<PAGE>   1

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q
                                QUARTERLY REPORT

                     PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


FOR THE QUARTER ENDED                                    Commission File Number
JUNE 30, 1999                                                    0-20963



                          UROQUEST MEDICAL CORPORATION
             (Exact name of Registrant as specified in its charter)


DELAWARE                                    59-3176454
(state or other jurisdiction               (IRS Employer Identification Number)
of incorporation or organization)

              173 CONSTITUTION DRIVE, MENLO PARK, CALIFORNIA 94025
               (Address of principal executive offices) (Zip Code)


                                 (650) 463-5180
              (Registrant's telephone number, including area code)



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes [x]    No [ ]


Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.



                Class                          Outstanding at July 31, 1999
---------------------------------------    -------------------------------------
Common Stock, $.001 par value                          12,538,997

<PAGE>   2

                                      INDEX



PART I - FINANCIAL INFORMATION

        Item 1 -  Condensed Consolidated Financial Statements

                  Condensed Consolidated Statements of Operations for the Three
                  Months and the Six Months Ended June 30, 1999 and 1998
                  (unaudited)

                  Condensed Consolidated Balance Sheets as of June 30, 1999
                  (unaudited) and December 31, 1998

                  Condensed Consolidated Statements of Cash Flows for the Six
                  Months Ended June 30, 1999 and 1998 (unaudited)

                  Notes to Condensed Consolidated Financial Statements


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


        Item 3 - Quantitative and Qualitative Disclosure of Market Risk





PART II - OTHER INFORMATION

         Item 1 - Legal Proceedings
         Item 2 - Changes in Securities and Use of Proceeds
         Item 3 - Defaults upon Senior Securities
         Item 4 - Submission of Matters to a Vote of Security Holders
         Item 5 - Other Information
         Item 6 - Exhibits and Reports on Form 8-K

Signatures


                                       2
<PAGE>   3
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


                          UROQUEST MEDICAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>

                                                             Three months ended June 30,       Six months ended June 30,
                                                             ----------------------------    ----------------------------
                                                                 1999            1998            1999            1998
                                                             ------------    ------------    ------------    ------------


<S>                                                          <C>             <C>             <C>             <C>
Net sales ................................................   $  4,790,125    $  4,497,483    $  9,183,170    $  8,520,470

Cost of sales ............................................      2,309,536       2,243,478       4,555,115       4,309,993
                                                             ------------    ------------    ------------    ------------
  Gross profit ...........................................      2,480,589       2,254,005       4,628,055       4,210,477
                                                             ------------    ------------    ------------    ------------

Operating expenses:
  Research and development ...............................        883,364       1,089,092       1,900,858       2,004,515
  General and administrative .............................      1,173,868       1,114,279       2,443,176       2,349,263
  Sales and marketing ....................................        603,802         729,712       1,224,660       1,371,988
  Amortization of goodwill ...............................        158,046         158,046         316,092         316,092
                                                             ------------    ------------    ------------    ------------
    Total operating expenses .............................      2,819,080       3,091,129       5,884,786       6,041,858
                                                             ------------    ------------    ------------    ------------

Operating loss ...........................................       (338,491)       (837,124)     (1,256,731)     (1,831,381)

Other income (expense):
  Interest expense .......................................        (20,123)        (32,888)        (42,186)        (67,715)
  Interest income ........................................         67,306         115,836         142,197         248,196
                                                             ------------    ------------    ------------    ------------
    Other income (expenses), net .........................         47,183          82,948         100,011         180,481

Loss before provision for income taxes ...................       (291,308)       (754,176)     (1,156,720)     (1,650,900)

Provision for income taxes ...............................         35,000          30,000          60,000          41,000
                                                             ------------    ------------    ------------    ------------

Net loss .................................................   $   (326,308)   $   (784,176)   $ (1,216,720)   $ (1,691,900)
                                                             ============    ============    ============    ============


Basic and diluted net loss per share .....................   $      (0.03)   $      (0.07)   $      (0.10)   $      (0.14)
                                                             ============    ============    ============    ============

Weighted average shares used in computing
  basic and diluted net loss per share ...................     12,452,522      12,034,412      12,433,898      11,996,015
                                                             ============    ============    ============    ============
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       3
<PAGE>   4

                    UROQUEST MEDICAL CORPORATION
                CONDENSED CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                ASSETS                                                   June 30,      December 31,
                                                                                           1999            1998
                                                                                       ------------    ------------
                                                                                       (Unaudited)
<S>                                                                                    <C>              <C>
Current assets:
     Cash and cash equivalents ....................................................    $ 6,247,060     $ 6,980,128
     Accounts receivable, net of allowance for doubtful accounts ..................      2,893,131       3,145,490
     Inventories ..................................................................      2,817,850       2,557,618
     Prepaid expenses and other current assets ....................................        171,623         260,839
                                                                                      ------------    ------------
         Total current assets .....................................................     12,129,664      12,944,075
                                                                                      ------------    ------------
Property, plant and equipment, net ................................................      4,328,494       4,699,491
Goodwill and intangible assets, at cost, less
     accumulated amortization .....................................................      9,955,349      10,315,481
Other noncurrent asset ............................................................           --           200,000
                                                                                      ------------    ------------
         Total assets .............................................................   $ 26,413,507    $ 28,159,047
                                                                                      ============    ============

                LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable .............................................................     $  369,798      $  462,715
     Accrued compensation .........................................................        626,300         839,663
     Accrued selling and distribution expenses ....................................        166,542         154,610
     Other accrued expenses .......................................................        926,049         970,870
     Current portion of long-term debt ............................................        370,615         370,615
                                                                                      ------------    ------------

         Total current liabilities ................................................      2,459,304       2,798,473
                                                                                      ------------    ------------


Long-term debt, net of current portion ............................................        658,382         921,654

Stockholders' equity:
     Preferred stock, $.001 par value; 16,000,000 shares authorized;
         none issued and outstanding ..............................................           --              --
     Common stock, $.001 par value; 31,000,000 shares authorized;
          12,452,522 and 12,356,210 shares issued and outstanding
          as of June 30, 1999 and December 31, 1998, respectively .................         12,453          12,356
     Additional paid-in capital ...................................................     37,390,992      37,323,670
     Deferred compensation ........................................................        (26,865)        (33,067)
     Accumulated deficit ..........................................................    (14,080,759)    (12,864,039)
                                                                                      ------------    ------------

         Total stockholders' equity ...............................................     23,295,821      24,438,920
                                                                                      ------------    ------------
         Total liabilities and stockholders' equity ...............................   $ 26,413,507    $ 28,159,047
                                                                                      ============    ============
</TABLE>



See accompanying notes to condensed consolidated financial statements.


