<PAGE>
 
================================================================================
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-K
(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                 OR

[_]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

       FOR THE TRANSITION PERIOD FROM _______________ TO _______________

                        COMMISSION FILE NUMBER 0-27264

                                 UROGEN CORP.
                                 ------------
            (Exact name of registrant as specified in its charter)

              DELAWARE                            33-0687976
              --------                            ----------
  (State or other jurisdiction of             (I.R.S. Employer
  incorporation or organization)             Identification no.)


             3099 SCIENCE PARK ROAD, SUITE A, SAN DIEGO, CA, 92121
             (Address of principal executive offices)      (Zip code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (619) 450-5949

       SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:  NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                         COMMON STOCK, $.001 PAR VALUE
                                (TITLE OF CLASS)

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes  X    No
                                               ---      ---

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form-K.  [X]

   The number of shares of the Common Stock of the registrant outstanding as of
March 28, 1997, was 7,389,528.  The number of shares of Common Stock held by
nonaffiliates on such date was 5,748,177 with an estimated value of $287,409
based upon the value of the dividend distribution in the Company's Information
Statement dated February 6, 1996.  This Common Stock is restricted from
transfer, except as specified on Page 10 (See Item 5.  "Market for Registrant's
Common Equity and Related Stockholder Matters") until December 31, 1997.

                                       1
<PAGE>
 
                                 UROGEN CORP.
                       (A DEVELOPMENT STAGE ENTERPRISE)

                                   FORM 10-K

                               TABLE OF CONTENTS
                               -----------------


              ITEM NUMBER AND CAPTION                               PAGE NO.
              -----------------------                               --------
<TABLE>
<CAPTION>

PART I
<S>           <C>                                                   <C>
 
Item 1.       Business...........................................    3
Item 2.       Properties.........................................    9
Item 3.       Legal Proceedings..................................    9
Item 4.       Submission of Matters to a Vote of Security Holders    9
 
PART II
 
Item 5.       Market For Registrant's Common Equity
               and Related Stockholder Matters...................   10
Item 6.       Selected Financial Data............................   11
Item 7.       Management's Discussion and Analysis of
               Financial Condition and Results of
               Operations........................................   11
Item 8.       Financial Statements and Supplementary Data........   13
Item 9.       Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure...............   13
 
PART III
 
Item 10.      Directors and Executive Officers of the Registrant.   13
Item 11.      Executive Compensation.............................   16
Item 12.      Security Ownership of Certain Beneficial
               Owners and Management.............................   17
Item 13.      Certain Relationships and Related Transactions.....   18
 
PART IV
 
Item 14.      Exhibits and Financial Statement Schedules, and
               Reports on Form 8-K...............................   20
</TABLE>

                                       2
<PAGE>
 
                                     PART I

Item 1.  BUSINESS

UroGen Corp. (the "Company") is a development stage company which is primarily
engaged in the development of pharmaceuticals to treat prostate cancer.  The
Company was inactive until January 1, 1996, at which date the operations of the
business, which previously operated as two divisions of Medstone International,
Inc. ("Medstone") from July 1, 1991 through December 31, 1995, were transferred
to the new company.

UroGen Corp., a Delaware corporation, was incorporated on June 30, 1995, as a
wholly-owned subsidiary of Medstone.  The Company was formed from the medical
biology and small molecule pharmaceuticals divisions of Medstone to continue the
effort, started in 1991, to develop pharmaceuticals to treat diseases in
urology, with a particular interest in prostate cancer.  UroGen operated as a
division of Medstone from July 1, 1991 to December 29, 1995.

On December 29, 1995, Medstone declared a dividend of all of the stock of UroGen
Corp. to be distributed to all Medstone stockholders.  Each stockholder of
Medstone received, on February 9, 1996, one share of UroGen Common Stock for
each share of Medstone Common Stock held on the Record Date, December 29, 1995.
The Distribution resulted in the receipt by record holders of Medstone Common
Stock of all of UroGen's outstanding Common Stock.  Upon completion of the
Distribution, there were 5,616,528 shares of UroGen Common Stock outstanding.

The Distribution occurred on February 9, 1996, on which date Medstone also
contributed to the capital of UroGen Corp. $500,000 cash.  For financial
reporting purposes, the Distribution and contribution to capital have been
considered effective as of January 1, 1996, and the operations of the business
have been considered those of UroGen Corp. effective that date.

Additionally, effective January 1, 1996, Medstone executed a forgiveness of all
intercompany advances resulting from the prior divisional funding of operations
between Medstone and UroGen.

PROSTATE DISEASE

  The prostate is a chestnut-shaped gland that surrounds the urethra (the tube
leading from the bladder).  The function of the prostate is to secrete a thin,
milky fluid into the urethra to join the semen and fluids from the seminal
vesicles during ejaculation.  Prostate secretions act to neutralize the seminal
fluid and acidic secretions of the vagina.

  The prostate gland develops under the control of male hormones; it continues
to respond to hormone growth factors throughout adult life.  Thus with time and
testosterone, enlargement of prostate tissue proceeds naturally.  This condition
is called Benign Prosthetic Hyperplasia (BPH).  It afflicts most men past the
age of 45, to some degree.

  It is the cylindrical embrace of the urethra, caused by BPH, which is destined
to cause many men to suffer.  When the gland swells from infection or enlarges
from natural overgrowth it pinches off urine flow.  The resulting discomfort and
dangerous obstruction sends over 400,000 men to their urologist each year.

  A prostate sugar protein called Prostate Specific Antigen, or PSA, inhibits
the seminal fluid from coagulating.  Antibody assays for PSA in patients' serum
are an unfailing indication of the presence of prostate tissue.  The PSA assay
has become the standard blood test for prostate assessment.  PSA plus a Digital
Rectal Exam (DRE) and ultrasound-guided needle biopsies are often used to help
diagnose prostate disease.  However, there is no definitive, noninvasive
diagnostic for prostate cancer nor any current diagnostic to determine if the
cancer is localized in the prostate or has begun an early migration to other
organs including bone tissue.

                                       3
<PAGE>
 
  Further degeneration of cellular growth control results in prostate cancer.
Excluding skin cancers, prostate cancer is the most common malignancy in males
and is second only to lung cancer in causing male cancer deaths.  In 1996 more
than 300,000 new cases were diagnosed and there will be more than 40,000 deaths.
The most aggressive form of prostate cancer usually spreads (metastasizes) to
bone marrow, where it is almost always fatal.  There is no known cure for
metastatic prostate cancer.

  The August 1993 issue of the Journal of Urology describes an autopsy study at
Wayne State University School of Medicine titled "The Frequency of Carcinoma and
Intraepithelial Neoplasia of the Prostate in Young Male Patients."  The report
observes that "the initiating events leading to clinically relevant prostate
cancers are likely to occur at a remarkably young age."  It describes the
"suprisingly high frequency of prosthetic intraepithelial neoplasia and
histological carcinoma in the prostates of young men."  Finding microscopic,
silent, multifocal carcinoma in many men and not having assays to predict
mutagenic rate or metastatic events is creating a dilemma in modern urology.
Most men die with pathologic evidence of prostate cancer.

  Metastatic prostate cancer is treated today by depriving the cells of their
growth hormones to prevent or slow down cell division.  Various physical and
chemical techniques are available for blocking the production of testosterone
and dihydrotestosterone, the androgen growth promoters for the prostate gland.
Prostate cancer cells that depend upon androgens to grow enter a suicide pathway
when deprived of these hormones.  This is the reason for the dramatic response
seen in many prostate cancer patients undergoing androgen ablation therapy.
Eventually, androgen independent mutant clones develop that do not enter the
programmed death pathway.  They have been self selected to grow without systemic
hormones.  At the present time, there is no known way to eliminate this
population of metastatic prostate cells.

RESEARCH FOCUS

  Genetic Engineering to reprogram target organ cells and immune cells.

  The genetic program in each cell controls its growth, development, and
function.  Modern molecular engineering allows scientists to change this
program, a process called genetic engineering or gene therapy.  Genetic
engineering is a new and complex technology with uncertain results in many
cases.  There is controversy currently in the medical and scientific community
as to the success to date of genetic engineering in achieving its goals.

  Genetic engineering employs different cell engineering technologies to
permanently or temporarily alter the cell's program.  In general, genetic
information that is inserted into the nucleus of a dividing cell line will be
permanent, while genetic code delivered to the cell's cytoplasm will function
only as a temporary change.  The cells can be engineered outside or inside the
body.  These techniques allow many new  experiments to manipulate cell behavior,
correct genetic defects, reduce the mutation rate, and stimulate the immune
system.

  Immune Engineering to generate intolerance to invading cancer cells.

  Vaccination to achieve immunity against infectious disease has been practiced
as a medical art for over 200 years.  It is only within the last 10 years that
the molecular basis for immunity could be partially explained and harnessed more
effectively.  Much mystery remains, but enough is known to guide experimental
science towards new vaccination techniques and new drugs that might harness the
immune system to fight cancer. 

