<PAGE>

===============================================================================

                          SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C.  20549

                                      Form 10-KSB
(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, 1997

                                           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.)


                    10835 Altman Row, 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 10-K.  [X]

   The number of shares of the Common Stock of the registrant outstanding as of
March 27, 1998, was 7,537,319.  The number of shares of Common Stock held by
nonaffiliates on such date was 4,769,286 with an estimated value of $2,384,643
based upon the value of the dividend distribution in the Company's Information
Statement dated February 6, 1996.  This Common Stock was restricted from
transfer, except as specified on Page 9 (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.
              -----------------------                            --------
 PART I

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


                                       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.

The objective of the Company is to develop novel molecular medicines and
diagnostic products for prostate cancer and other urological disorders through
pioneering applications of molecular biology, genomics technology and
immunology.  The initial focus of the Company's research and development efforts
will be the generation of products for the treatment and diagnosis of prostate
cancer.  Prostatic carcinoma is the most common cancer among men.  It currently
occurs in approximately one in six men and has an annual incidence of 335,000
new cases in the United States.  The Company's broad core technologies have been
integrated to rapidly develop novel therapeutic and diagnostic products.  The
Company's proprietary molecular therapies have both intrinsic anti-tumor
activity and sensitize tumors to the effects of standard cancer therapies.  The
Company believes that this dual mode of action will have significant benefits in
the treatment of prostate cancer and other disorders.

The Company has also developed ultra sensitive diagnostic techniques to detect
tumor metastases which will find application in guiding decisions regarding the
choice and duration of prostate cancer treatment.  In addition, the Company
believes that its proprietary gene discovery technologies will lead to the
identification of novel gene targets for the development of second generation
therapeutic and diagnostic products employing the core technologies.

Therapeutics Programs
---------------------

Radiation Sensitization Immunogene Therapy

Successful treatment of prostate cancer requires complete eradication of tumor
within the prostate and the elimination of metastatic tumor cells which have
migrated from the prostate in approximately 50% of patients at the time of
diagnosis.  The Company believes its proprietary immonogene therapy technology
sensitizes tumors to the effects of radiation providing improved treatment of
disease within the prostate and simultaneously induces anti-tumor immunity
capable of destroying metastatic lesions.  The Company's first molecular
immunotherapy will employ the intratumoral injection of cells genetically
modified to express the cytokine gene interleukin-3 (IL-3).  IL-3 has been shown
to sensitize tumors to the effects of

                                       3
<PAGE>

radiation and to stimulate anti-tumor immune responses capable of eradicating
metastatic disease. This immunogene therapy approach has been shown to cure
tumors in animal models. This unique therapeutic may be suited for the treatment
of prostate cancer that requires elimination of tumor both within the prostate
and the metastatic sites. Current surgical and radiation treatments are
incapable of eradicating metastatic disease. The Company anticipates that a
Phase I clinical trial of the IL-3 radiation sensitizing immunogene therapy
should begin within the next twelve months.


Therapy Sensitization by Inhibition of Jun Kinase

Advances in the molecular biology of cancer during the past decade have lead to
the identification of the genes involved in the etiology of malignancies.  It is
now known that the genes which mediate the malignant process are aberrantly
functioning versions of naturally occurring genes which normally regulate cell
proliferation, cell differentiation/maturation and cellular responses to injury.
The Company demonstrates licensed technology that that molecular inhibition of
Jun kinases expression enhanced the sensitivity of prostatic carcinoma cells to
the effects of chemotherapy and radiation.  Antisense oligonucleotides are small
pieces of DNA that bind to and inactivate genes that have complimentary genetic
sequences.  The Company plans to develop with a corporate partner, antisense
compounds against Jun kinases for future application in clinical trials in
prostate cancer patients.  These Jun kinase antisense compounds will also be
combined with chemotherapy and radiation in an effort to identify the most
effective therapies for future clinical applications.


