<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
MARCH 31, 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 April 15, 1999
-----------------------------                      ----------------------------
Common Stock, $.001 par value                                12,452,522



<PAGE>   2

                                      INDEX

PART I - FINANCIAL INFORMATION

         Item 1 - Condensed Consolidated Financial Statements

                  Condensed Consolidated Statements of Operations for the Three
                  Months Ended March 31, 1999 and 1998 (unaudited)

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

                  Condensed Consolidated Statements of Cash Flows for the Three
                  Months Ended March 31, 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 March 31,
                                               -------------------------------
                                                   1999               1998
                                               ------------       ------------
<S>                                            <C>                <C>         
Net sales ...............................      $  4,393,045       $  4,022,987

Cost of sales ...........................         2,245,579          2,066,515
                                               ------------       ------------
  Gross profit ..........................         2,147,466          1,956,472
                                               ------------       ------------

Operating expenses:
  Research and development ..............         1,017,494            915,423
  General and administrative ............         1,269,307          1,234,984
  Sales and marketing ...................           620,858            642,276
  Amortization of goodwill ..............           158,046            158,046
                                               ------------       ------------
    Total operating expenses ............         3,065,705          2,950,729
                                               ------------       ------------

Operating loss ..........................          (918,239)          (994,257)

Other income (expense):
  Interest expense ......................           (22,063)           (34,827)
  Interest income .......................            74,891            132,360
                                               ------------       ------------
    Other income (expenses), net ........            52,828             97,533

Loss before provision for income taxes ..          (865,411)          (896,724)

Provision for income taxes ..............            25,000             11,000
                                               ------------       ------------

Net loss ................................      $   (890,411)      $   (907,724)
                                               ============       ============


Basic and diluted net loss per share ....      $      (0.07)      $      (0.08)
                                               ============       ============

Weighted average shares used in computing
  basic and diluted net loss per share ..        12,415,067         11,957,193
                                               ============       ============
</TABLE>



See accompanying notes to condensed consolidated financial statements.




                                       3
<PAGE>   4

                          UROQUEST MEDICAL CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                            ASSETS                                           March 31,        December 31,
                                                                               1999               1998
                                                                           ------------       ------------
                                                                            (Unaudited)
<S>                                                                        <C>                <C>         
Current assets:
      Cash and cash equivalents .....................................      $  6,557,914       $  6,980,128
      Accounts receivable, net of allowance for doubtful accounts ...         2,672,729          3,145,490
      Inventories ...................................................         2,800,540          2,557,618
      Prepaid expenses and other current assets .....................           567,861            260,839
                                                                           ------------       ------------
          Total current assets ......................................        12,599,044         12,944,075
                                                                           ------------       ------------

Property, plant and equipment, net ..................................         4,521,417          4,699,491
Goodwill and intangible assets, at cost, less
      accumulated amortization ......................................        10,135,415         10,315,481
Other noncurrent asset ..............................................                --            200,000
                                                                           ------------       ------------
          Total assets ..............................................      $ 27,255,876       $ 28,159,047
                                                                           ============       ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
      Accounts payable ..............................................      $    699,370       $    462,715
      Accrued compensation ..........................................           640,584            839,663
      Accrued selling and distribution expenses .....................           154,085            154,610
      Other accrued expenses ........................................           980,911            970,870
      Current portion of long-term debt .............................           370,615            370,615
                                                                           ------------       ------------
          Total current liabilities .................................         2,845,565          2,798,473
                                                                           ------------       ------------