                                       4
<PAGE>
 
UroGen is planning to explore experimental compounds and protocols that use
patients' tumor cells, peripheral blood lymphocytes, and a combination of
cytokines, lymphokines, lipids, proteins and sugar complexes to stimulate the
patient's immune system to recognize tumors as abnormal or "non-self." There are
two kinds of Lymphocytes, the main cell in the immune system, B Lymphocytes and
T Lymphocytes make specific antibodies when activated and T Lymphocytes become
activated by specific infectious viruses. Cytokines are protein hormones made by
cells of the immune system. When protein hormones are made by lymphocytes they
are called lumphokines. The healthy immune reactin directed against "non-self"
tissue is one of the most powerful and precise destructive forces in biology.

  Antibody Conjugates for current diagnostics and future therapeutic biobullets.

  As part of the Distribution, UroGen obtained ProsmetTM 562, a proprietary
prostate antibody that has the ability to bind to metastatic prostate epithelial
cells with specificity and sensitivity.  The economic value of this molecule is
not known at this time.  However, if similar molecules show clinical promise,
additional research and development of ProsmetTM 562 will be re-evaluated.

  The genetic information that codes the sight specific portion of our antibody
may have great value in assisting the management of immune tolerance in prostate
metastatic cancer.  These antibodies might have therapeutic value when
conjugated to cytotoxic compounds like doxorubicin which kill cells after being
ingested.  Some recent success in chemotoxic antibody conjugates in animal
cancer models has renewed interest in this high risk approach to cancer
therapeutics.

  Synthetic Chemistry to create novel small molecule and polymer drugs.

  UroGen is planning to research linking antibodies to therapeutic agents.  In
addition, the Company is interested in synthesizing steroid and non-steroid
androgen blocking agents as well as the use of time delay polymer chemistry to
help control the pharmacokinetics of a wide range of large and small molecules.

COMPETITION

  UroGen is engaged in a rapidly changing field.  Existing therapies and
products to treat prostate disorders will compete directly with the products
that the Company is seeking to develop and market.  Competition from fully
integrated pharmaceutical companies and more established biotechnology companies
is expected to increase.  Most of these companies have significantly greater
financial resources and expertise in research and development, manufacturing,
preclinical and clinical testing, obtaining regulatory approvals and marketing
than the Company.  Smaller companies may also prove to be significant
competitors, particularly through collaborative arrangements with large
pharmaceutical companies.  Many of these competitors have significant prostate
and urological system products approved or in development and operate large,
well funded research and development programs.  Academic institutions,
governmental agencies and other public and private research organizations also
conduct research, seek patent protection and establish collaborative
arrangements for product and clinical development and marketing.  These
companies and institutions compete with the Company in recruiting and retaining
highly qualified scientific and management personnel.  In addition to the above
factors, UroGen will face competition based on product efficacy, safety, the
timing and scope of regulatory approvals, availability of supply, marketing and
sales capability, reimbursement coverage, price and patent position.  There is
no assurance that the Company's competitors will not develop more effective or
more affordable products, or achieve earlier patent protection or product
commercialization than the Company.  Additionally, there is no assurance that
technologies developed by others will not render the potential products of the
Company uneconomical or obsolete, or that the Company will be successful in
marketing its potential products against competitors.

                                       5
<PAGE>
 
GOVERNMENT REGULATION

  The production and marketing of the Company's products and its ongoing
research and development activities will be subject to extensive regulation by
numerous governmental authorities in the United States and other countries.
Prior to marketing in the United States, any drug developed by the Company must
undergo rigorous preclinical (animal) and clinical (human) testing and an
extensive regulatory approval process implemented by the FDA under the Food,
Drug and Cosmetic Act.  Satisfaction of such regulatory requirements, which
includes satisfying the FDA that the product is both safe and effective,
typically takes several years or more depending upon the type, complexity and
novelty of the product and requires the expenditure of substantial resources.
Clinical trials are rigorously regulated.  Preclinical studies must be conducted
in conformance with the FDA's good laboratory practice ("GLP") regulations.
Clinical testing must meet requirements for institutional review board oversight
and informed consent, as well as FDA prior review, oversight and good clinical
practice requirements.  The Company has limited experience in conducting and
managing the preclinical and clinical testing necessary to obtain regulatory
approval.  Clinical trials in the United States frequently require large numbers
of test subjects.  There can be no assurance that those conducting clinical
trials for the Company will be able to initiate trials at preferred clinical
test sites, recruit sufficient test subjects or that clinical trials will be
started or completed successfully within any specified time period, if at all,
with respect to any of the Company's products.  Furthermore, the Company or the
FDA may suspend clinical trials at any time if it is felt that the subjects
participating in such trials are being exposed to unacceptable health risks.
Their can be no assurance that the Company will not encounter problems in
clinical trials which will cause the Company or the FDA to delay or suspend
clinical trials.

  Their can be no assurance that any compound developed by the Company alone or
in conjunction with others will prove to be safe and efficacious in clinical
trials and will meet all of the applicable regulatory requirements needed to
receive marketing approval.  Before receiving FDA approval to market a product,
the Company may have to demonstrate that the product represents an improved form
of treatment compared to existing therapies.  Data obtained from preclinical and
clinical activities are susceptible to varying interpretations which could
delay, limit or prevent regulatory approvals.  In addition, delays or rejections
may be encountered based upon additional government regulation from future
legislation or administrative action or changes in FDA policy during the period
of product development and FDA regulatory review.  Similar delays may be
encountered in foreign countries.  There can be no assurance that even after
such time and expenditures, regulatory approval will be obtained for any
products developed by the Company.  If regulatory approval of the product is
granted, such approval will be limited to those disease states and conditions
for which the product is useful, as demonstrated through clinical studies.
Furthermore, approval may entail ongoing requirements for postmarketing studies.
Even if such regulatory approval is obtained, a marketed product, its
manufacture and its manufacturing facilities are subject to continual review and
periodic inspections.  The regulatory standards for manufacturing are currently
being applied stringently by the FDA.  Discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on such
product or manufacturer, including withdrawal of the product from the market.
Moreover, Congress has given drug pricing extensive scrutiny and is considering
legislation to restrict price increases of pharmaceuticals, especially sales to
the federal and state government.  Legislation and regulations affecting the
formula for pricing pharmaceuticals may change before the Company's products are
approved for marketing.

  The Company intends to establish collaborative relationships to conduct
clinical testing and seek regulatory approvals to market its products in major
markets outside the United States.  There can be no assurance that the Company
will be successful in establishing such relationships or that such approvals
will be received in a timely basis, if at all.  Sales of pharmaceutical products
outside the United States are subject to regulatory requirements that vary from
country to country.  In the European Union, ("EU"), the general trend has been
towards coordination of common standards for clinical testing of new drugs,
leading to changes in various requirements imposed by each EU country.  The
level of regulation in the EU and other foreign jurisdictions varies widely.
The time required to obtain regulatory approval from comparable regulatory
agencies in each foreign country may be longer or shorter than that required for
FDA approval.

                                       6
<PAGE>
 
  In addition, in certain foreign markets, the Company may be subject to
governmentally mandated prices. This foreign regulatory approval process
includes all of the risks associated with FDA approval set forth above.

INTELLECTUAL PROPERTY

  The company's success will depend in part on its ability to obtain patents and
product license rights, maintain trade secrets and operate without infringing on
the proprietary rights of others, both in the United States and other countries.
The patent positions of biotechnology and pharmaceutical companies can be highly
uncertain and involve complex legal and factual questions, and therefore the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted.  There can be no assurance that patents issued to or licensed by the
Company will not be challenged, invalidated or circumvented, or that the rights
granted thereunder will provide proprietary protection or competitive advantages
to the Company.

  In September 1996, the Company entered into an Exclusive License Agreement
with the University of California.  Under the terms of the Agreement, the
Company obtained exclusive rights for the commercial development, use, and sale
of products from the inventions generally characterized as "Detection of
Carcinoma Metastases by Nucleic Acid Amplification."

  In February 1997, the Company entered into an Exclusive License Agreement with
The Immune Response Corporation.  Under the terms of the License Agreement, the
Company obtained exclusive rights to develop and commercialize Licensed Products
for use in the fields of tumors of the urogenital system, excluding the ovaries.
The rights obtained by the Company under this Agreement are generally
characterized as "Tumor Sensitization by Gene Therapy."

  Competitors may have filed applications, may have been issued patents or may
obtain additional patents and proprietary rights relating to products or
processes competitive with those the Company may acquire or develop.  There is a
substantial backlog of biotechnology and pharmaceutical patents at the United
States Patent and Trademark Office (PTO).  Accordingly, the time at which the
Company's or competitors' patent applications will issue as patents cannot be
predicted.  Since patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, the
Company cannot be certain that it was the first to discover subject matter
covered by its patent applications or patents or that it was the first to file
patent applications for such inventions.