Diagnostics Program
-------------------

Ultra-sensitive Molecular Diagnostic Products To Detect Metastatic Disease

Standard therapy for prostate cancer incorporates surgery, radiation and
hormonal drug treatment depending upon the stage of disease progression.  Only
prostatic tumors that are localized to the prostate gland can be cured by
conventional surgery or radiotherapy.  These treatments are reserved for
individuals with localized cancer that has not spread outside of the prostate
gland as these therapies may result in impotence or incontinence in some
patients.  Current methods for detecting tumor cells outside of the prostate are
unsatisfactory and many men with metastatic disease that cannot be cured by
surgery and radiation therapies are subjected to the risks of these procedures.
The Company has licensed from University of California an extremely sensitive,
proprietary diagnostic method to detect metastases based upon novel applications
of nucleic acid amplification techniques termed reverse transcription polymerase
chain reaction (RT-PCR). These diagnostic methods will, with a corporate
partner, be applied to identify patients with metastatic disease who may not be
appropriate candidates for surgery and current radiation therapies.


Gene Discovery/Genomics Program

The Company has licensed proprietary gene discovery methods which permit rapid
sequencing of expressed genes and the ability to identify genes that are
expressed by different types of tissues in different physiological states.  The
Company's genomics efforts have been designed to advance each of the ongoing
research programs. Novel gene discovery techniques will be utilized to identify
genes associated with the causation, progression and therapy resistance of
prostate cancer.

The Company's novel gene discovery technologies may also be applied to detect
genes that are turned on or off in response to various treatments permitting the
identification of genes which mediate sensitivity or resistance to therapy.
This information will subsequently be employed in an effort to develop novel
treatment approaches aimed at increasing or decreasing the expression of
sensitivity and resistance genes respectively to enhance the efficacy of
conventional therapies.  Further characterization of these marker genes may also
identify additional therapeutic targets for drug development.  The
identification of genes that are differentially expressed between BPH and
prostate cancers will further our diagnostics program and enable more
sophisticated applications of our proprietary RT-PCR assays for diagnosis,
staging and treatment monitoring.


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

                                       4
<PAGE>

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.


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.
There 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.

There 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

                                       5
<PAGE>

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.

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.

The Company has licensed a U.S. patent application for the use of tumor radio
sensitization using gene therapy from the Immune Response Corporation (the "IRC
License").  The IRC License is a royalty-bearing license for the rights in the
field of urologenital tumors, and provides for payments upon the occurrence of
certain milestones.

The Company is obligated to make a milestone payment to IRC of two hundred
thousand dollars ($200,000) upon the approval of its first product by the FDA or
the governing health authority of any other country.  This fee can be offset
against future royalty payments.  In addition, the Company is obligated to pay
royalties on its net sales revenue and a percentage of all revenues received
from sublicenses relating to the tumor radiosensitization gene therapy
technology.  Failure to comply with the terms of the IRC License may cause its
termination, which would have a materially adverse effect on the Company.

The Company has licensed a U.S. patent application covering therapy
sensitization by inhibition of jun kinase from Daniel Mercola, M.D., Ph.D. (the
Mercola License).  The Mercola License is a royalty-bearing license for the
rights to this patent application, and provides for minimum payments and
obligations to fund sponsored research under certain conditions.  Dr. Mercola
has assigned the royalty payments to the Sidney Kimmel Cancer Center (SKCC), a
non-profit cancer research organization where Dr. Mercola conducts his research.

The Company is obligated to pay royalties on its net sales revenue and a
percentage of all revenues received from sublicenses relating to the inhibition
of jun kinase technology.  The license agreement requires the Company to pay a
minimum royalty payment of thirty thousand dollars ($30,000) per year.  Half of
the minimum payment may be used to offset future royalty obligations.

Within 30 days after the date when the Company enters into an agreement with a
corporate partner, regarding the inhibition of jun kinase, the Company is
obligated to enter into a Sponsored Research Agreement with SKCC to fund Dr.
Mercola's research in the inhibition of jun kinase at an annual rate of not less
than one hundred fifty thousand dollars ($150,000).  Failure to comply with the
terms of the Mercola License may cause its termination, which would have an
adverse effect on the Company.

                                       6
<PAGE>

The Company has licensed an issued U.S. patent covering the detection of
carcinoma metastases by nucleic acid amplification from the University of
California (the UC License").  The UC License is a royalty-bearing license for
the rights to such patent, and provides for minimum annual payments and payments
upon the occurrence of certain milestones.  The Company will pay $30,000, in two
$15,000 payments, as an initial license-issue fee. The first $15,000 payment was
made in September 1996 and the second payment was made in October 1997.
Beginning in September 1998 the Company is obligated to pay an annual license
maintenance fee of $10,000.

