............          85,514           51,591          467,760          642,889

Dilutive shares contingently issuable upon exercise of
options and warrants (weighted average) .........................              --               --               --               --

Less shares assumed to have been purchased for treasury
with assumed proceeds of stock warrants and options
(weighted average) ..............................................              --               --               --               --

Less shares placed in escrow which are issuable only if
certain income or stock prices are met, as they are
anti-dilutive (weighted average) ................................              --               --               --               --
                                                                      -----------      -----------      -----------      -----------
Total Fully Diluted Shares ......................................       4,489,039        3,889,574        4,314,586        3,871,297
                                                                      ===========      ===========      ===========      ===========
Net Income (Loss) Applicable To Common Stockholders .............     $(1,224,480)     $   (13,436)     $(1,501,711)     $     5,122
                                                                      ===========      ===========      ===========      ===========
Net Income (Loss)per Fully Diluted Share ........................     $      (.27)     $        --      $      (.35)     $        --
                                                                      ===========      ===========      ===========      ===========


                                                               - 12 -


</TABLE>
<PAGE>


                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.

Sparta Surgical Corporation



     Thomas F. Reiner
---------------------------
Thomas F. Reiner
Chairman of the Board
President & CEO


     Wm. Samuel Veazey
---------------------------
Wm. Samuel Veazey
Vice President of Finance
and Administration


October 15, 1996


                                     - 13 -