  The commercial success of the Company will also depend, in part, on not
infringing on patents issued to others and not breaching the technology licenses
upon which any Company products are based.  It is uncertain whether any third-
party patents will require the Company to alter its products or processes,
obtain licenses or cease certain activities.  A number of pharmaceutical
companies, biotechnology companies, universities and research institutions have
filed patent applications or received patents in the prostate field.  Some of
these applications or patents may be competitive with the Company's
applications, or conflict in certain respects with claims made under the
Company's applications.  Such a conflict could result in a significant reduction
of the coverage of the Company's patents, if issued.  In addition, if patents
are issued to others which contain competitive or conflicting claims and such
claims are ultimately determined to be valid, the Company may be required to
obtain licenses to these patents or to develop or obtain alternative technology.
If any licenses are required, there can be no assurance the Company will be able
to obtain any such licenses on commercially favorable terms, if at all.  The
Company's breach of an existing license or failure to obtain a license to any
technology that it may require to commercialize its products may have a material
adverse  impact on the Company. Litigation, which could result in substantial
costs to the Company, may also be necessary to enforce any patents issued to the
Company or to determine the scope and validity of third-party proprietary
technology also claimed by the Company.  The Company may have to participate in
interference proceedings declared by the PTO or litigation to determine priority
of inventions, which could result in substantial cost to the Company, even if
the eventual outcome is favorable to the Company. 

                                       7
<PAGE>
 
  There can be no assurance that the Company's patents, if issued, would be held
valid and infringed by a court of competent jurisdiction. An adverse outcome
with regard to a third party claim could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require the Company to cease using such technology.

  The Company also relies on secrecy to  protect its technology, especially
where patent protections is not believed to be approved or obtainable.  Thus,
UroGen will protect its proprietary technology and processes, in part, by
confidentiality agreements with its employees, consultants and certain
contractors. There can be no assurance that these agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.

EMPLOYEES

  The Company has no full-time employees.  At present it will initially utilize
certain personnel on a part-time basis to assist with administrative, research,
clinical trails, and accounting operations.  The Company expects over time to
retain full and part-time personnel and consultants to satisfy its research and
development, marketing, production, regulatory and administrative staffing
requirements.

HISTORY OF OPERATING LOSSES;  ACCUMULATED DEFICIT

  The Company's predecessor divisions have experienced significant operating
losses since their inception in 1991.  As of December 31, 1996, the Company's
balance sheet reflects an accumulated deficit of $443,998.  The Company expects
to incur significant additional operating losses over the next several years as
the Company's research and development efforts expand.  The Company's ability to
achieve profitability depends upon its ability, alone or with others, to
successfully complete development of pharmaceutical products, obtain required
approvals and manufacture and market its products.

DEPENDENCE UPON KEY PERSONNEL

  The Company's future success, if any, depends to a significant degree upon the
continued service of key technical and senior management personnel, particularly
Ivor Royston, M.D., the loss of any of whose services might significantly delay
the Company's efforts.  None of such persons is bound by an employment agreement
or covered by an insurance policy of which the Company is the beneficiary.  In
addition, the Company will rely on consultants and advisors, including its
scientific advisors, to assist the Company in formulating its research and
development strategy.  In order to pursue its product development and marketing
plans, the Company may be required to hire additional qualified scientific
personnel to  perform research and development, as well as personnel with
expertise in clinical testing, government regulation, manufacturing, and
marketing.  Product development and marketing may also require the addition of
management personnel and the development  of additional expertise by existing
management personnel.   The Company's success depends on its ability to attract
and retain such highly qualified technical and managerial personnel. Competition
for such personnel is intense, and there can be no assurance that the Company
will be able to retain its technical and managerial employees or attract,
assimilate or retain highly qualified technical and managerial personnel in the
future.  If the Company is unable to hire the necessary technical personnel, its
ability to develop new and enhanced products could be impaired.  Failure to do
so could have a material adverse effect upon the Company's business and results
of operations.  Further, a significant portion of the Company's research and
development will be conducted under sponsored research programs with
universities and other research organizations.  The Company will depend on the
abilities of the principal investigator available to conduct research and
development.  The Company's collaborators will not be employees of the Company.
As a result, the Company has limited control over their activities and can
expect that only limited amounts of their time will be dedicated to Company
activities.  The Company's collaborators may have relationships with other
commercial entities, some of which could compete with the Company.

                                       8
<PAGE>
 
CAPITALIZATION

  The following table sets forth the capitalization of the Company.  This data
should be read in conjunction with the historical financial statements and the
related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
 
                                                                        December 31,
                                                                 ------------------------
                                                                     1996        1995
                                                                 -----------   ----------
<S>                                                              <C>           <C>
Stockholders'/division equity:                                
 
Preferred stock, $.01 par value.  Authorized
 5,000,000 shares; none issued or outstanding                    $    --       $      --      
 
Common stock, $.001 par value.  Authorized
 40,000,000 shares; 5,979,528 issued and outstanding
 at December 31, 1996 and none at December 31, 1995                   5,980           --
 
Additional paid-in capital                                          675,252           --
 
Deficit accumulated during development stage                       (443,998)          --
Advances from Medstone                                                --         3,888,875
Divisional accumulated (deficit)                                      --        (3,725,793)
                                                                 ----------    -----------
 Total division equity                                           $  237,234    $   163,082
                                                                 ==========    ===========
 
 Total capitalization                                            $  237,234    $   163,082
                                                                 ==========    ===========
</TABLE>

DIVIDEND POLICY

  The Company presently intends to retain earnings, if any, for use in its
business and does not anticipate paying cash dividends in the foreseeable
future.


ITEM 2.  PROPERTIES

  The Company currently rents office and laboratory space within the facilities
of the Sidney Kimmel Cancer Center in San Diego, California under a three year
affiliation agreement which expires May 31, 1999.


ITEM 3.  LEGAL PROCEEDINGS

  The Company is not a party to any material litigation or legal proceedings.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  None.

                                       9
<PAGE>
 
                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

  The Common Stock of UroGen was distributed to the public as a dividend to
holders of Medstone International, Inc. Common Stock.  Each stockholder of
Medstone received, as of February 9, 1996, one share of UroGen Common Stock for
every one share of Medstone Common Stock held on the Record Date, December 31,
1995.  Upon completion of the Distribution, there were 5,616,528 shares of
UroGen Common Stock outstanding.  None of the shares of the Company issued in
this Distribution may be transferred before December 31, 1997 unless such
restriction is earlier terminated by the Company as to all such shares, except
for the following transfers:  (i) transfers by gift, will, bequest or the
applicable laws of descent and distribution; (ii) non-sale distributions by
partnerships, corporations or trusts to their partners, shareholders or
beneficiaries; (iii) transfers to the Company; and (iv) transfers pursuant to
qualified domestic relations order as defined by the Internal Revenue Code of
1986, as amended (the "Code"), or the rules thereunder. In the case of any such
permitted transfers, the shares in the hands of the transferees will continue to
be subject to the same transfer restriction.  The certificates representing the
shares issued in the Distribution bear the legends referring to such
restrictions.  As of December 31, 1996, there are also outstanding options to
purchase 1,425,000 shares of UroGen Common Stock (see "Capitalization").  During
1996, there has not been any public trading market for the UroGen Common Stock.

TRADING OF UROGEN COMMON STOCK

  No market for the Company's shares of capital stock presently exists and no
assurance can be given that any active trading market will develop or be
sustained.  None of the shares of capital stock of the Company issued in the
Distribution or otherwise, or acquired through the exercise of stock options
prior to December 31, 1997, may be transferred before December 31, 1997 unless
such restriction is earlier terminated by the Company as to all such shares,
except for the following transfers: (i) transfers by gift, will, bequest or the
applicable laws of descent and distribution; (ii) non-sale distributions by
partnerships, corporations or trusts to their partners, shareholders or
beneficiaries; (iii) transfers to the Company; and (iv) transfers pursuant to
qualified domestic relations order as defined by the Code or the rules
thereunder.  In the case of any such permitted transfers, the shares in the
hands of the transferees will continue to be subject to the same transfer
restriction.

  The Company has approximately 395 stockholders of record as of December 31,
1996.