Long-term debt, net of current portion ..............................           791,282            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 March 31, 1999 and December 31, 1998, respectively .            12,453             12,356
      Additional paid-in capital ....................................        37,390,992         37,323,670
      Deferred compensation .........................................           (29,966)           (33,067)
      Accumulated deficit ...........................................       (13,754,450)       (12,864,039)
                                                                           ------------       ------------
          Total stockholders' equity ................................        23,619,029         24,438,920
                                                                           ------------       ------------
          Total liabilities and stockholders' equity ................      $ 27,255,876       $ 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>
                                                                Three months ended March 31,
                                                               -------------------------------
                                                                   1999               1998
                                                               ------------       ------------
<S>                                                            <C>                <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:
      Net loss ..........................................      $   (890,411)      $   (907,724)
      Adjustments to reconcile net loss to net cash
        used in operating activities:
      Depreciation and amortization .....................           424,299            400,085
      Net utilizations of inventory reserves ............           (60,408)          (169,777)
      Changes in operating assets and liabilities:
          Accounts receivable ...........................           472,761           (193,583)
          Inventories ...................................          (182,514)           182,038
          Prepaid expenses and other assets .............          (107,022)            52,945
          Accounts payable and accrued expenses .........            47,092            412,742
          Accrued severance costs .......................                --           (107,202)
                                                               ------------       ------------
                 Net cash used in operating activities ..          (296,203)          (330,476)
                                                               ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
          Purchases of property, plant and equipment, net           (63,058)          (211,874)
                                                               ------------       ------------
                 Net cash used in investing activities ..           (63,058)          (211,874)
                                                               ------------       ------------


CASH FLOWS FROM FINANCING ACTIVITIES:
          Proceeds from issuance of common stock ........            67,419             55,951
          Repayment of notes payable and long-term debt .          (130,372)          (118,986)
                                                               ------------       ------------
               Net cash used in financing activities ....           (62,953)           (63,035)
                                                               ------------       ------------

Net decrease in cash and cash equivalents ...............          (422,214)          (605,385)

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

Cash and cash equivalents at end of period ..............      $  6,557,914       $ 10,448,703
                                                               ============       ============

Supplemental disclosures of cash flow information:
      Cash paid for interest ............................      $     22,063       $     34,827
      Cash paid for income taxes ........................            30,000                 -- 
</TABLE>



See accompanying notes to condensed consolidated financial statements.




                                       5
<PAGE>   6

                          UROQUEST MEDICAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 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 March 31, 1999, and the results of
operations and cash flows for the three months ended March 31, 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>
                                                March 31, 1999  December 31, 1998
                                                --------------  -----------------
<S>                                               <C>               <C>       
                Finished goods ...........        $  714,391        $  581,383
                Work-in-process ..........         1,267,925         1,211,519
                Raw materials and supplies           818,224           764,716
                                                  ----------        ----------
                                                   2,800,540         2,557,618
                                                  ==========        ==========
</TABLE>



                                       6
<PAGE>   7


                          UROQUEST MEDICAL CORPORATION
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                 MARCH 31, 1999
                                   (UNAUDITED)

NOTE 4 - SEGMENT INFORMATION

<TABLE>
<CAPTION>
                                          Urology        Airway Management/
                                          Products          OEM Products           Total
                                         -----------     ------------------     -----------
<S>                                      <C>                 <C>                <C>        
Three months ended March 31, 1999
---------------------------------

Revenues from external customers         $        --         $ 4,393,000        $ 4,393,000
Segment profit (loss)                     (1,302,000)            643,000           (659,000)

Three months ended March 31, 1998
---------------------------------

Revenues from external customers         $        --         $ 4,023,000        $ 4,023,000
Segment profit (loss)                     (1,251,000)            560,000           (691,000)
</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       Three months ended
                                                            March 31, 1999         March  31, 1998
                                                         ------------------       ------------------
<S>                                                      <C>                      <C>       
Total loss for reportable segments                            $(659,000)               $(691,000)
Unallocated amounts:
    Amortization of goodwill                                   (158,000)                (158,000)
    Depreciation of acquired fixed asset
      fair value adjustment                                     (48,000)                 (48,000)
                                                              ---------                ---------
    Total consolidated loss before income taxes               $(865,000)               $(897,000)
                                                              =========                =========
</TABLE>


NOTE 5 - COMPREHENSIVE INCOME

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




                                       7
<PAGE>   8

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

        Since its inception in April 1992, the Company has 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 principal
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. The
On-Command is designed to enable persons with either urinary incontinence or
urinary retention to manage their condition without the restricted mobility,
medical complications, discomfort and embarrassment generally associated with
many of the existing management alternatives, including intermittent, Foley,
external and suprapubic catheters, diapers and absorbents, and penile clamps.
The On-Command is an investigational device that has not been approved by the
United States Food and Drug Administration (the "FDA") and will not be available
for commercial distribution in the United States unless and until such approval
is obtained.

