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




                       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, 1998

                                       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)


                                 (925) 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,  1998,  2,856,979  shares of Common  Stock,  121,783  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                           3
                  Sheet as of August 31, 1998

                  Condensed Consolidated Statements                        4
                  of Operations for the three months and six
                  months ended August 31, 1998 and 1997

                  Condensed Consolidated Statements                        5
                  of Cash Flows for the six months
                  ended August 31, 1998 and 1997

                  Notes to Condensed Consolidated Financial Statements     6

         Item 2.  Management's Discussion and                            7 - 10
                  Analysis of Financial Condition
                  and Results of Operations

Part II. Other Information and Signatures                               11 - 12


                                       -2-

<PAGE>
<TABLE>
<CAPTION>

                              SPARTA SURGICAL CORPORATION
                               CONSOLIDATED BALANCE SHEET
                                    August 31, 1998
                                      (Unaudited)

                                        ASSETS

                                                                               August 31,
                                                                                 1998
                                                                              -----------

Current assets:
<S>                                                                           <C>        
   Cash and cash equivalents                                                  $     1,000

   Accounts receivable - net of allowance
    for doubtful accounts of $34,000                                              264,000
   Inventories                                                                  2,040,000
   Other                                                                           97,000
                                                                              -----------

      Total current assets                                                      2,402,000
                                                                              -----------

Property and equipment, at cost:
   Equipment                                                                      411,000
   Other                                                                           16,000
                                                                              -----------
                                                                                  427,000
   Less accumulated depreciation                                                 (271,000)
                                                                              -----------

      Net property and equipment                                                  156,000

Other assets:
   Intangible assets                                                              557,000
   Other                                                                           75,000
                                                                              -----------

      Total other assets                                                          632,000
                                                                              -----------

   Total assets                                                               $ 3,190,000
                                                                              ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of long term obligations                                   $   445,000
   Account payable - trade                                                        374,000
   Accrued expenses                                                               114,000
                                                                              -----------
      Total current liabilities                                                   933,000

Revolving credit facility and long term obligations                             1,845,000

Stockholders' Equity:
   Preferred stock: $4.00 par value, 750,000 shares authorized:
      Non-cumulative convertible redeemable preferred stock:
       165,000 shares authorized, 121,783 shares issued and outstanding           490,000
      Series A cumulative convertible preferred stock:
       30,000 shares authorized, 28,068 shares issued and outstanding             112,000
   Common stock: $.002 par value, 8,000,000 shares authorized,
    2,856,979 shares issued and outstanding                                         6,000
   Additional paid in capital                                                   9,025,000
   Accumulated deficit                                                         (9,221,000)
                                                                              -----------

      Total stockholders' deficit                                                 412,000
                                                                              -----------

      Total liabilities and stockholders' deficit                             $ 3,190,000
                                                                              ===========

                                           -3-
</TABLE>

<PAGE>
<TABLE>
<CAPTION>


                                                   SPARTA SURGICAL CORPORATION
                                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                                           (Unaudited)

                                                                               Three Months Ended             Six Months Ended
                                                                                    August 31,                    August 31,
                                                                           --------------------------    --------------------------
                                                                               1998           1997           1998           1997
                                                                               ----           ----           ----           ----


<S>                                                                          <C>         <C>            <C>            <C>        
Net sales                                                                     $583,000    $   560,000    $ 1,302,000    $ 1,210,000

Cost of sales                                                                  312,000        263,000        697,000        585,000
                                                                           -----------    -----------    -----------    -----------

      Gross profit                                                             271,000        297,000        605,000        625,000


Selling, general and administrative expenses                                   252,000        479,000        511,000        970,000
Research and development expense                                                     0          3,000              0          5,000
                                                                           -----------    -----------    -----------    -----------

      Income from operations                                                   190,000       (185,000)        94,000       (350,000)

Other income (expense):
   Interest and other income                                                    98,000              0        304,000         85,000
   Interest expense                                                            (99,000)       (72,000)      (192,000)      (137,000)
                                                                           -----------    -----------    -----------    -----------

      Total other income (expense)                                              (1,000)       (72,000)       112,000        (52,00)
                                                                           -----------    -----------    -----------    -----------

Income (loss) before provision for income taxes                                 18,000       (257,000)       206,000       (402,000)