                                       10
<PAGE>
 
Item 6.  SELECTED FINANCIAL DATA

  The following selected financial data of UroGen Corporation, and the UroGen
division of Medstone, UroGen's predecessor, reflects UroGen's operating results
as a stand-alone entity during 1996, and UroGen's historical operation as a
division of Medstone and should be read in conjunction with the Company's
historical financial statements and respective notes thereto included elsewhere
in this Form 10-K and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" following this section. This financial data
as of December 31, 1996 and 1995, and for each of the years in the three-year
period ended December 31, 1996 and the period July 1, 1991, to December 31,
1996 have been derived from the audited financial statements of the Company,
included elsewhere herein. The financial data for all other periods and dates
have been derived from unaudited financial statements of the Company. In the
opinion of management, such unaudited financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation. Note, all amounts in thousands.
<TABLE>
<CAPTION>
 
                                                                                                Period from
                                                                                               July 1, 1991
                                                                                              (inception) to
                                                      Year Ended December 31,                  December 31,
                                           ------------------------------------------------  
                                            1996      1995     1994      1993       1992           1996
                                           -------   ------   ------   --------   ---------   ---------------
<S>                                        <C>       <C>      <C>      <C>        <C>         <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
  Net laboratory sales                     $   --    $  --    $  --    $   296    $    159          $    456
Costs and expenses:
  Cost of sales                                --       --       --        599         222               822
  Research and development                    348       75      165      1,273       1,030             3,174
  Selling, general and administrative         174       --      233        301          --               708
                                           ------    -----    -----    -------    --------          --------
         Total costs and expenses             522       75      398      2,173       1,252             4,704
                                           ------    -----    -----    -------    --------          --------
Loss from operations                         (522)     (75)    (398)    (1,877)     (1,093)           (4,248)
Other                                          64       --       --         --          --                64
Interest income                                14       --       --         --          --                14
                                           ------    -----    -----    -------    --------          --------
Net loss                                   $ (444)   $( 75)   $(398)   $(1,877)   $ (1,093)         $ (4,170)
                                           ======    =====    =====    =======    ========          ========
Net loss per share                         $ (.07)
Weighted average shares outstanding         5,980
</TABLE> 
 
<TABLE> 
<CAPTION> 
 
                                                              December 31,
                                           -----------------------------------------------
                                             1996     1995     1994      1993        1992
                                           ------    -----    -----    -------    --------
<S>                                        <C>       <C>      <C>      <C>        <C>
BALANCE SHEET DATA:
Working Capital                            $  235    $   1    $  --    $    23    $     66
                                                                
Total assets                                  253      163      201        327         414
Total equity                                  237      163      201        313         387
 
</TABLE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

GENERAL

  UroGen Corp. (the "Company") is a development stage company which is primarily
engaged in the development of pharmaceuticals to treat prostate cancer.  The
Company was incorporated in Delaware on June 30, 1995.  It was inactive until
January 1, 1996, at which date the operations of the business, which previously
operated as a division of Medstone International, Inc. ("Medstone") from July 1,
1991 through December 31, 1995, were transferred to the new company.

                                       11
<PAGE>
 
  The Company, a division of Medstone prior to January 1, 1996, had no
independent operating history of its own and, to date, has generated a net loss
of $4,169,791. Accordingly, there can be no assurances that the Company will be
able to generate sufficient revenue and cash flow to maintain its operations
beyond the $250,255 existing cash balance. The Company must develop new products
and raise substantial additional financing.

PLAN OF OPERATION

  The Company expects that its capital resources will enable it to maintain its
current and planned operations for approximately the next six to twelve months.
Thereafter, the Company will need to raise substantial additional capital to
fund its operations.  In the next twelve months UroGen will be actively pursuing
opportunities to develop and/or license new prostate cancer therapeutics and
diagnostics.

  Depending on the Company's success in identifying promising opportunities in
prostate cancer therapy, and if it is successful in attracting additional
capital, UroGen could substantially increase its number of employees.  However,
it is the Company's current intention to use human resources on a part-time and
consulting basis for the near-term, if at all possible.

LIQUIDITY AND CAPITAL RESOURCES

  From inception on July 1, 1991, all of the Company's operations have been
funded by Medstone, however, such funding was completed with the $500,000
capital contribution of cash on February 9, 1996.  The Company has incurred net
losses of $4,169,791 since its inception and has never been profitable during
its existence.  The Company expects to incur significant additional operating
losses over the next several years as the Company's research and development
efforts expand.  The Company's ability to achieve profitability depends upon its
ability, alone or with others, to successfully complete development of
pharmaceutical products, obtain required regulatory approvals and manufacture
and market its products.

  The Company's operations to date have consumed substantial amounts of cash.
The negative cash flow from operations is expected to continue and to accelerate
in the foreseeable future.  The development of the Company's products will
require a commitment of substantial funds to conduct the costly and time-
consuming research, preclinical and clinical testing necessary to bring such
products to market and to establish manufacturing and marketing capabilities.
The Company's future capital requirements will depend on many factors, including
scientific progress in its research and development programs, the ability of the
Company to establish collaborative arrangements with others for drug
development, progress with preclinical and clinical trials, the time and costs
involved in obtaining regulatory approvals and effective commercialization
activities.

  The Company expects that its existing capital resources, including the
$250,255 existing cash and equivalents, and financing received in January 1997,
will enable the Company to maintain its current and planned operations into 
1998. The Company intends to seek additional funding either through
collaborative arrangements or through public or private equity or debt
financings. There can be no assurance that additional financing will be
available on acceptable terms or at all. If additional funds are raised by
issuing equity securities, further dilution to stockholders will result. If
adequate funds are not available, the Company may be required to delay or reduce
the scope of its operations or obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights it may have acquired in the interim.

RESULTS OF OPERATIONS

  For the years ended December 31, 1996 and 1995, the Company had no operating
revenues and net losses of $443,998 and $74,640, respectively.  The increased
loss for the current period reflects primarily a technology licensing fee paid,
the new cost structure to operate as a separate entity and a one-time charge for
disposition of fixed and other assets.

                                       12
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 See Item 14. "Exhibits, Financial Statement Schedules, and Reports on Form 8-K"


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

 None.


                                    PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  The following table sets forth the name, age and position of each present
executive officer and director of the Company.
<TABLE>
<CAPTION>
 
Name                     Age   Position
----                     ---   --------
<S>                      <C>   <C>
 
Paul D. Quadros           50   Chairman of the Board, Chief Financial Officer and Secretary
 
Ivor Royston, M.D.        51   President, Chief Executive Officer and Director
 
Robert Sobol              44   Executive Vice President and Chief Operating Officer
 
William Raschke           50   Director of Research
 
Peter F. Bernardoni       37   Director
</TABLE>

  PAUL D. QUADROS has been the Company's Chairman of the Board, Chief Financial
Officer and Secretary since the Company's formation in June, 1995.  From June
1994 to May 1995 Mr. Quadros served as Senior Vice President and Chief Financial
Officer of Thermatrix, Inc., a manufacturer of pollution control equipment.
Prior to joining Thermatrix, Mr. Quadros was, from January 1985 an officer and
from April 1986 a General Partner of Technology Funding, a venture capital
management organization.  From April 1986 through May 1994, Mr. Quadros was a
member of Technology Funding's Commitments Committee, serving as its Chairman
from 1987-1990.  During his affiliation with Technology Funding he also served
as Director of Research and Director of Equity Investments.  From 1991-1994
Mr. Quadros was Chairman of Technology Funding's Medical Investment Committee
and was actively involved in managing Technology Funding's healthcare portfolio.
Mr. Quadros serves as a director of several private companies and one public
company, Cardiac Science.

  Prior to joining Technology Funding in 1985 Mr. Quadros was Executive Vice
President of Amreal Securities Corp., an affiliate of Home Federal Savings and
Loan.  Before joining Amreal in April 1984, Mr. Quadros was a Senior Vice
President of Public Storage, Inc., a national real estate developer.  Prior to
joining Public Storage in 1981, Mr. Quadros was Assistant Treasurer of The Time
Mirror Company, where he served for seven years in several corporate finance
positions.  Mr. Quadros began his career as a securities analyst and
institutional portfolio manager.  Mr. Quadros has a B.A. in Finance from
California State University at Fullerton and an M.B.A. from UCLA Graduate School
of Management.

  IVOR ROYSTON, M.D. has been President, Chief Executive Officer and Director
since the Company's formation in June 1995.  Dr. Royston was appointed by the
President of the United States to the National Cancer Advisory Board during
1996.

                                       13
<PAGE>
 
    Dr. Royston is the President and Chief Executive Officer of Sidney
Kimmel Cancer Center (formerly the San Diego Regional Cancer Center) a position
he has held since founding the Center in 1990.  He is also a General Partner of
Forward Ventures, a life science venture capital firm. From 1977 to 1993 
Dr. Royston held various positions in academic medicine at the University of
California, San Diego (UCSD) School of Medicine, including Assistant Professor
of Medicine from 1977-1982 and Associate Professor of Medicine from 1982-1990.
In addition, Dr. Royston served as Director, Clinical Immunology Program at the
UCSD Cancer Center and Chief of Oncology at the San Diego VA Medical Center.

  Dr. Royston is Associate Editor of the Cancer Gene Therapy, and the Journal of
Clinical Laboratory Analysis; Antibody, Immunoconjugates & Radio Pharmaceutics.
He serves on the Editorial Board of Hybridoma and Molecular Biology of Cancer.
Dr. Royston is a frequent reviewer for the Journal Cancer Research, Journal
Blood, and the Journal of Clinical Oncology.

  Dr. Royston is the holder of six patents and is a member of eleven medical and
scientific societies and has published more than 100 scientific papers.

  Dr. Royston was a founder and Director of Hybritech, Inc., GeneSys
Therapeutics Corporation and IDEC Pharmaceuticals, Inc.  He has served on the
Board of Directors of Unisyn Technologies, Inc., Medstone International Inc.,
Sequana Therapeutics, Inc., Corixa, Inc., CombioChem, Inc. and GenQuest, Inc.
He currently serves on the Scientific Advisory Boards of Prizm Pharmaceuticals,
Inc. and Ixys Inc. and is a member of the Board of Directors of First Dental
Health, Inc.