The Company is obligated to make certain milestone payments to UC as follows;
(a) twenty-five thousand dollars ($25,000) upon filing of an IDE or equivalent
with the FDA; (b) fifty thousand dollars ($50,000) per year as minimum royalty
beginning the year of the first commercial sale of Licensed Product, but no
later than the fifth anniversary of the agreement.  Failure to comply with the
terms of the UC License may cause its termination, which would have an adverse
effect on the Company.

Under the terms of the Phenotypics Research and Development Agreement (the
"Phenotypics Agreement"), Phenotypics will undertake research to discover novel
prostate genes and the identification of genes that are expressed by different
types of prostate tissue in different physiological states.  In turn, the
Company has undertaken to fund such research in the amount of fifty thousand
dollars ($50,000) in the first year.  Subsequently, the Company will provide
half of the cost of such research in each succeeding year.  Genes discovered in
this research program will be owned equally by the Company and Phenotypics.
Failure to pay its one half share of the prostate gene program will cause the
Company ownership to be decreased pro-rata on the total funds spent on the
program.  In addition, by failing to pay its share and therefore having a
minority ownership of the genes, the Company would lose control of how the genes
were used or licensed by Phenotypics.  Failure to fund its commitments to
Phenotypics would have a material adverse effect on the Company.

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.

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.

                                       7
<PAGE>

The Company also relies on secrecy to  protect its technology, especially where
patent protection 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, 1997, the Company's
balance sheet reflects an accumulated deficit of $743,175.  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, the loss of
any of whose services might significantly delay the Company's efforts. Only Paul
Quadros, the Company's Chief Executive Officer, is bound by an employment
agreement,  while no member of management is 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>

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 were eligible to be transferred before December 31, 1997
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 were 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, 1997, there are also 225,000 outstanding options to purchase
shares of UroGen Common Stock (see "Capitalization").  During 1997, 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 existed prior to January
1, 1998.  A limited market on the Electronic Bulletin Board has recently been
established.  The Company trades under the symbol UROG.  No assurance can be
given that any active trading market will be sustained.

The Company has approximately 1,495 stockholders of record as of March 27, 1998.

                                       10
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

  The following selected financial data of UroGen Corporation, and the UroGen
division of Medstone, UroGen's predecessor, reflect UroGen's operating results
as a stand-alone entity during 1997 and 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-KSB and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" following this section.  This financial
data as of December 31, 1997 and 1996, and for each of the years in the three-
year period ended December 31, 1997, and the period July 1, 1991 to December 31,
1997, 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
                                                      Year Ended December 31,              (inception) to
                                           ---------------------------------------------    December 31,
                                            1997      1996     1995      1994      1993         1997
                                           ------    ------   ------    ------   --------   ------------
<S>                                        <C>       <C>      <C>       <C>      <C>        <C>
Statement of Operations Data:
Revenues.................................   $  194    $    -    $   -    $   -    $   296    $   649
Costs and expenses:
    Cost of sales........................        -         -        -        -        599        822
    Research and development.............      346       348       75      165      1,273      3,519
    Selling, general and administrative..      151       174        -      233        301        859
                                            ------    ------    -----    -----    -------    -------
         Total costs and expenses........      497       522       75      398      2,173      5,200
                                            ------    ------    -----    -----    -------    -------
Loss from operations.....................     (303)     (522)     (75)    (398)    (1,877)    (4,551)
Other....................................        -        64        -        -          -         64
Interest income..........................        4        14        -        -          -         19
                                            ------    ------    -----    -----    -------    -------
Net loss.................................   $ (299)   $ (444)   $( 75)   $(398)   $(1,877)   $(4,469)
                                            ======    ======    =====    =====    =======    =======
Net loss per share--basic and diluted....   $ (.04)   $ (.07)
Weighted average shares outstanding......    7,311     5,980

</TABLE>

<TABLE>
<CAPTION>
                                     December 31,
                         -------------------------------------
                         1997    1996    1995    1994    1993
                         -----   -----   -----   -----   -----
<S>                      <C>     <C>     <C>     <C>     <C>
Balance Sheet Data:
Working capital........  $   6   $ 235   $   1   $   -   $  23
Total assets...........     78     253     163     201     327
Total equity...........      9     237     163     201     313
</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 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 $4,468,968.  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 $74,353 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 through the second quarter of 1998.  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 or acquire new prostate cancer
therapeutics and diagnostics and novel gene therapies.