Provision for income taxes                                                           0              0              0              0
                                                                           -----------    -----------    -----------    -----------

Net income (loss)                                                          $    18,000    ($  257,000)   $   206,000    ($  402,000)
                                                                           -----------    -----------    -----------    -----------


Preferred stock dividends                                                      (17,000)       (17,000)       (21,000)       (21,000)
                                                                           -----------    -----------    -----------    -----------

Net income/(loss) applicable to common shareholders                        $     1,000    ($  274,000)   $   185,000    ($  423,000)
                                                                           ===========    ===========    ===========    ===========



Shares used to calculate basic net income (loss) per common share            1,390,233        868,032      1,125,852        842,568
                                                                           ===========    ===========    ===========    ===========

Basic net income (loss) per common share                                   $      0.00    $     (0.32)   $      0.16    $     (0.50)
                                                                           ===========    ===========    ===========    ===========

Shares used to calculate diluted net income (loss) per common share          1,844,533        868,032      1,598,266        842,568
                                                                           ===========    ===========    ===========    ===========

Diluted net income (loss) per common share                                 $      0.01    $     (0.32)   $      0.12    $     (0.50)
                                                                           ===========    ===========    ===========    ===========


                                                          -4-
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                        SPARTA SURGICAL CORPORATION
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                (Unaudited)

                                                                                     Six months ended
                                                                                         August 31,
                                                                             --------------------------------
                                                                                 1988                 1997
                                                                                 ----                 ----
Cash flows from operating activities
<S>                                                                          <C>                  <C>         
   Net income (loss)                                                         $   206,000          ($  402,000)
   Adjustments to reconcile net income (loss) to
    net cash used by operating activities:
      Depreciation and amortization                                              133,000              145,000
      Reduction of accrued liabilities                                          (275,000)             (85,000)
      Changes in operating assets and liabilities:
         Accounts receivable                                                     (49,000)             (14,000)
         Inventories                                                             125,000                1,000
         Other assets                                                            (59,000)             (45,000)
         Accounts payable and accrued expenses                                  (379,000)            (487,000)
                                                                             -----------          -----------

         Net cash used by operating activities                               ($  298,000)         ($  887,000)

Cash flows from investing activities:
   Capital expenditures                                                             --                 (6,000)
   Increase in intangible assets                                                 (11,000)            (110,000)
   Increase in receivables from related entities                                    --                  8,000
   Principal payments received on notes receivable                                  --                578,000
                                                                             -----------          -----------

      Net cash provided (used) by investing activities                           (11,000)             470,000
                                                                             -----------          -----------

Cash flows from financing activities
   Proceeds from borrowing                                                     1,523,000            3,526,000
   Principal payments on long term obligations                                (1,214,000)          (3,109,000)
                                                                             -----------          -----------

      Net cash provided by financing activities                              $   309,000          $   417,000
                                                                             -----------          -----------

      Net change in cash and cash equivalents                                          0                    0

      Cash and cash equivalents at beginning of the period                         1,000                 --
                                                                             -----------          -----------

      Cash and cash equivalents at end of the period                         $     1,000                 --
                                                                             ===========          ===========


Supplemental disclosure of cash flow information:

   Cash paid during the period for:
      Interest                                                               $   166,000          $    81,000
      Income taxes                                                                  --                   --

Supplemental disclosure of noncash investing and financing activities:
   Conversion of debt into common stock                                      $   751,000                 --
   Conversion of preferred stock into common stock                                  --                101,000
   Dividends payable on Series A convertible redeemable preferred stock      $    17,000          $    17,000
   Stock dividends paid on Series A convertible redeemable preferred stock   $    21,000          $     4,000
   Issuance of common stock and warrants in payment of loan costs                   --                236,000



                                                     -5-
</TABLE>

<PAGE>

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

1.   The accompanying condensed consolidated financial statements of the Company
     as of August  31,  1998 and for the three and six months  ended  August 31,
     1998 and 1997 have been prepared on the same basis as the audited financial
     statements.  In the  opinion  of  management,  such  unaudited  information
     includes all adjustments  (consisting  only of normal  recurring  accruals)
     necessary for a fair  presentation of this interim  information.  Operating
     results and cash flows for interim periods are not  necessarily  indicative
     of results for the entire  year.  The  information  included in this report
     should  be  read  in  conjunction  with  the  Company's  audited  financial
     statements  and notes thereto  included in the  Company's  Annual Report on
     Form 10-KSB for the year ended February 28, 1998 previously  filed with the
     Securities and Exchange Commission.