                                       4
<PAGE>   5

                          UROQUEST MEDICAL CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                      Six months ended June 30,
                                                                                    -----------------------------
                                                                                      1999              1998
                                                                                    ------------    ------------
<S>                                                                                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss ..................................................................   $ (1,216,720)   $ (1,691,900)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
     Depreciation and amortization .............................................        850,203         813,890
     Changes in operating assets and liabilities:
         Accounts receivable ...................................................        252,359        (498,777)
         Inventories ...........................................................       (260,232)       (222,619)
         Prepaid expenses and other assets .....................................        289,216          35,796
         Accounts payable and accrued expenses .................................       (339,169)        467,424
         Accrued severance costs ...............................................           --          (398,263)
                                                                                   ------------    ------------
                Net cash used in operating activities ..........................       (424,343)     (1,494,449)
                                                                                   ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Purchases of property, plant and equipment, net .......................       (112,872)       (732,929)
         Other asset ...........................................................           --          (200,000)
                                                                                   ------------    ------------
                Net cash used in investing activities ..........................       (112,872)       (932,929)
                                                                                   ------------    ------------


CASH FLOWS FROM FINANCING ACTIVITIES:
         Proceeds from issuance of common stock ................................         67,419          56,651
         Repayment of notes payable and long-term debt .........................       (263,272)       (239,911)
                                                                                   ------------    ------------
               Net cash used in financing activities ...........................       (195,853)       (183,260)
                                                                                   ------------    ------------

Net decrease in cash and cash equivalents ......................................       (733,068)     (2,610,638)

Cash and cash equivalents at beginning of period ...............................      6,980,128      11,054,088
                                                                                   ------------    ------------

Cash and cash equivalents at end of period .....................................   $  6,247,060    $  8,443,450
                                                                                   ============    ============

Supplemental disclosures of cash flow information:
      Cash paid for interest ...................................................   $     42,186    $     68,028
      Cash paid for income taxes ...............................................         55,000            --
</TABLE>


See accompanying notes to condensed consolidated financial statements.


                                       5
<PAGE>   6

                          UROQUEST MEDICAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1999
                                   (UNAUDITED)



NOTE 1 - BASIS OF PRESENTATION

         The condensed consolidated financial statements include the assets and
liabilities of UroQuest Medical Corporation (the "Company") and its wholly owned
subsidiaries. All significant intercompany transactions have been eliminated in
consolidation.

         In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the Company's
consolidated financial position as of June 30, 1999, the results of its
operations for the three months and the six months ended June 30, 1999 and 1998,
and its cash flow for the six months ended June 30, 1999 and 1998. The results
of operations for any interim period are not necessarily indicative of results
to be expected for the full fiscal year. The balance sheet at December 31, 1998
has been derived from audited financial statements at such date, but does not
include all of the information and footnotes required by generally accepted
accounting principles.

         The accompanying condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's Form 10-K (File No. 0-20963) for the
year ended December 31, 1998 filed with the Securities and Exchange Commission
on March 31, 1999.


NOTE 2 - NET LOSS PER SHARE

         Basic net loss per share has been calculated based on the weighted
  average number of shares of common stock outstanding. If the Company had been
  in a net income position in the periods presented, diluted earnings per share
  would have been presented separately and would have included the effect of
  outstanding stock options and warrants, calculated using the treasury stock
  method.


NOTE 3 - INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                                June 30, 1999      December 31, 1998
                                                -------------      -----------------

<S>                                                 <C>                    <C>
               Finished goods..................     $ 649,074              $ 581,383
               Work-in-process.................     1,357,225              1,211,519
               Raw materials and supplies......       811,551                764,716
                                                  -----------            -----------
                                                  $ 2,817,850            $ 2,557,618
                                                  ===========            ===========
</TABLE>


                                       6
<PAGE>   7

                          UROQUEST MEDICAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JUNE 30, 1999
                                   (UNAUDITED)



NOTE 4 - SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                               Urology         Airway Management/
                                              Products             OEM Products          Total
                                           -------------       -----------------         -----
<S>                                        <C>                      <C>                <C>
THREE MONTHS ENDED JUNE 30,
1999
Revenues from external customers           $         --             $4,790,000         $4,790,000
Segment profit (loss)                        (1,111,000)             1,026,000            (85,000)

1998
Revenues from external customers           $         --             $4,497,000         $4,497,000
Segment profit (loss)                        (1,313,000)               765,000           (548,000)

SIX MONTHS ENDED JUNE 30,
1999
Revenues from external customers           $         --             $9,183,000         $9,183,000
Segment profit (loss)                        (2,413,000)             1,669,000           (744,000)

1998
Revenues from external customers           $         --             $8,520,000         $8,520,000
Segment profit (loss)                        (2,563,000)             1,325,000         (1,238,000)
</TABLE>


         A reconciliation of the combined reportable segments' losses to the
Company's consolidated loss before income taxes is as follows:

<TABLE>
<CAPTION>
                                                      Three months ended             Six months ended
                                                             June 30,                    June 30,
                                                   -------------------------     -------------------------
                                                       1999          1998            1999         1998
                                                     --------      --------        -------      ---------

<S>                                                  <C>          <C>            <C>          <C>
Total loss for reportable segments                   $(85,000)    $(548,000)     $(744,000)   $(1,238,000)
Unallocated amounts:
    Amortization of goodwill                         (158,000)     (158,000)      (316,000)      (316,000)
    Depreciation of acquired fixed asset
       fair value adjustment                          (48,000)      (48,000)       (97,000)       (97,000)
                                                   -----------   -----------  -------------  -------------
    Total consolidated loss before income taxes     $(291,000)    $(754,000)   $(1,157,000)  $(1,651,000)
                                                   ===========   ===========   ============  ============
</TABLE>


NOTE 5 - COMPREHENSIVE INCOME (LOSS)

         Total comprehensive income (loss) of the Company includes only the net
loss. The Company had no items of other comprehensive income (loss) in any
period presented.