  Depending on the Company's success in identifying promising opportunities in
cancer and gene therapy, and its success 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.

Year 2000 Compliance

  Many currently installed computer systems and software products are coded to
accept only two digit entries to represent years. These systems and products
will need to be able to accept four digit entries to distinguish years beginning
with 2000 from prior years. As a result, systems and products that do not accept
four digit year entries will need to be upgraded or replaced to comply with such
"Year 2000" requirements. The Company believes that its internal systems are
Year 2000 compliant or will be replaced in connection with previously planned
upgrades to information systems prior to the need to comply with Year 2000
requirements. However, a number of the Company's customers and vendors may be
affected by Year 2000 issues that require that they expend significant resources
to modify or replace their existing systems.

Liquidity and Capital Resources

  From inception on July 1, 1991, the Company's operations have been funded
primarily 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 $4,468,968 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, if funding is available.  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 $74,353
existing cash and equivalent, its SBIR grant received in December 1997, and
contract research revenues will enable the Company to maintain its current and
planned operations through the second quarter of 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, 1997 and 1996, the Company had operating
revenues of $193,500 and 0, respectively, and net losses of $299,177 and
$443,998, respectively.  The smaller loss for the current period reflects the
effect of revenues during 1997 as compared to no revenue in 1996.  $143,500 of
the revenue was from a research agreement and $50,000 was from the sale of
proprietary biological materials.

                                       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.

Name                      Age           Position
----                      ---           --------

Ivor Royston, M.D.         52           Chairman of the Board

Paul D. Quadros            51           President, Chief Executive Officer,
                                        Chief Financial Officer and Director

Robert Sobol               45           Executive Vice President and
                                        Chief Operating Officer and Secretary

William Raschke            51           Director of Research

Peter F. Bernardoni        38           Director

  Ivor Royston, M.D. has been Chairman of the Board since April 1997.  Dr.
Royston had served as 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.

  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 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., CombiChem, Inc. and GenQuest, Inc.  He
currently serves on the Scientific Advisory Boards of Prizm Pharmaceuticals,
Inc. and Ixsys Inc. and is a member of the Board of Directors of First Dental
Health, Inc.

                                       13
<PAGE>

  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.

  Paul D. Quadros has been the Company's President and Chief Executive Officer
since April 1997.  He had been 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.

  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 an 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.

  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.

                                       14
<PAGE>

  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, Paul Quadros received cash compensation
of $60,000 in 1997.  Robert E. Sobol, M.D., the Company's Chief Operating
Officer received cash compensation of $146,379 during 1997. No other corporate
officer received cash compensation in excess of $100,000 during 1997.

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

  As of December 31, 1997, options to purchase a total of 225,000 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 1 to 4 years and are exercisable
for 10 years from grant date.   In addition, as of December 31, 1997, warrants
to purchase a total of 200,000 shares of the Company's Common Stock are
outstanding.  Such warrants expire on July 31, 2001.

                                       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, 1997, and includes Urogen Common Stock
shares issuable upon exercise of stock options and warrants 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           9.6%
  10835 Altman Row, Suite A
  San Diego, CA  92121

Errol Payne                                  459,059           5.7%
  100 Columbia, Suite 100
  Aliso Viejo, CA  92656

Paul Quadros                                 406,667           5.1%
  10835 Altman Row, Suite A
  San Diego, CA  92121

Hathaway & Associates, Ltd.                  375,000           4.7%
  119 Rowayton Avenue
  Rowayton, Ct  06853

Peter Bernardoni                             270,044 (2)(4)    3.4%
  200 Alameda de las Pulgas
  San Mateo, CA  94402