2.   Effective  "March 1, 1998, the Company  adopted the provisions of Statement
     No.  130,"  Reporting  Comprehensive  Income that  modifies  the  financial
     statement presentation of comprehensive income and its components. Adoption
     of this  Statement  had no effect on the  Company's  financial  position or
     operating results.

     Comprehensive  income  (loss) for the six months  ended August 31, 1998 and
     1997,  representing all changes in Stockholders'  deficit during the period
     other than changes  resulting  from the Company's  stock,  was $206,000 and
     $(402,000), respectively.

3.   Basic income (loss) per share is based upon weighted  average common shares
     outstanding. Diluted income (loss) per share is computed using the weighted
     average common shares outstanding plus any potentially dilutive securities.
     Dilutive securities include stock options, warrants,  convertible debt, and
     convertible preferred stock. The following table sets forth the computation
     of basic and diluted net income (loss) per common share:

<TABLE>
<CAPTION>

                                                 Three Months Ended August 31,   Six Months Ended August 31,
                                                 -----------------------------   ---------------------------
                                                       1998           1997          1998            1997
                                                       ----           ----          ----            ----
Numerator
<S>                                                <C>            <C>            <C>            <C>         
  Net income (loss)                                $    18,000    $  (257,000)   $   206,000    $  (402,000)
  Preferred stock dividends                            (17,000)       (17,000)       (21,000)       (21,000)
                                                   -----------    -----------    -----------    -----------

  Net income (loss) used in computing income
  (loss) per common share                                1,000       (274,000)   $   185,000    $  (423,000)
                                                                                 -----------    -----------

  Interest expense on convertible debt                   9,000           --           14,000           --
                                                   -----------    -----------    -----------    -----------

  Net income (loss) used in computing diluted
  income (loss) per common share                   $    10,000    $  (274,000)   $   199,000    $  (423,000)
                                                   ===========    ===========    ===========    ===========

Denominator
  Weighted average common shares                     1,340,233        868,032      1,125,852        842,568
  outstanding during the period
                                                   -----------    -----------    -----------    -----------
  

Shares used in computing basic income                1,391,233        868,032      1,125,852        842,568
  (loss) per common share

Dilutive effect of conversion of preferred stock        63,979           --           63,979           --
Dilutive effect of options and warrants using
  the treasury stock method                            157,821           --          175,935           --
Dilutive effect of convertible debt using the
  if-converted method                                  232,500           --          232,500           --
                                                   -----------    -----------    -----------    -----------
Shares used in computing diluted income
  (loss) per common share                            1,844,533        868,032      1,598,266        842,568
                                                   ===========    ===========    ===========    ===========


                                       -6-
</TABLE>

<PAGE>

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

RESULTS OF OPERATIONS

Three months ended August 31, 1998
as Compared to Three months ended August 31, 1997

     Net sales for the three  months  ended  August 31,  1998  ("Second  Quarter
Fiscal 1999") were $583,000,  a 4.1% increase from net sales of $560,000 for the
three months ended August 30, 1997 ("Second Quarter Fiscal 1998"). The net sales
increase  is the result of an  increase  of  $68,000 or 22.7% in  electrotherapy
product  sales from  $300,000 to $368,000  coupled with a decrease of $45,000 or
17.4% in surgical product sales from $259,000 to $214,000. The increase in sales
for the electrotherapy  product line can be primarily  attributed to an increase
in sales to OEM accounts.  The loss of any of the Company's  electrotherapy  OEM
accounts  could  have a  material  adverse  effect  on the  Company's  business,
operating results and financial condition.