                                       7
<PAGE>   8

                          UROQUEST MEDICAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  JUNE 30, 1999
                                   (UNAUDITED)




NOTE 6 - PENDING MERGER

         On June 3, 1999, the Company entered into an Agreement and Plan of
Merger (the "Agreement") with Chemfab Corporation ("Chemfab"), a publicly-held
company that designs, manufactures, fabricates and markets value added
polymer-based products. Under the terms of the Agreement, Chemfab will acquire
all outstanding shares of the Company's common stock for an aggregate
consideration of $29 million, subject to adjustment based on a number of factors
including net operating losses and net current assets, to be determined prior to
the close of the merger.

         Completion of the merger is subject to customary conditions to closing,
including approval by the Company's stockholders. Stockholders holding
approximately 48% of the Company's common stock have agreed to vote their shares
in favor of the proposed merger and have granted to Chemfab an option to acquire
their shares of common stock under certain circumstances. The merger is expected
to be completed during the third or fourth quarter of 1999.

         In connection with the merger, in July 1999 the Company has shut down
the operations of its urology division and begun the process of closing its
Menlo Park corporate headquarters. The closure of the corporate headquarters
will be completed prior to closing.


                                       8
<PAGE>   9

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

         The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Condensed
Consolidated Financial Statements and the related Notes thereto included
elsewhere in this Report and the Company's annual report on Form 10-K for the
year ended December 31, 1998. The following Management's Discussion and Analysis
of Financial Condition and Results of Operations contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended,
that involve risks and uncertainties. The Company's actual results of operations
could differ materially from those anticipated in such forward-looking
statements as a result of certain factors including those discussed under
"Factors Affecting Operating Results" and elsewhere in this Report.

OVERVIEW

          From its inception in April 1992 until June 1999, the Company
devoted its efforts to the design and development of advanced products for the
management and diagnosis of both male and female urological disorders. The
Company's principalurology product, the On-Command(R), is an intraurethral
(inside the urethra) catheter incorporating a proprietary anchoring system and a
proprietary patient controlled, magnetically activated valve used to regulate
urine flow. As part of the design and development of the On-Command product, the
Company conducted various clinical trials for the acute and chronic indications
of the Male On-Command and the acute indication of the Female On-Command. In
April 1999, the Company received notification that the FDA had denied 510(k)
premarket clearance of the Male On-Command for acute indications. The denial was
further clarified and confirmed in a meeting in June 1999 between the Company
and the FDA.

         Since 1996, Bivona Medical Technologies ("BMT") has been a wholly owned
subsidiary of the Company. BMT develops, manufactures and markets a line of
proprietary silicone medical device products and provides engineering design,
development and manufacturing services for silicone products on an OEM basis for
other medical device companies. All of the Company's current revenues relate to
sales of BMT products. BMT is one of a limited number of specialty manufacturers
of silicone catheters in the United States. BMT manufactured the Company's
On-Command used in clinical trials and market evaluation studies.

         On June 3, 1999 the Company and Chemfab entered into an Agreement and
Plan of Merger whereby the Company would be merged with and into an indirect
subsidiary of Chemfab in exchange for $29,000,000, subject to certain
adjustments. The boards of directors of both companies have unanimously approved
the merger, and subject to the approval of the stockholders of the Company and
certain other closing conditions, the transaction is expected to close in third
or fourth quarter of 1999.

         In July 1999, pursuant to the merger agreement, the Company completed
the termination of the operations of its urology division, which included the
termination of all research and development activities relating to urology
products, the termination of all clinical trials and studies and the termination
of all urology division personnel. Prior to the closing of the merger, the
Company expects to complete the closure of its corporate headquarters in Menlo
Park, California, and to terminate its administrative personnel working in Menlo
Park. The Company intends to account for the related shutdown costs in the
quarter ended September 30, 1999. The termination of the urology division's
operations, the closure of the corporate headquarters and the termination of
certain administrative personnel will not be affected by the outcome of the
merger.

         The Company has experienced substantial losses since inception and, as
of June 30, 1999, had an accumulated deficit of $14.1 million. The Company
expects its operating losses to continue at least until the


                                       9
<PAGE>   10

termination of its urology division and closure of its corporate headquarters
have been completed. The Company continues to expend substantial resources in
the expansion of marketing and sales activities, and research and development in
the Airway Management/OEM division. In addition, the Company's results of
operations may fluctuate significantly during future quarterly periods.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998:

         Net sales and cost of sales. Net sales, which were generated from sales
by BMT of primarily proprietary airway management products and other medical
device products to OEM customers, increased 7% to $4,790,000 for the three
months ended June 30, 1999 from $4,497,000 for the three months ended June 30,
1998. The increase in net sales was attributable primarily to the increased
product shipments to proprietary product customers. Cost of sales of $2,310,000
for the three months ended June 30, 1999 increased 3% from $2,243,000 for the
three months ended June 30, 1998, due primarily to the increase in sales. Gross
profit percentage for the three months ended June 30, 1999 increased to 52% from
50% for the same period in 1998. The improvement in gross profit percentage was
due primarily to favorable growth in sales of higher margin proprietary
products.

         Research and development. Research and development expenses include
product development, clinical testing and regulatory expenses. For the three
months ended June 30, 1999 research and development expenses decreased to
$883,000 from $1,089,000 for the three months ended June 30, 1998. The decrease
was attributable primarily to the termination of clinical trials and studies and
research and development of the urology products in June 1999 as part of the
closure of the Company's urology division. Research and development expenses are
expected to continue to decrease in the foreseeable future as the result of this
closure.