Technology Funding                           255,041 (2)       3.2%
  200 Alameda de las Pulgas
  San Mateo, Ca  94402

Robert Sobol                                 350,000 (5)       4.3%
  10835 Altman Row, Suite A
  San Diego, CA  92121

William Raschke                              100,000           1.2%
  10835 Altman Row, Suite A
  San Diego, CA  92121

All Executive Officers and Directors       1,900,044 (3)      23.6%
  as 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)  211,351 shares are held by Technology Funding Partners I, and 43,690 shares
     are held by Technology Funding Partners II.  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 and II.  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 II and
     therefore are deemed to be beneficial owner of such shares.
(3)  Includes 225,000 shares issuable upon exercise of presently outstanding
     stock options.
(4)  Includes 15,000 shares issuable upon exercise of presently outstanding
     stock options.
(5)  Includes 200,000 shares issuable upon exercise of presently outstanding
     warrants.

                                       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 provided certain public
reporting assistance services to UroGen and, under this agreement, Medstone also
provided to UroGen the use of certain facilities.  In consideration for such
services and the use of such facilities, UroGen paid to Medstone an hourly fee
of $100.  Pursuant to the terms of the Administrative Services Agreement, UroGen
and Medstone contracted 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

(a)      Index to Financial Statements

                                                             Page
                                                             ----

         1. Historical Financial Statements

              Report of Independent Auditors                    21
              Balance Sheets at December 31, 1997 and 1996      22
              Statements of Operations for the years ended
                December 31, 1997, 1996, and 1995 and
                the period from July 1, 1991 (inception)
                to December 31, 1997                            23
              Statement of Stockholders'/Division Equity for
                the period from July 1, 1991 (inception) to
                December 31, 1997                               24
              Statements of Cash Flows for the years ended
                December 31, 1997, 1996, and 1995 and
                the period from July 1, 1991 (inception)
                to December 31, 1997                            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, 1997.

(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)
         23           Consent of Ernst & Young LLP, Independent Auditors
         28.2         Form of UroGen Corp. Information Statement - Distribution
                         to Shareholders of UroGen Corp. (1)

__________________________________________
(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, 1997 and 1996 and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997 and the period from July 1, 1991 (inception)
to December 31, 1997.  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 audits 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
audits provide 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, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 and the period from July 1, 1991 (inception) to December 31,
1997, in conformity with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations rise substantial doubt about its ability to continue as a
going concern.  The 1997 financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

                                         ERNST & YOUNG LLP

San Diego, California
February 27, 1998, except for Note 7,
as to which the date is March 18, 1998

                                       21
<PAGE>

                                 UROGEN CORP.
                       (A Development Stage Enterprise)
                                BALANCE SHEETS
                                --------------

<TABLE>
<CAPTION>
                                                     December 31,
                                                ----------------------
                                                   1997        1996
                                                ---------    ---------
<S>                                             <C>          <C>
ASSETS
------
Current assets:
Cash and equivalents                            $  74,353    $ 250,255
                                                ---------    ---------
  Total current assets                             74,353      250,255

Property and equipment, net                         2,111        2,439

Other assets                                        1,065          --
                                                ---------    ---------

Total assets                                    $  77,529    $ 252,694
                                                =========    =========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
  Accounts payable and accrued liabilities      $  68,824    $  15,460
                                                ---------    ---------

     Total current liabilities                     68,824       15,460

Stockholders' equity:
  Preferred Stock - $0.01 par value,                  --           --
     5,000,000 shares authorized,
     none issued at December 31,
     1997 and 1996
  Common Stock - $.001 par value,                   7,538        5,980
     40,000,000 shares authorized,
     7,537,319 issued at December 31,
     1997 and 5,979,528 at December 31,
     1996
  Additional paid-in capital                      751,584      675,252
  Note receivable for common stock issued          (7,242)         --
  Deficit accumulated during development
     stage                                       (743,175)    (443,998)
                                                ---------    ---------
Total stockholders' equity                          8,705      237,234
                                                ---------    ---------

                                                $  77,529    $ 252,694
                                                =========    =========

</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,
                                         1997          1996         1995           1997
                                      -----------   ----------   ----------   ---------------
<S>                                   <C>           <C>          <C>          <C>