        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 manufactures the Company's
On-Command currently being used in clinical trials and market evaluation
studies.

        The Company has experienced substantial losses since inception and, as
of March 31, 1999, had an accumulated deficit of $13.8 million. The Company
expects its operating losses to continue until the On-Command achieves
significant market acceptance. The Company continues to expend substantial
resources in funding clinical trials in support of regulatory and reimbursement
approvals, expansion of marketing and sales activities, and research and
development. In addition, the Company's results of operations may fluctuate
significantly during future quarterly periods.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 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 9% to $4,393,000 for the three
months ended March 31, 1999 from $4,023,000 for the three months ended March 31,
1998. The increase in net sales was attributable equally to increased product
shipments to proprietary product and OEM customers. Cost of sales of $2,246,000
for the three months ended March 31, 1999 increased 9% from $2,067,000 for the
three months ended March 31,1998, due primarily to the 




                                       8
<PAGE>   9

increase in sales. The gross margin for the three months ended March 31, 1999
compared to the same period in 1998 remained at 49%.

        Research and development. Research and development expenses include
product development, clinical testing and regulatory expenses. For the three
months ended March 31, 1999, research and development expenses increased to
$1,017,000 from $915,000 for the three months ended March 31, 1998. The increase
was attributable primarily to the additional personnel hired in support of the
increased activities in research and development of the Airway Management/OEM
products. Research and development expenses are expected to continue to increase
in the foreseeable future as the result of additional product development and
regulatory efforts related to Urology and Airway Management/OEM products.

        General and administrative. General and administrative expenses
increased to $1,269,000 for the three months ended March 31, 1999 from
$1,235,000 for the three months ended March 31, 1998. The increase was
attributable primarily to increased personnel costs in the Airway Management/OEM
business segment. General and administrative expenses are expected to increase
due to anticipated additional activities related to the Company's Airway
Management/OEM business and Urology operations.

        Sales and marketing. Sales and marketing expenses decreased to $621,000
for the three months ended March 31, 1999 from $642,000 for the three months
ended March 31, 1998. In the three-month period ended March 31, 1999, sales and
marketing expenses incurred in the Urology business segment increased $72,000
while these expenses incurred in the Airway Management/OEM business segment
decreased $93,000, when compared to the same period in 1998. The increase in the
Urology segment's sales and marketing expenses was due primarily to the
additional personnel hired to support its increased international marketing
activities. The decrease in the Airway Management/OEM segment's sales and
marketing expenses was attributable primarily to temporarily decreased personnel
costs in the Airway Management direct selling organization. Overall, sales and
marketing expenses are expected to increase in the foreseeable future, due in
part to the Company's European marketing evaluation studies of its Male and
Female On-Command that have been initiated in the fourth quarter of 1998 and the
anticipated hiring of replacement sales representatives in the Airway Management
direct selling organization.

        Amortization of goodwill. Amortization of goodwill remained at $158,000
for the three months ended March 31, 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 $53,000 for the three months ended March 31, 1999 from a net interest
income of $98,000 for the three months ended March 31, 1998. Interest income
decreased to $75,000 for the three months ended March 31, 1999 from $132,000 for
the three months ended March 31, 1998. The decrease in interest income was
attributable to lower average cash balances, due primarily to net cash being
used in operating activities and purchases of property and equipment. Interest
expense decreased to $22,000 for the three months ended March 31, 1999 from
$35,000 for the three months ended March 31, 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 $25,000 and $11,000
provision for state income taxes for the three months ended March 31, 1999 and
1998, respectively, 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 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
March 31, 1999 and December 31, 1998 to reflect these uncertainties.





                                       9
<PAGE>   10

        As of December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $8,500,000. The Company also had federal research
and development tax credit carryforwards of approximately $80,000. 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 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 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 of equity financing which
includes the net proceeds of $17.8 million generated through the initial public
offering of the Company's Common Stock in October 1996.

        During the three months ended March 31, 1999, net cash used in operating
activities amounted to $296,000. During the three months ended March 31, 1998,
net cash used in operating activities amounted to $330,000. The decrease in net
cash used in operating activities in the three-month period ended March 31, 1999
compared to the same period in 1998 was due primarily to working capital
fluctuations and decreased capital spending.