Six months ended August 31, 1998
as Compared to Six months ended August 31, 1997

     Net sales for the six months  ended  August 31,  1998 ("Six  Months  Fiscal
1999") were $1,302,000, a 7.6% increase from net sales of $1,210,000 for the six
months ended August 31, 1997 ("Six Months Fiscal 1998").  The net sales increase
during the Six Months  Fiscal 1999 as compared to the Six Months  Fiscal 1998 is
the result of an increase of $120,000 or 18.0% in  electrotherapy  product sales
from $667,000 to $787,000.  The increase in sales for the electrotherapy product
line can be primarily  attributed to the receipt of two purchase orders from one
of the Company's OEM customers in the approximate  aggregate amount of $600,000.
Net sales to one OEM customer  accounted for  approximately 32% of the Company's
revenues for the Six Months Fiscal 1999. The loss of this OEM account could have
a material  adverse  effect on the  Company's  business,  operating  results and
financial condition.  The decrease in sales of the surgical products of $28,000,
or 5.2% from  $543,000 to $515,000 is  attributed  primarily to the reduction of
the Company's surgical independent sales representatives, and the elimination of
various surgical trade show attendance. In an effort to increase surgical sales,
the  Company  recently  signed a Strategic  Alliance  Marketing  Agreement  with
Pilling Weck Surgical, a division of Teleflex,  (NYSE:TFX).  Pilling Weck is the
nation's  oldest and most  respected  manufacturer  and  marketer  of  hand-held
surgical  instruments to hospitals and physician's offices worldwide.  Under the
term  of  the  agreement,  Pilling  Weck  will  identify  Sparta  as  an  allied
single-source  provider  of the  Company's  ophthalmic  microsurgical  hand-held
instruments  whenever  negotiating sales contracts with national hospital buying
groups.

     Gross profit was  $605,000 or 46.5% of net sales for the Six Months  Fiscal
1999 as compared  to  $625,000  or 51.7% of net sales for the Six Months  Fiscal
1998.  The decrease in gross profit  percentage is primarily due to the increase
in electrotherapy  product sales. In general,  the  electrotherapy  product line
generates lower gross profits than the surgical product line.

     Selling,  general and  administrative  ("SG&A") expenses for the Six Months
Fiscal 1999 were  $511,000,  a 47.3% decrease from SG&A expenses of $970,000 for
the Six Months  Fiscal 1998.  The  decrease in SG&A  expenses for the Six Months
Fiscal 1998 as compared to the Six Months  Fiscal 1997 is  primarily  due to the
Company's  implementation  of a  restructuring  plan  involving a  reduction  of
personnel, a Company wide reduction in salaries, and an overall cost containment
program in effect.

     The  increase  in total net income is  primarily  due to the  reduction  of
$206,000 in accrued liabilities during the First Quarter Fiscal 1999 as compared
to the  reduction  of $85,000 in accrued  liabilities  during the First  Quarter
Fiscal 1998.  The increase of $121,000  resulting  from the reduction of accrued
liabilities  is  offset  by an  increase  of  $28,000  in net  interest  expense
resulting   primarily  from  higher  loan  balances  and  banking   expenses  to
NationsCredit,  the Company's  primary  lender.  During the First Quarter Fiscal
1998,  the Company  reduced  its accrued  liabilities  by  $206,000,  which were
originally  accrued in connection with the lease  termination  costs relating to
the sale of the wound care  product  line in December  1995.  As a result of the
foregoing,  the net income  for the Six  Months  Fiscal  1999 was  $206,000,  an
increase  from a net  loss of  $402,000  for the Six  Months  Fiscal  1998.  The
increase  in net income for the Six Months  Fiscal  1999 as  compared to the Six
Months Fiscal 1998 is primarily  due to a significant  decrease in SG&A expenses
and an improvement in sales and other income.

                                       -7-

<PAGE>



     As has been the Company's  strategy since the sale of the woundcare product
line in fiscal year 1996,  the Company  intends to continue 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.

     In that regard,  on July 12, 1998, and  subsequently  amended on October 7,
1998,  the  Company  entered  into  a  non-binding  letter  of  intent  for  the
acquisition of all of the outstanding Common Stock of Med-E-Quip Locaters, Inc.,
("Med-E-  Quip") based in St. Louis,  Missouri.  For its most recent fiscal year
ended  December 31, 1997,  Med-E-Quip  recorded sales in excess of $3.8 million.
Med-E-Quip is a nationally  recognized reseller and rental supplier of pre-owned
I.V. medical equipment and ambulatory devices to hospitals,  home care services,
and veterinary  clinics.  The purchase price will be  approximately  $4,200,000,
consisting of  $2,750,000  in cash,  $500,000 in notes payable over three years,
$100,000 in royalties,  and $850,000 in Common Stock.  The letter of intent also
calls for the Company to issue earn-out common shares to Med-E-Quip's principals
which is subject to Med-E-Quip  meeting certain minimum net sales and net income
goals beginning the fiscal year ending February 28, 1999.