Revenue                               $   193,500   $      -      $     -        $    649,080

Costs and expenses:
Cost of sales                                 -            -            -             821,878
Research and development                  345,592      347,698       74,640         3,519,120
Selling, general and
     administrative                       151,315      174,472         -              859,452
                                      -----------    ---------    ---------       -----------
Total costs and expenses                  496,907      522,170       74,640         5,200,450
                                      -----------    ---------    ---------       -----------

Loss from operations                     (303,407)    (522,170)     (74,640)       (4,551,370)

Gain on disposal of fixed assets              -         63,776          -              63,776

Interest income                             4,230       14,396          -              18,626
                                      -----------    ---------    ---------       -----------

Net loss                              $  (299,177)   $(443,998)   $ (74,640)      $(4,468,968)
                                      ===========    =========    =========       ===========

Basic and diluted loss
 per share                            $      (.04)   $    (.07)
                                      ===========    =========

Number of shares used in                7,311,573    5,979,528
the computation of basic              ===========    =========
and diluted 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, 1997
         ------------------------------------------------------------


<TABLE>
<CAPTION>




                                                                    Note
                                                                 Receivable     Deficit
                                  Common Stock                      For       Accumulated
                              --------------------  Additional     Common       During       Advances    Divisional
                              Number of              paid-in       Stock      Development      from      Accumulated
                               shares      Amount    Capital       Issued        Stage       Medstone    (Deficit)       Total
                              ---------   --------  ----------  -----------  ------------  ------------  ------------ -----------
<S>                           <C>         <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              -          -           -            -             -          36,410           -         36,410
Net loss                            -          -           -            -             -             -         (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          -
Distribution of Common Stock
 for services at $.05 per
  share                         363,000        363      17,787          -             -             -             -         18,150
Net loss                            -          -           -            -        (443,998)          -             -       (443,998)
                              ---------   --------   ----------   ---------   -----------   -----------   -----------  -----------
Balance at December 31,
 1996                         5,979,528      5,980      675,252         -        (443,998)          -             -        237,234
Issuance of common stock
 for cash upon exercise of
 options at $.05 per share    1,410,000      1,410       69,090         -             -             -             -         70,500
Issuance of common stock
 for cash and note receivable
 at $.05 per share              147,791        148        7,242      (7,242)          -             -             -            148
Net loss                            -          -            -           -      (  299,177)          -             -       (299,177)
                              ---------   --------   ----------   ---------   -----------   -----------   ----------- ------------
Balance at December 31,
 1997                         7,537,319   $  7,538   $  751,584   $  (7,242)  $ ( 743,175)  $       -     $       -   $      8,705
                              =========   ========   ==========   =========   ===========   ===========   =========== ============
</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,
                                         1997          1996            1995            1997
                                      ----------   -------------   ------------   ---------------
<S>                                   <C>          <C>             <C>            <C>
Net loss                               $(299,177)     $( 443,998)      $(74,640)      $(4,468,968)
Adjustments to reconcile net
 loss to net cash used in
 operating activities:
Depreciation                                 828          84,748         74,640           459,202
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)
Increase in accounts payable
 and accrued liabilities                  53,364          15,460            -              68,824
Other, net                                (1,065)            -           35,410           (31,065)
                                       ---------      ----------       --------       -----------
Net cash used in
  operating activities                  (246,050)       (248,006)       (35,410)       (3,876,223)

Cash flows from investing
  activities:
Purchase of property and
  equipment                                 (500)         (2,739)           -            (515,506)
Disposal of property and
  equipment                                  -               -              -              11,969
                                       ---------      ----------       --------       -----------
Net cash used in
  investing activities                      (500)         (2,739)           -            (503,537)
Cash flows from financing
  activities:
Proceeds from issuance of
  common stock upon exercise
  of options                              70,500             -              -              70,500
Proceeds from sale of
  common stock                               148             -              -                 148
Net advances from Medstone                   -                           36,410         3,883,465
Capital contribution of cash
  by Medstone                                -           500,000            -             500,000
                                       ---------      ----------       --------       -----------
Net cash provided by
  financing activities                    70,648         500,000         36,410         4,454,113
                                       ---------      ----------       --------       -----------
Net increase(decrease) in
 cash and equivalents                   (175,902)        249,255            -              74,353
                                       ---------      ----------       --------       -----------
Cash and equivalents,
 beginning of period                     250,255           1,000            -                 -
                                       ---------      ----------       --------       -----------
Cash and equivalents,
 end of period                         $  74,353      $  250,255       $  1,000       $    74,353
                                       =========      ==========       ========       ===========
</TABLE>

                            See accompanying notes.