         General and administrative. General and administrative expenses
increased to $1,174,000 for the three months ended June 30, 1999 from $1,114,000
for the three months ended June 30, 1998. The increase was attributable
primarily to increased personnel costs in the Airway Management/OEM business
segment. General and administrative expenses are expected to decrease due to the
closure of the Company's urology division and corporate headquarters.

         Sales and marketing. Sales and marketing expenses decreased to $604,000
for the three months ended June 30, 1999 from $730,000 for the three months
ended June 30, 1998. This decrease was attributable primarily to decreased
promotion and translation costs in the Airway Management marketing organization
as well as temporarily decreased personnel costs in the Airway Management direct
selling organization. Sales and marketing expenses are expected to decrease in
the foreseeable future due to the closure of the Company's urology division.

         Amortization of goodwill. Amortization of goodwill remained at $158,000
for the three months ended June 30, 1999 compared to the same period in 1998.
The goodwill was recognized as a result of the acquisition of BMT in October
1996, and is being amortized over an estimated life of 20 years.

         Other income (expense). Other income (expense) decreased to net
interest income of $47,000 for the three months ended June 30, 1999 from a net
interest income of $83,000 for the three months ended June 30, 1998. Interest
income decreased to $67,000 for the three months ended June 30, 1999 from
$116,000 for the three months ended June 30, 1998. The decrease in interest
income was attributable to lower average cash balances, due primarily to net
cash being used in operating activities. Interest expense decreased to $20,000
for the three months ended June 30, 1999 from $33,000 for the three months ended
June 30, 1998. The decrease in interest expense was attributable primarily to
the lower average debt balances as the Company is repaying existing loans and
has not incurred any new loans.


                                       10
<PAGE>   11

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998:

         Net sales and cost of sales. Net sales, which were generated from sales
by BMT of primarily proprietary airway management products and other medical
device products to OEM customers, increased 8% to $9,183,000 for the six months
ended June 30, 1999 from $8,520,000 for the six months ended June 30, 1998. The
increase in net sales was attributable primarily to the increased product
shipments to proprietary product customers. Cost of sales of $4,555,000 for the
six months ended June 30, 1999 increased 6% from $4,310,000 for the six months
ended June 30, 1998, due primarily to the increase in sales. Gross profit
percentage for the six months ended June 30, 1999 increased to 50% from 49% for
the same period in 1998. The improvement in gross profit percentage was due
primarily to favorable growth in sales of higher margin proprietary products.

         Research and development. Research and development expenses include
product development, clinical testing and regulatory expenses. For the six
months ended June 30, 1999 research and development expenses decreased to
$1,901,000 from $2,005,000 for the six months ended June 30, 1998. The decrease
was attributable primarily to the termination of clinical trials and studies and
research and development of the urology products in June 1999 as part of the
closure of the Company's urology division. Research and development expenses are
expected to continue to decrease in the foreseeable future as the result of this
closure.

         General and administrative. General and administrative expenses
increased to $2,443,000 for the six months ended June 30, 1999 from $2,349,000
for the six months ended June 30, 1998. The increase was attributable primarily
to increased personnel costs in the Airway Management/OEM business segment.
General and administrative expenses are expected to decrease due to the closure
of the Company's urology division and corporate headquarters.

         Sales and marketing. Sales and marketing expenses decreased to
$1,225,000 for the six months ended June 30, 1999 from $1,372,000 for the six
months ended June 30, 1998. This decrease was attributable primarily to
decreased promotion and translation costs in the Airway Management marketing
organization as well as temporarily decreased personnel costs in the Airway
Management direct selling organization. Sales and marketing expenses are
expected to decrease in the foreseeable future due to the closure of the
Company's urology division.

         Amortization of goodwill. Amortization of goodwill remained at $316,000
for the six months ended June 30, 1999 compared to the same period in 1998. The
goodwill was recognized as a result of the acquisition of BMT in October 1996,
and is being amortized over an estimated life of 20 years.

         Other income (expense). Other income (expense) decreased to net
interest income of $100,000 for the six months ended June 30, 1999 from a net
interest income of $180,000 for the six months ended June 30, 1998. Interest
income decreased to $142,000 for the six months ended June 30, 1999 from
$248,000 for the six months ended June 30, 1998. The decrease in interest income
was attributable to lower average cash balances, due primarily to net cash being
used in operating activities. Interest expense decreased to $42,000 for the six
months ended June 30, 1999 from $68,000 for the six months ended June 30, 1998.
The decrease in interest expense was attributable primarily to the lower average
debt balances as the Company is repaying existing loans and has not incurred any
new loans.

PROVISION FOR INCOME TAXES:

         The Company recorded a $35,000 and $30,000 provision for state income
taxes for the three months ended June 30, 1999 and 1998, respectively. For the
six months ended June 30, 1999 and 1998, the provision for state income taxes
recorded was $60,000 and $41,000, respectively. The provision for state income
taxes is recorded primarily as a result of taxable income earned by BMT in
Indiana where the Company is required to file tax returns on a separate company
basis. The Company has not paid any federal income taxes since its inception due
to net operating losses. Realization of deferred tax assets is


                                       11
<PAGE>   12

dependent on future earnings, if any, the timing and amount of which are
uncertain. Accordingly deferred tax asset valuation allowances have been
established as of June 30, 1999 and December 31, 1998 to reflect these
uncertainties.

         As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $8,300,000. The Company also had federal research
and development tax credit carryforwards of approximately $200,000. The net
operating loss and tax credit carryforwards will expire at various dates
beginning 2002 through 2018, if not utilized. Utilization of the net operating
loss and tax credit carryforwards may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended. This annual limitation may result in the
expiration of net operating loss and tax credit carryforwards before
utilization.


LIQUIDITY AND CAPITAL RESOURCES

         The Company has financed its operations primarily through the public
and private sale of equity securities and through bank-provided working capital
financing, short-term borrowings and equipment lease financing and, beginning in
1997, cash generated from operations at BMT. Since inception, the Company has
raised approximately $28 million in net proceeds from equity financing which
includes the net proceeds of $17.8 million from the initial public offering of
the Company's Common Stock in October 1996.