     On July 29,  1998,  and  subsequently  amended on  September  1, 1998,  the
Company signed a non-binding  letter of intent to purchase all or  substantially
all of the assets of Clinimark, Inc. and its subsidiaries, United Medical Supply
Co., and Clinical Devices, Inc. (collectively "Clinimark"),  based in Littleton,
Colorado.  For its most  recent  fiscal year  ending  July 31,  1997,  Clinimark
recorded  sales in excess of $5.2 million.  Clinimark is a designer and marketer
of disposable  diagnostic  monitoring electrode devices and accessories used for
Electrocardiogram (ECG) and Electrotherapy  procedures.  The purchase price will
be approximately $4,950,000 consisting of $650,000 in cash, $3,000,000 in Common
Stock,  and the assumption of certain  specified  liabilities in the approximate
amount of $1.3  million.  The  letter of intent  also  calls for Sparta to issue
earn-out common shares to Clinimark's  principals  subject to Clinimark  meeting
certain  net sales and income from  operation  goals  beginning  the fiscal year
ending February 28, 2000.

     On July 30, 1998, in connection  with the  acquisitions  of Med-E-Quip  and
Clinimark,  Asset  Factoring  International  agreed to provide the Company  with
$2,000,000 in financing.  Any remaining sums required for the acquisitions  will
be advanced from the Company's  $2.5 million line of credit from  NationsCredit.
The closings of these acquisitions is subject to several  conditions,  including
completion of due diligence; approval of the Board of Directors of each company;
the  execution  of  mutually  acceptable  definitive  purchase  agreements;  and
completing the Company's financing.

     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 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.

LIQUIDITY AND CAPITAL RESOURCES

     The Company  develops,  manufactures  and markets surgical and non-invasive
electrotherapy  devices to the healthcare industry  worldwide.  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. The healthcare products industry is intensely competitive,  and many
of the Company's  competitors  have  financial,  marketing  and other  resources
substantially  greater than those of the Company.  Some of the Company's  larger
competitors enjoy an additional competitive advantage by reason of their ability
to offer product  discounts for volume purchases  across product lines.  Some of
the companies which the Company competes,  have significantly greater resources,
established sales  organizations  and greater  experience in marketing and sales
products through direct distribution and is dominated by general industry giants
such as Johnson and Johnson and Baxter Healthcare Corporation.

     On July 17, 1998,  J&C  Resources  ("J&C")  agreed to convert  indebtedness
owing to it from the  Company  in the  amount  of  $751,300  into  shares of the
Company's  common stock  $0.002 par value (the  "Common  Stock") at a conversion
price of $0.75  per  share.  The  conversion  resulted  in  J&C's  being  issued
1,001,733  shares  of the  Company's  Common  Stock.  In  conjunction  with  the
conversion of the J&C indebtedness  into equity,  the Company borrowed  $150,000
from  an  affiliate  of  J&C,  Asset   Factoring,   Inc.,  DBA  Asset  Factoring


                                       -8-

<PAGE>


International  ("Asset Factoring").  Under the terms of the loan, the note bears
interest at a rate of twelve  percent  (12%) per annum and shall  become due and
payable on or before the first to occur of the following events:  (1) receipt by
the  Company of proceeds of at least one  million  dollars  ($1,000,000)  upon a
private sale of its equity  securities;  or (2) the one year  anniversary of the
date of such note. In addition,  Asset Factoring was issued warrants to purchase
up to 150,000  shares of the Common  Stock at a price of $0.75 per share,  which
warrants  shall be  exercisable at any time within four years of the date of the
$150,000 note and which shall carry piggyback registration rights.