                                       25
<PAGE>

                                  UROGEN CORP.
                        (A Development Stage Enterprise)
                         NOTES TO FINANCIAL STATEMENTS
                         -----------------------------
                               December 31, 1997
                               -----------------


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, 1997 have
been prepared assuming the Company will continue as a going concern.  However,
the Company incurred net losses of $299,177 during 1997 and has a deficit
accumulated during development stage of $743,175 at December 31, 1997.  During
1998, 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.

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 approximates their
fair value.

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.

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

Loss per share is computed using the weighted average number of common shares
outstanding during the periods presented.  Common equivalent shares result from
stock

                                       27
<PAGE>

options and warrants. Common equivalent shares are excluded from the computation
as their effect would be antidilutive.

In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings per Share, which supersedes APB
Opinion No. 15.  SFAS 128 replaces the presentation of primary earnings per
share (EPS) with "Basic EPS" which includes no dilution and is based on weighted
average common shares outstanding for the period.

Income Taxes

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

Reclassifications

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

New Accounting Standards

In June 1997, the Financial Accounting Standards board issued SFAS No. 130,
Reporting Comprehensive Income, (SFAS 130) and SFAS 131, Segment Information,
(SFAS 131).  Both these standards are effective for fiscal years beginning after
December 15, 1997.  SFAS No. 130 requires that all components of comprehensive
income, including net income, be reported in the financial statements in the
period in which they are recognized.  Comprehensive income is defined as the
change in equity during a period from transactions and other events and
circumstances from non-owner sources.  Net income and other comprehensive
income, including foreign currency translation adjustments, and unrealized gains
and losses on investments, shall be reported, net of their related tax effect,
to arrive at comprehensive income.  The Company believes that comprehensive
income or loss will not be materially different than net income or loss.  SFAS
No. 131 amends the requirements for public enterprises to report financial and
descriptive information about its reportable operating segments.  Operating
segments, as defined in SFAS No. 131, are components of an enterprise for which
separate financial information is available and is evaluated regularly by the
Company in deciding how to allocate resources and in assessing performance.  The
financial information is required to be reported on the basis that is used
internally for evaluating the segment performance.  The Company believes it
operates in one business and operating segment and the adoption of these
standards will not have a material impact on the Company's financial statements.

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 1997 and 1996, the
Company paid the research organization $53,741 and $67,000, respectively for
services and rent.

                                       28
<PAGE>

During 1997 and 1996, the Company paid four shareholders/officers a total of
$222,379 and $134,000, respectively, 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.  Stockholders' Equity

Preferred Stock

The Company is authorized to issue 5,000,000 shares of Preferred Stock $0.01 par
value.  As of December 31, 1997 there are no shares issued or outstanding.

Common Stock

The Company is authorized to issue 40,000,000 shares of Common Stock $0.001 par
value.  As of December 31, 1997 there are 7,537,319 shares issued and
outstanding.

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.

Warrants

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.

In 1997 the Company issued 200,000 warrants to purchase Common Stock to an
officer of the Company.  These warrants are exercisable at $.05 per share and
expire on July 31, 2001.

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

                                       29
<PAGE>

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. 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, 1997, options to purchase
15,000 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.

                                       30
<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

Granted                              210,000                         $.05
Exercised                         (1,410,000)          -             $.05
Canceled                                   -           -                -
Expired                                    -           -                -
                                  ----------    --------

Balance at December 31, 1997         210,000      15,000             $.05
                                  ==========    ========

</TABLE>

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.

As of December 31, 1997, there are outstanding options granted under The 1995
Stock Plan to purchase 210,000 shares of UroGen Common Stock at $.05 per share.
As of December 31, 1997, there are 342,331 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 one to four years.