         During the six months ended June 30, 1999, net cash used in operating
activities amounted to $424,000. During the six months ended June 30, 1998, net
cash used in operating activities amounted to $1,494,000. The decrease in net
cash used in operating activities in the six-month period ended June 30, 1999
compared to the same period in 1998 was due primarily to increased sales and
decreased net loss in 1999 and completed payments of severance costs in the
fourth quarter of 1998 related to the employment termination of certain members
of senior management in May 1997.

         Additions of property and equipment for the six months ended June 30,
1999 and 1998 were $113,000 and $733,000, respectively. The decrease in
additions of property and equipment in the six-month period ended June 30, 1999
compared to the same period in 1998 was due primarily to the extraordinary
purchases of property and equipment in support of the infrastructure development
at BMT, the urological product development and the expansion of OEM production
capacity in 1998. The Company expects additional purchases of property and
equipment to continue to support the BMT operations.

         The Company's primary internal sources of liquidity presently consists
of existing borrowings, cash balances and cash generated from BMT's operations.
The Company's primary external sources of liquidity are equity financing and
bank-provided debt financing.

         As of June 30, 1999 and December 31, 1998, the Company had cash and
cash equivalents of $6,247,000 and $6,980,000, respectively. The decrease since
December 31, 1998 was due primarily to the net cash used in operations,
purchases of fixed assets and repayment of long-term debt. As of June 30, 1999,
the Company had no significant noncancelable commitments for capital
expenditures or raw material purchases, although the Company may enter into such
commitments in the future.

         If the merger with Chemfab is not consummated, the Company believes
that existing capital resources will be sufficient to fund its operations
through 1999. The Company's capital requirements depend on numerous factors,
including the effect of competitive products, the cost and effect of future
marketing programs, the resources the Company devotes to manufacturing and
developing its products, the success of proprietary airway management products
and OEM sales, general economic conditions and various other factors. The timing
and amount of such capital requirements cannot accurately be predicted. Prior to
achieving profitability, the Company may require additional capital and there
can be no assurance


                                       12
<PAGE>   13

that such additional funding will be available on terms satisfactory to the
Company, if at all. Any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve significant
restrictive covenants. Failure to raise capital when needed could have a
material adverse effect on the Company's business, financial condition and
results of operations.

         The Company expects its operating losses to continue at least until the
termination of its urology division and closure of its corporate headquarters
have been completed. The Company continues to expend substantial resources in
the expansion of marketing and sales activities, and research and development in
the Airway Management/OEM division. In addition, the Company's results of
operations may fluctuate significantly during future quarterly periods. All
management estimates regarding liquidity and capital requirements are subject to
the factors discussed above and those set forth under "Factors Affecting
Operating Results".


YEAR 2000 COMPLIANCE

         Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than one year, computer systems (hardware and software) and/or devices with
embedded date-sensitive chips used by many companies may need to be upgraded or
replaced to comply with such "Year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects associated with
such compliance.

         Based on an assessment completed in 1998, the Company believes that all
its computer programs and hardware that have date-sensitive software or embedded
chips will properly utilize dates beyond December 31, 1999, primarily as a
result of system upgrades, currently in process, which were originally planned
to enhance business operations.

         The completed assessment indicated that most of the Company's
significant information technology systems, if not upgraded or modified, could
be affected. These systems include accounting programs, internally developed
software and other PC-based applications. The Company has completed an upgrade
to its accounting system; such upgrade was originally intended to facilitate
increased business operations. The upgraded accounting system is certified by
the vendor that it is Year 2000 compliant. Regarding its internally developed
software, the Company determined that approximately 5% of the lines of codes in
the software had to be changed to resolve the Year 2000 issue. The Company
believes such changes have been fully completed. PC-based applications that are
currently used by the Company are certified by the vendors at time of purchase
that they are Year 2000 compliant; therefore, no replacements or upgrades are
considered necessary. The assessment also indicated that the embedded chips used
in production and manufacturing equipment are not date-sensitive and thus will
not be affected by the Year 2000 Issue. The cost directly related to addressing
Year 2000 issues has been determined to be immaterial.

         The Company has purchased software to test all its personal computers
regarding Year 2000 compliance. The Company is now identifying and evaluating
certain testing programs to be used to assure that its main information
technology operating system is Year 2000 compliant. The Company anticipates
completing all the testing process by end of September 1999.

         The Company has also made queries to its significant suppliers of their
Year 2000 readiness. To date, the Company is not aware of any suppliers with a
Year 2000 issue that would materially impact the Company's results of
operations, liquidity, or capital resources. However, the Company has no means
of ensuring that its suppliers will be Year 2000 ready. The inability of
suppliers to complete their Year 2000 resolution process in a timely fashion
could materially impact the Company. The effect of noncompliance by suppliers is
not determinable.


                                       13
<PAGE>   14

         The Company presently believes that with upgrades or modifications of
existing computer systems, the Year 2000 issue can be mitigated. However, if
such upgrades or modifications fail to address the Year 2000 issues, the
Company's business, financial condition and result of operations could be
materially adversely affected. The extent of the financial impact due to Year
2000 noncompliance cannot be reasonably estimated at this time.

         The Company is studying the need for a contingency plan in the event
that its computer systems are not Year 2000 compliant. The Company plans to
determine whether such a plan is necessary after the internal testing process is
completed in September 1999. The Company is developing certain strategies in the
case that its key suppliers do not resolve their Year 2000 issues in a timely
manner.


FACTORS AFFECTING OPERATING RESULTS

         The statements contained in this Report that are not purely historical
are "forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All forward-looking statements
involve various risks and uncertainties and include statements that indicate
what the Company anticipates regarding the Company's product developments,
commercial opportunities, regulatory approval, expectations, strategies, plans
and intentions for the future. All forward-looking statements are made as of
this date based on information available to the Company as of such date, and the
Company assumes no obligation to update any forward-looking statement. It is
important to note that such statements may not prove to be accurate and that the
Company's actual results and future events could differ materially from those
anticipated in such statements. Among the factors that could cause actual
results to differ materially from the results discussed in the forward-looking
statements are described below and elsewhere in this Report. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
Section and other factors included elsewhere in this Report. See other portions
of this Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations".