        Additions of property and equipment for the three months ended March 31,
1999 and 1998 were $63,000 and $212,000, respectively. The decrease in additions
of property and equipment in the three-month period ended March 31, 1999
compared to the same period in 1998 was due primarily to completion of the
facilities expenditures in support of the relocation of Urology's research and
development personnel and expansion of OEM production capacity. The Company
expects additional purchases of property and equipment in continued support of
the urological product development and BMT operations.

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

        As of March 31, 1999 and December 31, 1998, the Company had cash and
cash equivalents of $6,558,000 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 March 31, 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.

        The Company's capital requirements depend on numerous factors, including
the extent to which the On-Command and other products gain market acceptance,
actions relating to regulatory and reimbursement matters, progress of clinical
trials, 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 BMT's 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. The Company believes that existing cash and cash equivalents and cash
anticipated to be generated from BMT's operations will provide adequate funding
for its currently anticipated capital requirements through 1999. Prior to
achieving profitability, the Company may require additional capital and there
can be no assurance 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.




                                       10
<PAGE>   11

        The Company expects its operating losses to continue until the
On-Command achieves significant market acceptance. The Company continues to
expend substantial resources in funding clinical trials in support of regulatory
and reimbursement approvals, expansion of marketing and sales activities, and
research and development. 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 a recently completed assessment, 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 the first half of calendar year 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.

        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.





                                       11
<PAGE>   12

        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 the first half of calendar year 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".

Lack of Regulatory Approval and Limited Clinical Data

        The Company's principal product, the On-Command, is an investigational
device that has not been approved by the FDA and will not be available for
commercial distribution in the United States unless and until such approval is
obtained.

        During 1998, a clinical trial of the Male On-Command for acute
indications was completed in the United States under an Investigational Device
Exemption ("IDE") application approved by the FDA. The trial was a randomized
controlled clinical study comparing the Male On-Command to a Foley catheter for
the treatment of acute urinary retention and incontinence for a single period of
up to 30 days. A 510(k) premarket notification was submitted to the FDA in
September 1998. In January 1999, the Company responded to a request for
additional information from the FDA regarding this 510(k). There can be no
assurance that the FDA will determine that the data derived from the clinical
trial will support the safety and effectiveness of the device or that such
application will be approved by the FDA.

        The Company has initiated a clinical trial of the Male On-Command to
evaluate its use in multiple, sequential 30-day insertions and exchanges for
chronic indications. The Company began enrolling patients at U.S. sites in a
single arm trial in September 1998. The FDA has indicated to the Company during
informal discussions that chronic indications for its Male On-Command would
require a PMA approval. Furthermore, the agency indicated during IDE approval
discussions that it would expect data from an unspecified number of patients for
twelve consecutive months of sequential On-Command insertions. Based on these
regulatory requirements and the enrollment rate expected, it is not likely that
the Company will complete the chronic clinical trial before late 2000. The
Company expects the chronic patient market to be substantially larger than the
acute patient market because the Company believes more men suffer from chronic
rather than acute symptoms of urinary incontinence or retention. There can be no
assurance that the FDA will determine that the data derived from the chronic
clinical trial will support the safety and effectiveness of the device nor that
the data will be sufficient to file a PMA application or that such application
will be approved by the FDA.

        Additionally, the Company has initiated a clinical trial of its Female
On-Command Continence System for acute indications in a randomized controlled
clinical study comparing the Female On-Command to a Foley catheter in patients
requiring post-surgical management of their urinary outflow. 





                                       12
<PAGE>   13

Based on informal communications with the FDA, the Company believes an acute
indication would be covered under 510(k) regulations. The Company anticipates
completing this clinical study by the end of 1999. There can be no assurance
that the FDA will determine that the data derived from the clinical trial will
support the safety and effectiveness of the device nor that the data will be
sufficient to file a 510(k) notification or that such notification will be
approved by the FDA.