                                       31
<PAGE>

Options outstanding as of December 31, 1997:
<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            210,000             8       $.05        60,024          $.05

</TABLE>

The weighted average exercise prices and fair values for 1997 are as follows:

<TABLE>
<CAPTION>

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

Pro forma 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 pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.  The Company's pro
forma information follows:

<TABLE>
<CAPTION>


                                     1997         1996
                                  ----------   -----------
<S>                               <C>          <C>
Pro forma net loss                $(307,352)   $( 450,894)
Pro forma net loss per share      $    (.04)   $    (.08)

</TABLE>

The pro forma results above for 1997 and 1996 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 less than four years
of vesting.

                                       32
<PAGE>

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 two-year period ended December 31, 1997.  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 uncertain.

Deferred tax assets are comprised of the following:

<TABLE>
<CAPTION>

                                                   December 31,    December 31,
                                                       1997            1996
                                                   -------------   -------------
<S>                                                <C>             <C>

Loss carryforwards                                    $ 279,000       $ 158,000
Research and development credit carryforwards            29,000          19,000
Other, net                                                8,000               -
                                                      ---------       ---------
Total deferred tax assets                               316,000         177,000
Valuation allowance                                    (316,000)       (177,000)
                                                      ---------       ---------
Net deferred tax assets                               $       -       $       -
                                                      =========       =========
</TABLE>

As of December 31, 1997, the Company has federal and state net operating loss
carryforwards of approximately $682,000 and $694,000, respectively, which will
begin to expire in 2011 and 2001, respectively, unless previously utilized.

The company has Federal and state research and development credit  carryforwards
of approximately $22,000 and $10,000, respectively, which will begin to expire
in 2011 unless previously utilized.

Under Internal Revenue Code Sections 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. Revenues

For the year ended December 31, 1997, $143,500 of the revenues was from a
research agreement, and $50,000 was from the sale of proprietary biological
materials.

                                       33
<PAGE>

6.  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.  The agreement was amended on May 1, 1997.
Future minimum payments to the research organization under this agreement as
amended are $36,000 for 1998 and $15,000 for 1999.  For the years ended December
31, 1997 and 1996 a total of $36,000 and $67,000 was paid to the research
organization under the terms of this agreement for services and rent.

The Company is obligated to make a milestone payment to IRC of $200,000 upon the
approval of its first product by the FDA or the governing health authority of
any other country.  This fee can be offset against future royalty payments.  In
addition, the Company is obligated to pay royalties on its net sales revenue and
a percentage of all revenues received from sublicenses relating to the tumor
radiosensitization gene therapy technology.  Failure to comply with the terms of
the IRC License may cause its termination, which would have a materially adverse
effect on the Company.


7.  Subsequent Event

On March 18, 1998, the Company's Board of Directors entered into an agreement
with a major international healthcare company to merge that company's gene
therapy program and its advanced gene therapy technology into UroGen's existing
technology base.  Under the terms of the agreement, UroGen will acquire rights
to all of the related intellectual property and equipment needed to continue
research and product development in exchange for newly issued UroGen stock.  At
the conclusion of the asset acquisition, the corporate partner would be issued a
number of common shares equal to approximately 19% of the fully diluted number
of UroGen shares outstanding at that time.  In addition, the corporate partner
would also receive a larger number of shares of preferred stock that will be
convertible into common stock at a future time and under certain conditions.
Under the proposed terms, the corporate partner will also provide funding to
UroGen to continue research and product development of this technology.

The agreement has three important contingencies.  UroGen must raise a specific
minimum amount of capital by May 27, 1998, the transaction must be approved by
the board of directors of the corporate partner, and other ancillary agreements
must be negotiated and approved by both parties.  These agreements include the
financial and business relationship defining the corporate partner's ongoing
support of research and product development, and a plan for the corporate
partner to distribute UroGen products for the treatment of selected genetic
disorders.  The name of the corporate partner will be disclosed when the
contingencies are resolved.

                                       34
<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 27, 1998        /s/  Paul D. Quadros
                                  ---------------------
                                  Paul D. Quadros
                                  President
                                  Chief Executive Officer
                                  Chief Financial Officer
                                  (Principal financial and accounting officer)

                                       35