         On June 3, 1999 the Company and Chemfab entered into an Agreement and
Plan of Merger whereby the Company would be merged with and into an indirect
subsidiary of Chemfab in exchange for $29,000,000, subject to certain
adjustments. The boards of directors of both companies have unanimously approved
the merger, and subject to the approval of the stockholders of the Company and
certain other closing conditions, the transaction is expected to close in third
or fourth quarter of 1999.

         In July 1999, pursuant to the merger agreement, the Company completed
the termination of the operations of its urology division, which included the
termination of all research and development activities relating to urology
products, the termination of all clinical trials and studies and the termination
of all urology division personnel. Prior to the closing of the merger, the
Company expects to complete the closure of its corporate headquarters in Menlo
Park, California, and to terminate its administrative personnel working in Menlo
Park. The Company intends to account for the related shutdown costs in the
quarter ended September 30, 1999. The termination of the urology division's
operations, the closure of the corporate headquarters and the termination of
certain administrative personnel will not be affected by the outcome of the
merger. Accordingly, the following discussion is qualified in its entirety by
the termination of the Company's urology division in July 1999.

History of Losses and Expectation of Future Losses

         The Company has experienced substantial operating losses since
inception and, as of June 30, 1999, had an accumulated deficit of approximately
$14.1 million. The Company expects its operating losses to continue at least
until the termination of its urology division and closure of its corporate
headquarters have been completed. The Company continues to expend substantial
resources in the expansion of marketing and


                                       14
<PAGE>   15

sales activities, and research and development in the Airway Management/OEM
division. There can be no assurance that the Company will achieve or sustain
profitability in the future.

Government Regulation

         The Company's products are subject to pervasive and continuing
regulation by the FDA. Pursuant to the Federal Food, Drug and Cosmetic Act (the
"FDC Act") and regulations promulgated thereunder, the FDA regulates the
preclinical and clinical testing, manufacture, labeling, distribution and
promotion of medical devices in the United States. Prior to commercialization in
the United States, a medical device generally must receive FDA clearance or
approval, which can be an expensive, lengthy and uncertain process. Regulatory
agencies in the various foreign countries in which the Company's products may be
sold may impose additional or varying regulatory requirements. Noncompliance
with applicable requirements can result in, among other things, fines,
injunctions, civil penalties, recall or seizure of products, total or partial
suspension of production, failure of the government to grant premarket clearance
or approval for devices, withdrawal of marketing clearances or approvals, and
criminal prosecution. The FDA also has authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

         Companies desiring to market a new medical device generally must obtain
either a premarket notification clearance under Section 510(k) of the FDC Act
("510(k)") or premarket approval ("PMA") prior to the introduction of such
medical device into the market. In addition, changes to a medical device that
significantly affect the safety or effectiveness of the device are also subject
to FDA review and clearance or approval. Although generally believed to be a
shorter, less costly regulatory path than a PMA, the process of obtaining a
510(k) clearance generally requires the submission of supporting data, which may
include data from clinical trials of the device. The time period required to
assemble and compile this data can be extensive and can extend the regulatory
process for a considerable length of time. The PMA process can take several
years longer than the 510(k) clearance process and requires the submission of
extensive clinical data and supporting information.

         Regulatory approvals, if granted, may include significant limitations
on the indicated uses for which a product may be marketed. FDA enforcement
policy strictly prohibits the marketing of approved medical devices for
unapproved uses. The Company will be required to adhere to applicable FDA
regulations regarding Good Manufacturing Practices ("GMP") and similar
regulations in other countries, which include testing, control, and
documentation requirements, and with Medical Device Reporting ("MDR")
requirements. Ongoing compliance with GMP and other applicable regulatory
requirements will be monitored through periodic inspections by state and federal
agencies, including the FDA, and by comparable agencies in other countries. In
addition, changes in existing regulations or adoption of new governmental
regulations or policies could prevent or delay regulatory approval of the
Company's products.

         Sales of medical devices outside the United States are subject to
foreign regulatory requirements that vary widely from country to country. The
time necessary to obtain approval for sales in foreign countries may be longer
or shorter than that required for FDA approval, and requirements may differ from
FDA requirements. The Company has received the right to affix the CE mark, an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives, to its products.

         There can be no assurance that the Company will be able to obtain or
maintain the required clearances or approvals, both domestically and
internationally, which would allow the Company to market its products for their
intended uses on a timely basis or at all, and delays in receipt of or failure
to receive such clearances or approvals, or failure to comply with existing or
future regulatory requirements would have a material adverse effect on the
Company's business, financial condition and results of operations.


                                       15
<PAGE>   16

         BMT, as a developer and manufacturer of Class I and Class II medical
devices, is also subject to all of the foregoing regulatory requirements of the
FDA. BMT is also registered with the FDA as a distributor, initial importer,
repackager and relabeler of medical devices. Among its activities, BMT markets a
range of proprietary and OEM products, most of which require and have received
510(k) clearance. BMT has made modifications to one or more of its cleared
proprietary devices that BMT believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of BMT's determinations not to submit a new 510(k) notice for any of
these changes or would not require BMT to submit a new 510(k) notice for any of
the changes made to BMT's devices. If the FDA requires BMT to submit a new
510(k) notice for any device modification, BMT may be prohibited from marketing
the modified device until the 510(k) notice is cleared by the FDA.