        If either the Male or Female On-Command does not receive FDA approval,
the Company will not be able to market or commercialize these On-Command
products in the United States. Furthermore, approval for single use insertions
of the On-Command, if obtained, does not mean that use of successive device
insertions will be approved. There can be no assurance that either single use or
successive insertion use of the On-Command will prove to be safe and effective
in the United States, or that FDA approval will be obtained on a timely basis,
if at all. In addition, the clinical studies may identify technical,
manufacturing, design or other factors that could delay completion of such
testing, as has been experienced in early clinical trials of the Male
On-Command. If the Company is unable to obtain necessary regulatory approval, or
if the Company decides that the size of the markets for the On-Command do not
justify a product launch, the Company's business, financial condition and
results of operations will be materially adversely affected.

Dependence Upon the On-Command

        Although the operations of BMT are expected to be the sole source of
revenues in the short-term, the Company's long-term revenues and future success
are substantially dependent upon its ability to market and commercialize the
On-Command in the United States and abroad. The failure of the Company to
successfully commercialize the On-Command or to realize significant revenues
therefrom would have a material adverse effect on the business, financial
condition and results of operations of the Company.

Uncertainty of Market Acceptance

        The On-Command represents a new management modality for urinary outflow
dysfunction, and there can be no assurance that the On-Command will gain any
significant degree of market acceptance among physicians, health care payers or
patients, even if necessary domestic or international regulatory and
reimbursement approvals are obtained. The Company believes that recommendations
of the On-Command by physicians will be essential for market acceptance of the
On-Command, and there can be no assurance that any such recommendations will be
obtained. Broad use of the On-Command will require the training of numerous
physicians and the time required to complete such training could result in a
delay or dampening of market acceptance. Moreover, health care payers' approval
of reimbursement for the On-Command will be an important factor in establishing
market acceptance. Patient acceptance of the device will depend on many factors,
including physician recommendations, the degree, rate and severity of potential
complications, the cost and benefits compared to competing products, lifestyle
implications, available reimbursement, the patient's ability to operate the
product, the patient's tolerance of an intraurethral device and other
considerations. Failure of the On-Command to achieve substantial market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations.

Limited Operating History; History of Losses and Expectation of Future Losses

        The Company has a limited history of operations. Since its inception in
April 1992, the urology portion of Company has been primarily engaged in
research and development of the On-Command. The Company has experienced
substantial operating losses since inception and, as of March 31, 1999, had an
accumulated deficit of approximately $13.8 million. The Company expects its
operating losses to continue until the On-Command achieves significant market
acceptance. The Company continues to expend substantial resources in funding
clinical trials in support of regulatory and reimbursement approvals, expansion
of marketing and sales activities, and research and development. There can be no
assurance that the Company will achieve or sustain profitability in the future.





                                       13
<PAGE>   14

Government Regulation

        The Company's products, including the On-Command, 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 trails 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 the On-Command. Some
countries in which the Company is considering selling devices through
distributors either do not currently regulate medical devices such as the
On-Command or have minimal registration requirements. However, these countries
may develop more extensive regulations in the future that could impact the
Company's ability to market the On-Command.

        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 the On-Command or other
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.





                                       14
<PAGE>   15

        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.

Limited Market, Lack of Marketing and Sales Experience

        To date, the Company has not sold any On-Command products. The Company
is currently analyzing various sales and marketing methods it intends to use to
market the On-Command in the United States if and when necessary regulatory
approvals are obtained. The Company believes the market for the Male On-Command
for acute indications may be limited in size. The Company is studying whether to
launch the product if and when FDA clearance for acute indications is received
and, if so, how, given the expenditures required and the limited acute market
size. The Company currently employs a small number of marketing and no sales
employees for the On-Command. In addition, the Company is conducting marketing
evaluation studies of its Male and Female On-Command products in three countries
in Europe in order to test market the products and obtain chronic use data. The
Company intends to continue these marketing evaluation studies during 1999.
Furthermore, the Company is considering various strategies for the distribution
of its products in Europe. There can be no assurance that the Company can
attract and retain its own qualified marketing and sales personnel or otherwise
design and implement an effective marketing and sales strategy for the Male and
Female On-Command. There can also be no assurance that the Company will be
successful in continuing the marketing evaluation studies of its products in
Europe during this period or be able to establish effective marketing, sales and
distribution channels internationally at a later date. The failure to establish
and maintain effective marketing, sales and distribution channels for the
Company's products, or to attract and retain qualified sales personnel to
support commercial sales of the Company's products, would have a material
adverse effect on the Company's business, financial condition and results of
operations.