     On  July  25,   1997,   NationsCredit   Commercial   Funding   Division  of
NationsCredit  Commercial Corporation,  A NationsBank Company  ("NationsCredit")
provided  the  Company  with  a  48-month  Revolving  Line  of  Credit  of up to
$2,500,000 (the "Loan"). The Company agreed to pay NationsCredit interest on the
average  outstanding  principal  amount of the Loan at a per annum rate of prime
plus 3 1/2%.  The Loan is  advanced  to the  Company  based on a  percentage  of
eligible assets and is secured by a first position  security  interest on all of
the assets of the  Company.  In  addition,  $250,000  of the Loan is  personally
guaranteed  by Mr.  Thomas F.  Reiner.  As of October 8, 1998,  the  outstanding
balance  on the Loan was  $1,334,122  and  approximately  $1,500 in  credit  was
available.  The  Loan is being  used to  provide  working  capital  for  current
operations. In connection with the financing, the Company issued NationsCredit a
warrant to purchase up to 42,500 shares of its Common Stock exercisable at $1.11
per share at any time until July 25, 2002.

     On June 1998,  the Company  entered into a Working  Capital  Secured Credit
Facility  ("WCSCF")  agreement with Mr. Reiner,  the Company's Chairman and CEO,
pursuant to which Mr.  Reiner is providing the Company up to $500,000 in working
capital on an as needed basis. The working capital advances made under the WCSCF
and any accrued and unpaid  interest are due the earlier of (i) June 1999;  (ii)
upon the  closing of a minimum of  $1,000,000  equity or debt  financing  by the
Company. As of October 7, 1998, the amount due to Mr. Reiner under the WCSCF was
approximately  $369,000.  The WCSCF is  secured  by a second  position  security
interest  on all of the  assets  of the  Company.  On July 27,  1998,  under Mr.
Reiner's Employeement Agreement,  Mr. Reiner agreed to accept a temporary salary
reduction in the approximate  amount of $50,000 during the fiscal year 1999. The
temporary  salary  reduction  may continue as cash flow of the Company  improves
and/or Mr. Reiner elects to terminate such agreement. As a consideration for Mr.
Reiner  providing  further  assistance to the Company's cash flow problems,  the
Company  agreed to issue to Mr. Reiner an option to purchase  100,000  shares of
the  Company's  Common Stock,  $0.002 par value,  at $1.47 per share at any time
until July 26, 2005.
 
     As of February 28, 1998,  the Company had net operating loss carry forwards
of  approximately  $9,450,000.  Availability of the Company's net operating loss
carry forwards,  if not utilized,  will expire at various dates through the year
2012.  The  Company's  working  capital  at August  31,  1998 was  approximately
$1,469,000 as compared to $1,122,000 at February 28, 1998. The Company's working
capital position increased by $307,000,  primarily due to the conversion of debt
to equity.

     On June 19, 1998, the Boston Stock  Exchange  notified the Company that for
the period  ending  February  28,  1998,  the  Company  did not meet the minimum
maintenance requirements for continued listing. The Company was notified that it
was delisted from the Boston Stock Exchange effective August 17, 1998.

     The Company is registered  with the FDA as a medical device  establishment.
The Company's  office and  distribution  facilities in California are subject to
various state and local regulations such as zoning requirements, health and fire
codes and the like. All of the Company's  products must be approved,  registered
and/or   licensed  by  the  FDA  and  other  domestic  and  foreign   regulatory
authorities.  These  authorities also regulate  labeling,  advertising and other
forms of product claims.

     Under the Federal  Food,  Drug and Cosmetic Act, the Company is required to
file with the FDA a new device  description  and obtain FDA approval for any new
medical  device  which the Company  proposes  to  manufacture  and  market.  The
procedure for obtaining such approval  differs  depending upon the uniqueness of
the device,  with devices similar to those marketed prior to 1976 being eligible
for expedited approval and those devices which represent significant  departures
from devices on the market in 1976 requiring pre-marketing approval. The devices
are also subject to inspection by the FDA after approval,  with devices that are
potentially  life-threatening being subject to more stringent standards. The FDA
has established  manufacturing and  sterilization  standards for medical devices
known as "Good Manufacturing Practices" which require the Company's distribution
facility  and its  suppliers  to be  registered  annually and subject to regular
inspections by the FDA.

                                       -9-

<PAGE>



     Although applicable government  regulations vary in their provisions,  they
are stringent and continuing.  The cost of compliance with these  regulations is
difficult to  determine,  but such cost is and will continue to be a significant
expense  for  the  Company.  The  Company  believes  that  it has  obtained  all
applicable  government  and  regulatory  approvals  for its  existing  products,
facilities  and  processes  and expects that all of its current  license will be
renewed on a regular  basis.  There can be no  assurance  that the Company  will
continue to be in  compliance  with all current  regulations  or that it will be
able to comply with all future regulations.