  Dr. Royston received a B.A. in Human Biology from Johns Hopkins University and
an M.D. from the Johns Hopkins School of Medicine.  He later trained in internal
medicine and oncology at Stanford University and is board certified in both
Internal Medicine and Medical Oncology.

  ROBERT E. SOBOL, M.D. has been Executive Vice President and Chief Operating
Officer of UroGen since July 1996.  Dr. Sobol has been a pioneer in developing
clinical applications of immuno therapy and gene therapy for the treatment of
cancer.  Dr. Sobol is also the Director of Clinical Science at Sidney Kimmel
Cancer Center which is affiliated with Sharp Healthcare, one of the largest
healthcare providers in San Diego.  He was a founder and Vice President of IDEC
Pharmaceuticals Corporation, a publicly traded company developing monoclonal
antibody based treatments for cancer and autoimmune disorders.  He was also a
founder of GeneSys Therapeutics, a gene therapy company which merged with
publicly traded Somatix Therapy Corporation and subsequently with Cell GeneSys
Incorporated.  Dr. Sobol also serves on the Scientific Advisory Board of Prizm
Pharmaceuticals, Inc.

  Dr. Sobol is an internationally recognized expert in the gene therapy of
cancer.  Dr. Sobol led the research team which was the first to treat a brain
tumor patient with cytokine gene therapy.  He is also the principal investigator
for the first gene therapy protocol approved for the treatment of colon
carcinoma.  Dr. Sobol is the editor of the Journal Cancer Gene Therapy which is
published by the medical journals division of Simon & Shuster.  He is also on
the Editorial Board of the Journal of Oncology Reports.

  Dr. Sobol is named as inventor on six issued or pending patent applications.
he is a member of four medical and scientific societies, serves on the Clinical
Program Review Committee of the National Cancer Institute and has published over
50 papers.
 
  Dr. Sobol received a B.A. in Philosophy from Boston University and a M.D. from
The Chicago Medical School.  He subsequently trained at the University of
Southern California Medical Center and at the University of California San
Diego.  He is Board Certified in Internal Medicine and Medical Oncology.

  WILLIAM C. RASCHKE, PH.D. has been Director of Research of the Company since
September 1996.  Dr. Raschke also holds the positions of Member and Director of
Molecular Immunology of the Sidney Kimmel Cancer Center (formerly the San Diego
Regional Cancer Center),  positions he has held since coming to the Center in
1994.

                                       14
<PAGE>
 
  As of March 1997, he has also served as the Acting Scientific Director of
the Center.  Dr. Raschke has previously held positions at SIBIA, Inc. from 1988
- 1994 where he was Senior Research Fellow, The Salk Institute from 1988 - 1994,
and 1975 - 1981 with various staff appointments and the La Jolla Cancer Research
Foundation (now the Burnham Institute) from 1981 - 1988 as Associate Scientific
Director and Staff Scientist.

  Dr. Raschke has served as a reviewer for the NIH with two 4 - year terms on
the Experimental Immunology Study Section, the American Cancer Society, The
National Science Foundation, as well as international funding agencies.  He also
reviews manuscripts for various immunology and cancer journals.

  Dr. Raschke has published over 50 scientific papers in the areas of
immunology, cancer and cell biology.  He has obtained research grants from NIH
continuously since 1975 and has also received grant funding from the American
Cancer Society and the National Science Foundation.

  Dr. Raschke received a B.S. in Chemistry from the University of Texas, Austin
and a Ph.D. in Biochemistry from the University of California, Berkley.  He
conducted post graduate training at the Salk Institute in Developmental Biology
and Immunology.

  PETER F. BERNARDONI is a Partner of Technology Funding.  Mr. Bernardoni joined
Technology Funding as an Investment Officer in 1988, was elected as a Vice
President in 1992 and a Partner in 1994.  Mr. Bernardoni has served as a member
of the Commitments Committee since 1994 and as Chairman of Technology Funding's
Medical Investment Committee since 1994.  Prior to joining Technology Funding,
Mr. Bernardoni was employed for six years by IBM and served in several
capacities including Design Engineer and as a manager for large scale
information systems in major pharmaceutical and hospital accounts.

  Mr. Bernardoni has served as a Director for several private and two public
companies, Poly Medical Industrial and Circadian.  He currently serves on the
Board of Endocare, Inc., Avalon Imaging and Reflection Technology, and is
Chairman of Portable Energy Products.

  Mr. Bernardoni has a B.S.M.E. from Santa Clara University and an M.S.M.E. from
Stanford University.

SCIENTIFIC ADVISORY BOARD

  The Company plans to establish a Scientific Advisory Board ("SAB") to give
guidance to the scientific and technology strategies of the Company.  The
members of the SAB will advise and consult with the Company's management on an
informal basis from time to time on scientific and technology strategies of the
Company.  The members of the SAB will advise and consult with the Company's
management on an informal basis from time to time on scientific and technical
matters in their respective areas of expertise.  Members of the SAB may perform
consulting services for the Company, for which they may receive cash or other
compensation.

COMPENSATION OF DIRECTORS

  Directors are elected annually.  The Company does not compensate its Directors
for their services as such.  However, Directors are reimbursed for their out of
pocket expenses in attending Board meetings and each of the Company's non-
employee directors participates in the 1995 Director Option Plan.

                                       15
<PAGE>
 
ITEM 11. EXECUTIVE COMPENSATION

  The Company's Chief Executive Officer, Ivor Royston received cash compensation
of $46,000 in fiscal 1996.  He also received 773,333 shares subject to options
granted in November 1995.

  No corporate Officers received cash compensation in excess of $100,000 during
1996.


STOCK OPTIONS AND WARRANTS TO PURCHASE COMMON STOCK HELD AT END OF FISCAL YEAR

  As of December 31, 1996, options to purchase a total of 1,425,000 shares of
the Company's Common Stock have been granted under the 1995 Stock Plan and the
1995 Director Option Plan.  Such options vest over 4 years and are exercisable
for 10 years from grant date.  The following options to purchase shares at an
exercise price of $.05 per share have been granted:
<TABLE>
<CAPTION>
 
                    <S>                   <C>
                    Ivor Royston            773,333
                    Paul Quadros            386,667
                    Robert Sobol            150,000
                    William Raschke         100,000
                    Peter Bernardoni         15,000
                                          ---------
                    Total                 1,425,000
 
</TABLE>

                                       16
<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  The following table sets forth information with respect to the beneficial
ownership of UroGen Common Stock owned by (i) the holders of more than 5% of the
UroGen Common Stock, (ii) each Director of the Company, (iii) each Executive
Officer listed under the heading "Executive Compensation" and (iv) all Directors
and Executive Officers of the Company as a group. The information provided below
is based on the record ownership and total outstanding shares of UroGen
Corporation Common Stock at December 31, 1996, and includes UroGen Common Stock
shares issuable upon exercise of stock options granted to Officers, Directors
and key employees of the Company. See "Executive Compensation - Stock Plans."

<TABLE>
<CAPTION>
                                                  Shares of UroGen
                                                 Common Stock Owned
                                                ---------------------
Name of Person or Identity of Group             Number(1)     Percent
-----------------------------------             ---------     -------       
<S>                                             <C>           <C> 
Ivor Royston                                    773,333 (4)   10.4%
  3099 Science Park Road, Suite A
  San Diego, CA  92121
 
Errol Payne                                     459,059        6.2%
  100 Columbia, Suite 100
  Aliso Viejo, Ca  92656

Paul Quadros                                    406,667 (3)    5.5%
  3099 Science Park Road, Suite A
  San Diego, Ca  92121

Hathaway & Associates, Ltd.                     375,000        5.1%
  119 Rowayton Avenue
  Rowayton, Ct  06853
 
Peter Bernardoni                                226,351 (2)(6) 3.1%
  200 Alameda de las Pulgas
  San Mateo, Ca  94402
 
Technology Funding                              211,351 (2)    2.9%
  200 Alameda de las Pulgas
  San Mateo, Ca  94402
 
All Executive Officers and Directors as       1,656,351 (5)   22.4%
  a group (5 persons)
</TABLE>

______________________________
(1)  All such shares were held of record with sole voting and investment power,
     subject to applicable community property laws, by the named individual
     and/or by his wife, except as indicated in the following footnotes.
(2)  The 211,351 shares are held by Technology Funding Partners I.  Technology
     Funding, Inc. and Technology Funding Ltd. (together "Technology Funding"),
     of which Peter Bernardoni is an officer and a partner, are the managing
     general partners of Technology Funding Partners I.  Technology Funding and
     Mr. Bernardoni are entitled to exercise voting and investment power with
     respect to all shares owned by Technology Funding Partners I and therefore
     are deemed to be beneficial owner of such shares.
(3)  Includes 386,667 shares issuable upon exercise of stock options.
(4)  Includes 773,333 shares issuable upon exercise of stock options.
(5)  Includes 1,425,000 shares issuable upon exercise of stock options.
(6)  Includes 15,000 shares issuable upon exercise of stock options.