         In January 1998, BMT received a Warning Letter from the FDA following
BMT's response to the FDA regarding certain deficiencies noted during an on-site
FDA inspection in December 1997. BMT management addressed the FDA's concerns
noted in the Warning Letter in both written and verbal communication in January
and February 1998. In March 1998, BMT received a letter in which the FDA
acknowledged BMT's responses and planned actions to address the FDA's concerns
and informed BMT that the FDA was planning a follow-up inspection in 1998. The
FDA has subsequently extended the time for the follow-up inspection into 1999.
While the Company believes it has fully addressed the FDA's concerns, there can
be no assurance that the FDA will concur. Nor can there be any assurance that
the FDA will not issue additional Warning Letters in the future. Failure by BMT
to adequately address the FDA's concerns could cause the FDA to take additional
actions that might cause disruptions in BMT's operations. These disruptions
could have a material, adverse effect on the Company's business, financial
condition and results of operations.

Reliance On Patents and Protection of Proprietary Technology

         The Company's ability to compete effectively will depend, in part, on
its ability to develop and maintain proprietary aspects of its technology to
preserve its trade secrets and to operate without infringing the proprietary
rights of the third parties. The Company's strategy regarding the protection of
its proprietary rights and innovations is to seek patents on those portions of
its technology that it believes are patentable and to protect as trade secrets
other confidential information and proprietary know-how. There can be no
assurance that the Company's issued patents, or any patents which may be issued
as a result of the Company's applications, will offer any degree of protection.
Legal standards related to the enforceability, scope and validity of patents are
in transition and are subject to uncertainty due to broad judicial discretion
and evolving case law. Moreover, there can be no assurance that any of the
Company's patents or patent applications will not be challenged, invalidated or
circumvented in the future. In addition, there can be no assurance that
competitors, many of which have substantial resources and have made significant
investments in competing technologies, will not seek to apply for and obtain
patents that may prevent, limit or interfere with the Company's ability to make,
use or sell its products either in the United States or internationally.

         Some of the technology used in, and that may be important to, the
Company's products is not covered by any patent or patent application of the
Company. Therefore, the Company also relies on trade secrets and proprietary
know-how, which it seeks to protect, in part, through proprietary information
agreements with certain employees, consultants and other parties. The Company's
proprietary information agreements with employees and consultants contain
standard confidentiality provisions and, in certain instances, require such
individuals to assign to the Company, without additional consideration, any
inventions conceived or reduced to practice by them while employed or retained
by the Company, subject to customary exceptions. There can be no assurance that
proprietary information agreements with employees, consultants and others 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 to or
independently developed by competitors. Moreover, litigation associated with the
enforcement by the Company of its trade secrets and proprietary know-how can be
lengthy and costly, with no guarantee of success. The


                                       16
<PAGE>   17

Company also seeks to protect its trademarks through registration. There can be
no assurance, however, that registration of such marks will provide any
significant protection.

Competition

         BMT competes with a number of other silicone fabricators for OEM and
private label business. The OEM business is highly competitive and the timing
and volume of orders can fluctuate significantly. BMT specializes in complete
device assemblies of complex products. Because virtually all of BMT's
proprietary and OEM products incorporate silicone components, any cost increase
or other negative development associated with this material could adversely
affect its business, financial condition and results of operations.

         BMT's proprietary silicone products compete primarily against
non-silicone counterparts produced by a number of large multinational companies,
including Mallinkrodt Group Inc., Smith Industries Medical Systems and Rusch
Inc. In addition, there are a number of smaller companies that compete in other
BMT market areas, including InHealth in voice restoration and Xomed Surgical
Products, Inc. in ENT. Competition in the markets for BMT's proprietary products
is also intense.

         Most of the Company's competitors and potential competitors have
significantly greater financial, technical, research, manufacturing, marketing,
sales, distribution and other resources than the Company. It is possible that
other large health care and consumer product companies may also enter the
Company's markets in the future. Furthermore, academic institutions,
governmental agencies and other public and private research organizations will
continue to conduct research, seek patent protection and establish arrangements
for commercializing products that may compete with products offered by the
Company.

         There can be no assurance that the Company's competitors will not
succeed in developing or marketing technologies and products that are more
effective or commercially attractive than any which may be offered by the
Company, or that such competitors will not succeed in obtaining regulatory
approval, introducing or commercializing any such products prior to the Company.
Such developments could have a material adverse effect on the Company's
business, financial condition and results of operations.

Future Capital Needs; Uncertainty of Additional Funding

         The Company's capital requirements depend on numerous factors,
including the effect of competitive products, the cost and effect of future
marketing programs, the resources the Company devotes to manufacturing and
developing its products, the success of proprietary airway management products
and OEM sales, general economic conditions and various other factors. The timing
and amount of such capital requirements cannot adequately be predicted.
Consequently, although the Company believes existing cash balances and cash
anticipated to be generated from BMT operations will provide adequate funding
for its capital requirements through 1999, there can be no assurance that the
Company will not require additional funding or that such additional funding, if
needed, will be available on terms satisfactory to the Company, if at all. Any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve significant restrictive covenants. Failure to raise
capital when needed could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Liquidity and
Capital Resources".

Intellectual Property Litigation Risks

         The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. There can be no assurance that the
Company will not in the future become subject to patent infringement claims and
litigation or interference proceedings before the United States Patent and
Trademark Office ("PTO"). The defense and prosecution of intellectual


                                       17
<PAGE>   18

property suits, PTO interference proceedings and related legal and
administrative proceedings are both costly and time consuming. Litigation may be
necessary to enforce patents issued to the Company to protect trade secrets or
knowhow owned by the Company, to determine the enforceability, scope and
validity of the proprietary rights of others.

         Any litigation or interference proceedings would result in substantial
expense to the Company and significant diversion of attention by the Company's
technical and management personnel. An adverse determination in litigation or
interference proceedings to which the Company may become a party could subject
the Company to significant liabilities to third parties or require the Company
to seek licenses from third-parties. Although patent and intellectual property
disputes in the medical device area have often been settled through licensing or
similar arrangements, costs associated with such arrangements may be substantial
and could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all. Accordingly, an adverse determination in a judicial or administrative
proceeding or failure to obtain necessary licenses could prevent the Company
from manufacturing and selling its products, which would have a material adverse
effect on the Company's business, financial condition and results of operations.