     The Company sells its products under a variety of trademarks, some of which
the Company has registered in the United States and various  foreign  countries.
The Company  currently  holds two patents  granted by the United  States  Patent
Office  relating  to  its   Electrotherapy   TENS  units  obtained  through  the
acquisition of Medical Design,  Inc.  Notwithstanding the trademarks and patents
held by the Company, there can be no assurance that competitors will not develop
similar  trademark  outside the Company's  trademark  protection or functionally
similar products outside the Company's patent  protection.  There also can be no
assurance that any patents issued to or licensed by others, that others will not
obtain patents that the Company will need to license or design around,  that the
Company's patents will not inadvertently infringe upon the patents of others, or
that others will not use the Company's  patents upon expiration of such patents.
There  can  be no  assurance  that  existing  or  future  patents  will  not  be
invalidated  or that the Company  will have  adequate  funds to finance the high
cost of  prosecuting  or  defending  patent  validity  or  infringement  issues.
Therefore, the scope or enforceability of claims allowed in the patents on which
the Company will rely, cannot be predicted with any certainty.

     The Company's performance is substantially  dependent on the performance of
its executive officers and key employees. In particular,  the services of Thomas
F. Reiner, the Company's  Co-founder,  Chairman of the Board,  President and CEO
would be  difficult  to replace.  The Company  has  entered  into an  Employment
Agreement  with Mr. Reiner.  The loss of the services of Mr. Reiner,  any of its
executive  officers or other key employees could have a material  adverse effect
on the business, results of operations or financial condition of the Company.

     The Company is currently  evaluating the potential  impact of the year 2000
on the processing of  date-sensitive  information by the Company's  computerized
information  system.  The year 2000  problem is the result of computer  programs
being written using two digits (rather that four) to define the applicable year.
Any of the Company's  computer  programs that have  time-sensitive  software may
recognize a date using "00" as the year 1900  rather  than the year 2000,  which
could  result  in  miscalculations  or  system  failure.  Based  on  preliminary
information,  the costs of addressing  the potential  problems are not currently
expected to have a material adverse effect on the Company's  financial position,
liquidity or results of operations in future periods. However, if the Company or
its  customers  or vendors,  are unable to resolve such  processing  issued in a
timely manner, it could pose a material financial risk. Accordingly, the Company
plans to devote the  necessary  resources to resolve all  significant  year 2000
issues in a timely manner.

     The Company's current operations continue to be cash flow negative, further
straining the Company's working capital resources.  The Company's future 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, from either debt or equity sources. If the
Company is unable to obtain such additional working capital, it may be necessary
for  the  Company  to   restructure   its   operations  to  reduce  its  ongoing
expenditures.

     Except for the historical  information  contained  herein,  the matters set
forth in this report are  forward-looking  statements  within the meaning of the
"safe harbor"  provisions  of the Private  Securities  Litigation  Reform Act of
1995. These  forward-looking  statements are subject to risks and  uncertainties
that may cause  actual  results to differ  materially.  These risks are detailed
from time to time in the Company's  periodic  reports filed with the  Securities
and Exchange  Commission,  including the Company's Annual Report on Form 10-KSB,
Quarterly   Reports  on  Form   10-QSB  and  other   periodic   filings.   These
forward-looking  statements  speak  only  as of the  date  hereof.  The  Company
disclaims any intent or obligation to update these forward-looking statements.

                                      -10-

<PAGE>



Part II. Other Information
         -----------------

Item 1. Legal Proceedings
        -----------------

               None

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.   Exhibit No.

               27   Financial Data Schedule

          B.   Reports on Form 8-K

          The  Registrant  filed a Form 8-K dated August 11, 1998 which reported
          that J&C Resources,  Inc. agreed to convert the amount of indebtedness
          owing to it from the Company in the amount of $751,300  into shares of
          the common  stock  $0.002 per value of the  Company,  at a  conversion
          price of $0.75 per  share.  The  conversion  resulted  in J&C's  being
          issued 1,001,733 shares of the Company's Common Stock.

                                      -11-

<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



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


/s/ H. Dale Biggs
---------------------------------------
H.  Dale Biggs
Controller and Chief Financial Officer

October 15, 1998

                                      -12-