                                       17
<PAGE>
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  UroGen was formed from the medical biology and small molecule pharmaceuticals
divisions of Medstone which were started in 1991.  UroGen Corp. was formed as a
wholly owned subsidiary in June 1995.  From 1991 until the Distribution on
February 9, 1996, the Company relied upon Medstone for financial support.  The
Company also relied on Medstone for assistance with personnel management and
financial administration.  Upon completion of the Distribution, the Company
began to operate independently from Medstone.

INTERCOMPANY AGREEMENTS

  Prior to the Distribution, UroGen and Medstone entered into a Distribution
Agreement, Administrative Services Agreement and Contribution Agreement
(collectively, "the Intercompany Agreements").  The following are summaries of
the principal provisions of such agreements.  These summaries are qualified in
their entirety by reference to the full text of such agreements, which have been
filed as exhibits to the Registration Statement of December 31, 1995.

DISTRIBUTION AGREEMENT

  Under the Distribution Agreement, immediately following the Distribution, all
of the UroGen Common Stock was owned by stockholders of Medstone.

  The Distribution Agreement also provided that each party agreed to indemnify
and hold the other harmless from certain liabilities, including claims resulting
from any breach of representations and warranties made by the indemnifying party
in connection with the Distribution.

  The Distribution Agreement provided that in connection with the transfer of
assets and the assumption of liabilities relating to the separation of the
business of UroGen and Medstone, that UroGen and Medstone shall execute or cause
to be executed various conveyancing and assumption instruments in such forms as
the parties to the Distribution Agreement shall agree.

  Pursuant to the Distribution Agreement, Medstone agreed to obtain all
consents, permits and authorizations necessary to transfer and to transfer to
UroGen any assets associated with the UroGen business which had not been
transferred by the Distribution Date.  In addition, Medstone is to obtain
consents, permits and authorizations necessary to permit UroGen to assume any
liabilities associated with the UroGen business which had not been assumed by
UroGen by the Distribution Date.

  The Distribution Agreement sets forth the respective obligations of Medstone
and UroGen with respect to liabilities for taxes and tax returns and other tax
related filings.  In general, Medstone will be responsible for tax filings of
UroGen and paying those taxes (other than taxes accrued on its financial
statements) attributable to any taxable period (or that portion of any taxable
period) ending on or before the Distribution Date.  UroGen shall be responsible
for filing its tax returns and paying its taxes attributable to periods (or
portions of any taxable periods) commencing on or after the date immediately
following the Distribution Date.  In addition, the Distribution Agreement
requires Medstone and UroGen to cooperate in preparing those filings which cover
overlapping taxable periods that include the Distribution Date.

ADMINISTRATIVE SERVICES AGREEMENT

  Under the Administrative Services Agreement, Medstone will provide certain
public reporting assistance services to UroGen and, under this agreement,
Medstone may also provide to UroGen the use of certain facilities.  In
consideration for such services and the use of such facilities, UroGen shall pay
to Medstone an hourly fee of $100.  Pursuant to the terms of the Administrative
Services Agreement, UroGen and Medstone may contract employee services from each
other for a period not to exceed two years following the Distribution Date.

                                       18
<PAGE>
 
CONTRIBUTION AGREEMENT

  Under the Contribution Agreement, Medstone transferred to UroGen certain
Medstone property, including certain intellectual property and other rights,
used in connection with UroGen's business and made a cash contribution of
$500,000 to UroGen.

                                       19
<PAGE>
 
                                    PART IV

Item. 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
           FORM 8-K
<TABLE> 
<CAPTION>

(A) INDEX TO FINANCIAL STATEMENTS                                                                              PAGE
                                                                                                               ----
<S>                                                                                                            <C> 
    1.  Historical Financial Statements
 
           Report of Independent Auditors                                                                        21
           Balance Sheets at December 31, 1996 and 1995                                                          22
           Statements of Operations for the years ended December 31, 1996, 1995, and 1994
             and the period from July 1, 1991 (inception) to December 31, 1996                                   23
           Statement of Stockholders'/Division Equity for the period from July 1, 1991
             (inception) to December 31, 1996                                                                    24
           Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 and
             the period from July 1, 1991 (inception) to December 31, 1996                                       25
           Notes to Financial Statements                                                                         26

    2.  Schedules to Financial Statements

           All schedules are omitted because they are not applicable or the required information is included
             in the financial statements or notes thereto.

(B) REPORTS ON FORM 8-K

    There were no reports on Form 8-K filed with the Commission during the quarter ended December 31, 1996.

(C) EXHIBITS

         EXHIBIT NO.  DESCRIPTION
         -----------  -----------
         2.1          Distribution Agreement between the Company and Medstone International Inc. (1)
         3.1          Certificate of Incorporation of the Company (1)
         3.2          Bylaws of the Company (1)
         10.1         Contribution Agreement between the Company and
                      Medstone International, Inc. dated October 31, 1995 (1)
         10.2         Form of Indemnification Agreement (1)
         10.3         UroGen Corp. 1995 Stock Option Plan (1)
         10.4         UroGen Corp. 1995 Director Option Plan (1)
         27           Financial Data Schedule
         28.2         Form of UroGen Corp. Information Statement - Distribution to Shareholders of UroGen Corp. (1)
</TABLE> 
__________________________________________
(1)  Previously filed with the Company's Application for Registration on Form
     10-SB dated February 9, 1996.

                                       20
<PAGE>
 
                         Report of Independent Auditors

The Board of Directors
UroGen Corp.

We have audited the accompanying balance sheets of UroGen Corp. (A development
stage enterprise) as of December 31, 1996 and 1995 and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996 and the period from July 1, 1991 (inception)
to December 31, 1996.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of UroGen Corp. (A development
stage enterprise) at December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 and the period from July 1, 1991 (inception) to December 31,
1996, in conformity with generally accepted accounting principles.

                                         ERNST & YOUNG LLP
San Diego, California
February 28, 1997

                                       21
<PAGE>
 
                                 UROGEN CORP.
                       (A DEVELOPMENT STAGE ENTERPRISE)
                                BALANCE SHEETS
                                --------------
<TABLE>
<CAPTION>
 
 
                                                                  December 31,
                                                       ----------------------------------
                                                           1996                   1995
                                                       ----------           -------------
<S>                                                    <C>                  <C>
ASSETS    
------
Current assets:
Cash and equivalents                                   $  250,255           $       1,000
                                                       ----------           -------------
  Total current assets                                    250,255                   1,000
 
Property and equipment:
  Equipment                                                 2,739                 202,036
  Furniture and fixtures                                        -                 162,699
                                                       ----------           -------------
                                                            2,739                 364,735
  Less accumulated depreciation
   and amortization                                          (300)               (238,063)
                                                       ----------           -------------
     Net property and equipment                             2,439                 126,672
 
Other assets                                                    -                  35,410
  Less accumulated amortization                                (-)                      -
                                                       ----------           -------------
     Net other assets                                           -                  35,410
                                                       ----------           -------------
                                                       $  252,694           $     163,082
                                                       ==========           =============
 
LIABILITIES AND STOCKHOLDERS'/DIVISION EQUITY
------------------------------------------------
 
Current liabilities:
  Accounts payable and accrued liabilities             $   15,460                       -
  Amount due officer/shareholders                               -                       -
                                                       ----------           -------------
     Total current liabilities                             15,460                       -
 
Stockholders'/division equity:
  Preferred Sock - $0.01 par value,                             -                       -
     5,000,000 shares authorized,
     none issued at December 31,
     1996 and 1995
  Common Stock - $.001 par value,                           5,980                       -
     40,000,000 shares authorized,
     5,979,528 issued at December 31,
     1996 and none at December 31,
       1995
  Additional paid-in capital                              675,252                       -
  Deficit accumulated during development
     stage                                               (443,998)                      -
  Advances from Medstone                                        -               3,888,875
  Divisional accumulated (deficit)                              -              (3,725,793)
                                                       ----------           -------------
Total stockholders'/division equity                       237,234                 163,082
                                                       ----------           -------------
                                                       $  252,694           $     163,082
                                                       ==========           =============
</TABLE>

                           See accompanying notes.

                                       22
<PAGE>
 
                                 UROGEN CORP.
                       (A DEVELOPMENT STAGE ENTERPRISE)

                           STATEMENTS OF OPERATIONS
                           ------------------------
<TABLE>
<CAPTION>
 
 
                                                                                
                                                                                 July 1, 1991
                                          For the Year Ended December 31,       (inception) to
                                      ---------------------------------------    December 31, 
                                         1996          1995          1994            1996
                                      -----------   ----------   ------------   ---------------
<S>                                   <C>           <C>          <C>            <C>
Net laboratory sales                  $        -    $       -     $        -     $     455,580
 
 
Costs and expenses:
Cost of sales                                  -            -              -           821,878
Research and development                 347,698       74,640        165,104         3,173,528
Selling, general and
     administrative                      174,472            -        232,934           708,137
                                      ----------    ---------     ----------      ------------
Total costs and expenses                 522,170       74,640        398,038         4,703,543
                                      ----------    ---------     ----------      ------------
Loss from operations                    (522,170)     (74,640)      (398,038)       (4,247,963)
 
Gain on disposal of fixed assets          63,776            -              -            63,776
 
Interest income                           14,396            -              -            14,396
                                      ----------    ---------     ----------      ------------
Net loss                              $ (443,998)   $ (74,640)    $ (398,038)     $ (4,169,791)
                                      ==========    =========     ==========      ============

Net loss per share                    $     (.07)   
                                      ==========    

Number of shares used in               5,979,528    
the computation of net                ==========    
loss per share

</TABLE> 
                            See accompanying notes.