International Sales Risks

         The Company sells its products both in the United States and in foreign
markets. International sales are made through independent foreign distributors
and involve a number of inherent risks. International sales may be adversely
affected by the imposition of government controls, export license requirements,
political instability, trade restrictions, changes in tariffs, distributor
difficulties, communications problems, fluctuations in foreign currency rates,
foreign competition and other factors. Any one or more of these factors could
limit the Company's international sales and have a material adverse effect on
the Company's business, financial condition and results of operations.

Product Liability Risk; Product Recall Risk

         The manufacture and sale of medical devices entails significant product
liability and recall risks. Product liability may exist despite FDA approval and
future court decisions may also affect the Company's risk of product liability.
Although the Company maintains product liability insurance with respect to its
products, a successful product liability claim or series of claims brought
against the Company which are in excess of the Company's insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, there can be no assurance that
product recalls, which could have a material adverse effect on the Company's
business, financial condition and results of operations, will not occur.

Dependence Upon Key Suppliers

         The Company purchases certain of the components used in manufacturing
from several single source suppliers with whom the Company has no long-term
agreements. Any interruptions or delays associated with any component shortages
could have a material adverse effect on the Company's business, financial
condition and results of operations.

Uncertainty of BMT Operations

         Although the business operations of BMT have continued since 1971,
there can be no assurance that BMT's revenues, cash flow or current
profitability and growth rate will continue in the future. Approximately 41% and
39% of BMT's net sales during 1998 and the six months ended June 30, 1999,
respectively, were derived from its manufacture of OEM medical device products.
BMT maintains no long-term OEM customer contracts and, during 1998 and the six
months ended June 30, 1999, BMT derived approximately 19% and 18%, respectively,
of its net sales from its major customer, Abbott Laboratories. There can be no
assurance that BMT's OEM customers will continue to use BMT as a


                                       18
<PAGE>   19

manufacturing resource. Furthermore, BMT is subject to general business risks
associated with operations of its size and, in particular, to the same risks
faced by other companies that manufacture and market medical device products.
Because virtually all of BMT's proprietary and OEM products incorporate silicone
components, any cost increase or other negative development associated with this
material could adversely affect its business, financial condition and results of
operations. BMT has faced two labor union election contests in the past eight
years and may face additional elections in the future. In the event BMT becomes
subject to a collective bargaining agreement, it may experience increased labor
and related costs that could have a material adverse effect on the Company's
business, financial condition and results of operations.

Environmental Risks

         BMT utilizes many raw materials in the manufacturing process that are
subject to various environmental laws and regulations. Proper disposal of waste
including metals and chemicals used in the manufacturing process is a major
consideration for medical device manufacturers. In the event of a violation of
environmental laws, the Company could be held liable for damages and for the
costs of remedial actions and could also be subject to revocation of permits
necessary to conduct its business. Any such revocations could require BMT to
cease or limit production at its facilities, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
BMT is also subject to environmental laws relating to the storage, use and
disposal of chemicals, solid waste and other hazardous materials, as well as air
quality regulations. Changes or restrictions on discharge limits, emissions
levels, or material storage or handling might require a high level of unplanned
capital investment and/or subsequent relocation to another location. There can
be no assurance that BMT will be able to comply with the discharge levels
mandated or that the costs of complying with such regulations will not require
additional capital expenses. Furthermore, there can be no assurance that
compliance with such regulations will not have a material adverse effect on the
Company's business, financial condition and results of operations.

         The preliminary results of an environmental study of BMT's real
property indicate that elevated readings of certain chlorinated volative organic
compounds were found in a portion of the real property. Such levels exceed the
federal minimum tolerated levels under certain regulatory acts. The Company is
in the process of determining the estimated cost to remediate this
contamination.

Pending Merger

         There can be no assurance that the pending merger with Chemfab will be
consummated. In addition, in connection with the definitive agreement entered
into with Chemfab and the pending merger, the Company has incurred and expects
to incur substantial direct transaction costs including investment banking,
legal, accounting and other fees. Such fees will have an adverse effect upon the
financial results of the Company. Furthermore, in connection with the definitive
agreement and the pending merger, the Company has shut down the operations of
its urology division and begun the process of closing its Menlo Park corporate
headquarters.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

         There are no material changes in the reported market risk since the end
of fiscal year 1998.


                                       19
<PAGE>   20

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings
         Not applicable.

Item 2 - Changes in Securities and Use of Proceeds
         Not applicable.

Item 3 - Defaults upon Senior Securities
         Not applicable.

Item 4 - Submission of Matters to a Vote of Security Holders
         Not applicable.

Item 5 - Other Information
         Not applicable.

Item 6 - Exhibits and Reports on Form 8-K

(a)      Exhibits:

<TABLE>
<CAPTION>
                  EXHIBIT
                  NUMBER            EXHIBIT
                  --------          -------
                  <S>               <C>
                     27.  1         Financial Data Schedule
</TABLE>



          (b)     Reports on Form 8-K:

                  On June 3, 1999, the Company and Chemfab announced that they
                  had entered into an Agreement and Plan of Merger, dated as of
                  June 3, 1999, which sets forth the terms and conditions of the
                  proposed merger of an indirect wholly-owned subsidiary of
                  Chemfab with and into the Company, pursuant to which the
                  Company will become a wholly-owned subsidiary of Chemfab.
                  The Company filed a report on Form 8-K with respect to the
                  proposed merger on June 14, 1999.


                                       20
<PAGE>   21

                                   SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                    UROQUEST MEDICAL CORPORATION


Date: August 16, 1999               /s/ Terry E. Spraker, Ph.D.
                                    ----------------------------------------
                                    Terry E. Spraker, Ph.D.
                                    President and Chief Executive Officer


Date: August 16, 1999               /s/ Jeffrey L. Kaiser
                                    ----------------------------------------
                                    Jeffrey L. Kaiser
                                    Vice President, Chief Financial Officer,
                                    Treasurer and Secretary
                                    (Principal Financial Officer)


                                       21
<PAGE>   22

                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>
                  EXHIBIT
                  NUMBER            EXHIBIT
                  --------          -------
                  <S>               <C>
                     27.  1         Financial Data Schedule
</TABLE>