                                       23
<PAGE>
 
                                 UROGEN CORP.
                       (A DEVELOPMENT STAGE ENTERPRISE)

                  STATEMENT OF STOCKHOLDERS'/DIVISION EQUITY
                  ------------------------------------------
         FOR THE PERIOD JULY 1, 1991 (INCEPTION) TO DECEMBER 31, 1996
         ------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                           
                                                                           Deficit
                                          Common Stock                   Accumulated      
                                       ------------------   Additional     During        Advances       Divisional
                                       Number of             paid-in     Development       from        Accumulated
                                        shares     Amount    Capital        Stage        Medstone       (Deficit)          Total
                                       ---------   ------   ----------   -----------   ------------   --------------   -------------

<S>                                    <C>         <C>      <C>          <C>           <C>            <C>              <C>
 
Advances from Medstone
 July 1, 1991 to
 December 31, 1994                             -   $    -   $        -   $         -   $ 3,852,465    $         -       $ 3,852,465
 
Net loss July 1, 1991
 to December 31, 1994                          -        -            -             -             -       (3,651,153)     (3,651,153)

                                       ---------   ------   ----------   -----------   -----------    -------------    ------------
Balance at December 31, 1994                   -        -            -             -     3,852,465       (3,651,153)        201,312
 
Advances from Medstone
 January 1, 1995 to
 December 31, 1995                             -        -            -             -        36,410                -          36,410
 
Net loss January 1, 1995
 to December 31, 1995                          -        -            -             -             -          (74,640)        (74,640)

                                       ---------   ------   ----------   -----------   -----------    -------------    ------------
Balance at December 31, 1995                   -        -            -             -     3,888,875      ( 3,725,793)        163,082

Capital contribution by Medstone               -        -            -             -       500,000                -         500,000
 
Distribution of stock
 dividend and net
 assets February 9,
 1996                                  5,616,528    5,617      657,465             -    (4,388,875)       3,725,793               -
                                       ---------   ------   ----------   -----------   -----------    -------------    ------------
                                       5,616,528    5,617      657,465             -             -                -         663,082
 
Distribution of Common Stock
 for services at $.05 per share -
 June & September 1996                   363,000      363       17,787             -             -                -          18,150
 
Net loss January 1
1996 to December 31, 1996                      -        -            -      (443,998)            -                -        (443,998)

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

Balance at December 31, 1996           5,979,528   $5,980    $ 675,252   $  (443,998)  $         -    $           -     $   237,234
                                       =========   ======    =========   ===========   ===========    =============    ============
</TABLE> 

                                 See accompanying notes.

                                       24
<PAGE>
 
                                 UROGEN CORP.
                       (A DEVELOPMENT STAGE ENTERPRISE)

                           STATEMENTS OF CASH FLOWS
                           ------------------------

<TABLE> 
<CAPTION> 
                                                                                     
                                                                                     July 1, 1991 
                                           For the Year Ended December 31,          (inception) to
                                        ---------------------------------------       December 31, 
                                           1996           1995          1994              1996
                                        ----------    -----------    ----------     --------------
<S>                                     <C>           <C>            <C>            <C> 
Net loss                                $ (443,998)   $   (74,640)   $ (398,038)     $  (4,169,791)
 
Adjustments to reconcile net
 loss to net cash used in
 operating activities:
Depreciation                                84,748         74,640        85,219            458,374
Amortization                                35,410              -             -             35,410
Non-cash distribution of
  common stock                              18,150              -             -             18,150
Non-cash outside service cost              106,000              -             -            106,000
Gain on disposal of fixed assets           (63,776)             -             -            (63,776)
Decrease in accounts receivable                  -              -        37,085                  -
Increase (decrease) in accounts
 payable and accrued liabilities            15,460              -       (13,783)            15,460
Other, net                                       -        (35,410)            -            (30,000)
                                        ----------    -----------    ----------       ------------
Net cash used in
  operating activities                    (248,006)       (35,410)     (289,517)        (3,630,173)
 
Cash flows from investing
  activities:
Purchase of property and
  equipment                                 (2,739)             -             -           (515,006)
Disposal of property and
  equipment                                      -              -         3,204             11,969
                                        ----------    -----------    ----------       ------------
Net cash provided by (used in)
  investing activities                      (2,739)             -         3,204           (503,037)
 
Cash flows from financing
  activities:
Net advances from Medstone                       -         36,410       286,313          3,883,465
Capital contribution of cash
  by Medstone                              500,000              -             -            500,000
                                        ----------    -----------    ----------       ------------
Net cash provided by
  financing activities                     500,000         36,410       286,313          4,383,465
                                        ----------    -----------    ----------       ------------
 
Net increase in cash and
  equivalents                              249,255          1,000             -            250,255
                                        ----------    -----------    ----------       ------------
 
Cash and equivalents,
 beginning of period                         1,000              -             -                  -
                                        ----------    -----------    ----------       ------------
 
Cash and equivalents,
 end of period                          $  250,255    $     1,000    $                $    250,255
                                        ==========    ===========    ==========       ============
                                                                    
</TABLE>
                                  See accompanying notes.

                                       25
<PAGE>
 
                                  UROGEN CORP.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------
                               December 31, 1996
                               -----------------


1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

UroGen Corp. (the "Company"), a Delaware corporation, was incorporated on June
30, 1995, as a wholly-owned subsidiary of Medstone International, Inc.
("Medstone").  The Company was formed from the medical biology and small
molecule pharmaceuticals divisions of Medstone to continue the effort, started
in 1991, to develop pharmaceuticals to treat diseases in urology, with a
particular interest in prostate cancer.  UroGen operated as two divisions of
Medstone from July 1, 1991 to December 29, 1995.

DISTRIBUTION AND CAPITALIZATION

On December 29, 1995, Medstone declared a dividend of all of the stock of UroGen
Corp. to be distributed to all Medstone stockholders.  Each stockholder of
Medstone received, on February 9, 1996, one share of UroGen Common Stock for
each share of Medstone Common Stock held on the Record Date, December 29, 1995.
The Distribution resulted in the receipt by record holders of Medstone Common
Stock of all of UroGen's outstanding Common Stock.  Upon completion of the
Distribution, there were 5,616,528 shares of UroGen Common Stock outstanding.

The Distribution occurred on February 9, 1996, on which date Medstone also
contributed to the capital of UroGen Corp. $500,000 cash.  For financial
reporting purposes, the Distribution and contribution to capital have been
considered effective as of January 1, 1996, and the operations of the business
have been considered those of UroGen Corp. effective that date.

Additionally, effective January 1, 1996, Medstone executed a forgiveness of all
intercompany advances resulting from the prior divisional funding of operations
between Medstone and UroGen.

                                       26
<PAGE>
 
BASIS OF PRESENTATION

The accompanying financial statements for the year ended December 31, 1996 have
been prepared assuming the Company will continue as a going concern.  However,
the Company incurred net losses of $443,998 during 1996 and has a deficit
accumulated during development stage of $443,998 at December 31, 1996.  During
1997, management intends to raise additional debt and/or equity financing to
fund future operations and to provide additional working capital.  However there
is no assurance that such financing will be consummated or obtained in
sufficient amounts necessary to meet the Company's needs.

The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of the Company to continue as a going concern.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

PROPERTY AND EQUIPMENT

Property and equipment is stated on the basis of cost.  Depreciation is computed
principally by the straight-line method for financial reporting purposes and by
accelerated methods for income tax purposes.

STOCK BASED COMPENSATION

The Company grants stock options for a fixed number of shares to employees with
an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for stock option grants in accordance with APB Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, recognizes no
compensation expense for the stock option grants.

NET LOSS PER SHARE

Net loss per share is based on the average number of shares of common stock
outstanding during 1996. Previous years are not presented as the Company was a
division of Medstone. Equivalent shares of outstanding stock options have not
been included in the computation of net loss per share as their effect would be
antidilutive.

INCOME TAXES

Income taxes have been provided using the liability method in accordance with
FASB Statement No. 109, Accounting for Income Taxes.Reclassifications

                                       27
<PAGE>
 
RECLASSIFICATIONS

Certain reclassifications of 1995 balances have been made to conform to the
current year presentation.


2.  RELATED PARTY BALANCES AND TRANSACTIONS

During 1996, the Company issued 339,000 shares of Common Stock valued at $.05
per share and transferred fixed assets with a book value of $42,224 to a
research organization in connection with the execution of an Affiliation
Agreement and for services rendered.  Additionally, during 1996, the Company
paid the research organization $67,000 cash for services.

During 1996, the Company paid four shareholders/officers a total of $134,000
cash for consulting services.

During 1996, the Company issued 24,000 shares of Common Stock valued at $.05 per
share to a shareholder/consultant for services.


3.  SHAREHOLDERS' EQUITY

PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of Preferred Sock $0.01 par
value.  As of December 31, 1996 there are no shares issued or outstanding.

COMMON STOCK

The Company is authorized to issue 40,000,000 shares of Common Sock $0.001 par
value.  As of December 31, 1996 there are 5,979,528 shares issued and
outstanding.

STOCK OPTIONS

The 1995 Director Option Plan (the "Director Plan") was adopted by the Board and
approved by the Shareholders in 1995, to provide automatic, nondiscretionary
grants of options to non-employee directors ("Outside Directors") of the
Company.  A total of 100,000 shares of Common Stock has been reserved for
issuance under the Director Plan.  The Director Plan provides that each Outside
Director is automatically granted an option to purchase 10,000 shares of UroGen
Common Stock upon his or her initial election or appointment as an Outside
Director.  Subsequently, each Outside Director who has served for at least six
months will be granted an additional option to purchase 5,000 shares of UroGen
Common Stock on December 31 of each year so long as he or she remains an Outside
Director.  The exercise price of options granted to Outside Directors must be
the fair market value of UroGen Common Stock on the date of grant.

                                       28
<PAGE>
 
Options granted to Outside Directors have ten year terms, subject to an Outside
Director's continued service as a director. Options granted to Outside Directors
vest over four years at the rate of twenty-five percent per year. As of December
31, 1996, options to purchase 10,000 shares of Common Stock to an Outside
Director had been granted under The Director Option Plan.

The 1995 Stock Plan authorizes the Board of Directors (the "Board"), or one or
more committees which the Board may appoint from among its members (the
"Committee"), to grant options and rights to purchase Common Stock to officers,
key employees consultants and certain advisors to the Company.  Options granted
under the 1995 Stock Plan may be either "incentive stock options" as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
nonstatutory stock options, as determined by the Board or the Committee.  The
1995 Stock Plan initially reserved 1,850,000 shares for issuance under the Plan
to be increased the first day of each year by the number of shares equal to two
percent of the Company's total outstanding common shares.

The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee and director stock options and warrants because,
as discussed below, the alternative fair value accounting provided for under
FASB Statement No. 123, "Accounting for Stock-based Compensation," requires use
of option valuation models that were not developed for use in valuing employee
and director stock options and warrants.  Under APB 25, when the exercise price
of the Company's employee stock options equals the market price or fair value of
the underlying stock on the date of grant, no compensation expense is
recognized.

                                       29
<PAGE>
 
The following table summarizes the activity of the Company's stock options:
<TABLE>
<CAPTION>
 
                                  Employee    Director      Weighted
                                    Stock      Stock        Average
                                   Options    Options    Exercise Price
                                  ---------   --------   --------------
<S>                               <C>         <C>        <C>
 
Balance at December 31, 1994              -          -                -
 
Granted                           1,160,000          -             $.05
Exercised                                 -          -                -
Canceled                                  -          -                -
Expired                                   -          -                -
                                  ---------   --------   --------------
 
Balance at December 31, 1995      1,160,000          -             $.05
 
Granted                             250,000     15,000             $.05
Exercised                                 -          -                -
Canceled                                  -          -                -
Expired                                   -          -                -
                                  ---------   --------   --------------
 
Balance at December 31, 1996      1,410,000     15,000             $.05
                                  =========   ========   ==============
 
</TABLE>

As of December 31, 1996, there are outstanding options granted under The 1995
Stock Plan to purchase 1,410,000 shares of UroGen Common Stock at $.05 per
share.  As of December 31, 1996, there are 552,331 shares reserved and available
for future grant under The 1995 Stock Plan.

Options granted pursuant to The 1995 Stock Plan above have exercise periods of
ten years and vest over four years.

Following is a further breakdown of the options outstanding as of December 31,
1996:
<TABLE>
<CAPTION>
 
                                                                   Weighted
                            Weighted                               Average
                            Average       Weighted                 Exercise
                            Contractual   Average                  Price of
Exercise      Options       Life in       Exercise   Options       Options
Price         Outstanding   Years         Price      Exercisable   Exercisable
-----------   -----------   -----------   --------   -----------   -----------
<S>           <C>           <C>           <C>        <C>           <C> 
$  .05          1,425,000             9       $.05       364,167          $.05
</TABLE>

                                       30
<PAGE>
 
The weighted average exercise prices and fair values for 1996 are as follows:
<TABLE> 
<CAPTION> 

Exercise Price on Date of Grant  Fair Value          Exercise Price
-------------------------------  ----------          --------------
<S>                              <C>                 <C>
Equal to market price of stock     $  .02                $  .05

</TABLE> 

Proforma information regarding net loss and net loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement.  The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996:  a risk-free interest rate of 6%, a dividend yield of 0%, a volatility
factor of the expected market price of the Company's common stock of 50%, and an
expected life of the option of two years.

For purposes of proforma disclosures, the estimated fair value of the options is
amortized to expense over the options' vesting period.  The Company's proforma
information follows:
<TABLE>
<CAPTION>
 
                                    1996          1995
                                 -----------   -----------
<S>                              <C>           <C>
Proforma net loss                $ (450,894)      (75,606)
Proforma net loss per share      $     (.08)    $    (.01)
 
</TABLE>

The proforma results above for 1996 and 1995 are not likely to be representative
of the effects of applying FAS 123 on reported net income or loss for future
years as these amounts reflect the expense for only two years or one year of
vesting, respectively.


4.  INCOME TAXES

Prior to the Distribution, income taxes had been allocated to the Company on a
"separate return" basis whereby such amounts were determined as if the Company
were a separate taxable entity.  However, the Company's net operating losses and
research and development credits incurred through December 31, 1995, have been
included in the consolidated tax returns of Medstone and have been fully
utilized.  As a result, the Company's available net operating losses and
research and development credits to offset future taxable income are limited to
amounts incurred during the twelve months ended December 31, 1996.  The Company
has established a valuation allowance to fully offset its deferred tax assets in
accordance with Statements of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."  Accordingly, no benefit for the Company's
deferred tax assets has been recognized, as its realization is not
assured.

                                       31
<PAGE>
 
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
 
                                                   December 31,
                                                       1996
                                                   -------------
<S>                                                <C>
 
Loss carryforwards                                   $  158,000
Research and development credit carryforwards            19,000
                                                     ----------
Total deferred tax assets                               177,000
Less valuation allowance                               (177,000)
                                                     ----------
Net deferred taxes                                   $       --
                                                     ==========
</TABLE> 

As of December 31, 1996, the Company has federal and state net operating loss
carryforwards of approximately $383,000 and $392,000, respectively, available to
reduce future taxable income which expire in 2011 and 2004, respectively.

Under Internal revenue Code Section 382 and 383, the Company's use of its net
operating loss and tax credit carryforwards could be limited in the event of
certain cumulative changes in the Company's stock ownership.

5.  COMMITMENTS AND CONTINGENCY

FACILITIES

During 1996, the company entered into a three year Affiliation Agreement with a
research organization which provides the Company the rights to utilize certain
office space through may 31, 1999.  Future minimum payments to the research
organization under this agreement are $36,000 for 1997 and 1998 and $15,000 for
1999.  Such commitment may be terminated by the Company in the event of a
specific change in a corporate officer of the Company.


6.  FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and Equivalents:  The carrying amount reported in the balance sheet for
cash and equivalents approximates fair value.

Accounts Payable and Accrued Liabilities:  The carrying amount reported in the
balance sheet for accounts payable and accrued liabilities approximate their
fair value.

                                       32
<PAGE>
 
7.  SUBSEQUENT EVENTS

In January 1997, four officers of the Company exercised options to purchase a
total of 1,410,000 shares of Common Stock at $.05 per share for total cash
proceeds of $70,500.

In February 1997, the Company entered into a License Agreement with a public
biotechnology company.  The Company obtained an exclusive license to use certain
patented technologies to develop and commercialize products based upon the
licensed patent rights.  The License Agreement requires the Company to pay
future cash royalties to the licensee based upon net sales.  In connection with
this License Agreement, the Company entered into a Stock and Warrant Purchase
Agreement with the licensee whereby the Company issued 147,791 shares of Common
Stock at $.05 per share for total proceeds of $7,390.  Additionally, the
Agreement granted to the licensee a Warrant to purchase additional shares in the
Company to maintain a fully-diluted ownership percentage of two percent (2%) or
increase its ownership percentage up to three percent (3%).  Such warrant rights
are exercisable at prices ranging from $.03 to $.04 per share.  Such Warrant
rights expire the later of March 5, 1999 or the first date on which the
aggregate outstanding shares of the Company equals or exceeds 15,000,000 shares
on a fully diluted basis.

                                       33
<PAGE>
 
                                 SIGNATURES


Pursuant to the requirements of Section 13 or 15 (d) of Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned, hereunto duly authorized.



                                 UROGEN CORP.
                                 ------------
                                 A Delaware Corporation



Date:  March 28, 1997 /s/     Paul D. Quadros
                              ---------------------
                              Paul D. Quadros
                              Chairman of the Board
                              Chief Financial Officer
                              Secretary
                              (Principal financial and accounting officer)

                                       34