Manufacturing Risks

        Through BMT, the Company has only manufactured the On-Command in limited
quantities for clinical testing purposes to date. Although BMT has extensive
experience in manufacturing custom silicone products, including urological
products, the Company does not have experience in manufacturing the On-Command
product in commercial quantities. As the Company begins to launch its On-Command
into 




                                       15
<PAGE>   16

various markets, the Company may encounter difficulties, delays and significant
expenses in scaling up production of the On-Command, including potential
problems involving production yields, quality control, component supply and
shortages of qualified personnel. The Company may also experience higher than
expected manufacturing costs that could prevent the Company from selling the
On-Command at a commercially reasonable price. Notwithstanding BMT's
manufacturing expertise, there can be no assurance that difficulties or
unfavorable costs will not be encountered in mass-production of the On-Command
and, in such event, these difficulties or costs could result in 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 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.

Intense Competition and Technological Advances

        Competition in the market for treatment and management of urological
disorders is intense and is expected to increase. The Company believes it will
face considerable competition from existing incontinence management modalities,
such as intermittent, Foley, external and suprapubic catheters, adult diapers
and absorbents, and penile clamps. The Company also expects to face significant
competition from other domestic and international companies that are developing
similar and other products and technologies for the management of incontinence.
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. 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 




                                       16
<PAGE>   17

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.

Uncertainty Relating to Third-Party Reimbursement

        In the United States and in foreign countries, third-party reimbursement
is generally available for medical devices such as intermittent, Foley, external
and suprapubic catheters for the management of urinary outflow dysfunction,
including incontinence and retention. Diapers and absorbents generally do not
receive third-party reimbursement and are paid for by the patient. The Company
believes, based on the availability of third-party reimbursement for certain
other medical devices, that the On-Command will likely be eligible for coverage
by third-party reimbursement programs. There can be no assurance, however, that
such reimbursement will be available for the On-Command or, if available, that
it will be sufficient to cover the cost of the product. If third-party
reimbursement is unavailable, consumers will have to pay for the On-Command
themselves, resulting in greater relative out-of-pocket costs for the device as
compared to surgical procedures and other management options for which
third-party reimbursement is available. The Company does not expect that
third-party reimbursement will be available, if at all, unless and until FDA and
foreign regulatory approval is received. After such time, if ever, as applicable
regulatory approval is received, third-party reimbursement for the On-Command
will be dependent upon decisions by the Health Care Financing Administration
(and its associates) for Medicare in the United States and similar authorities
abroad, as well as by private insurers and other payers.

        Changes in the availability of third-party reimbursement for the
On-Command, for products of the Company's competitors or for surgical procedures
may affect the pricing of the On-Command or the relative cost to the patient.
Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the On-Command will be required to obtain reimbursement.
There can be no assurance that reimbursement for the Company's products will be
available in the United States or in international markets under either
governmental or private reimbursement systems, or that physicians will support
the On-Command. Failure to obtain such reimbursement may 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 extent to which the On-Command and other products gain market acceptance,
actions relating to regulatory and reimbursement matters, progress of clinical
trials, 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 non-urological operations, 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. The Company is aware of patents held
by other participants in the urological disorder management market, and there
can be no assurance that the Company will not in the future become subject to
patent infringement claims and litigation or interference 




                                       17
<PAGE>   18

proceedings before the United States Patent and Trademark Office ("PTO"). The
defense and prosecution of intellectual 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 or 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 plans to sell the On-Command product and other products both
in the United States and in foreign markets. Any international sales are
expected to be made through independent foreign distributors and involve a
number of inherent risks. Consequently, there can be no assurance that the
Company will be able to achieve significant sales of the On-Command or other
products in any foreign market. 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

        Through BMT, the Company purchases certain of the components used to
manufacture the On-Command from several single source suppliers with whom the
Company has no long-term agreements. Any interruptions or delays associated with
any component shortages, particularly as the Company scales up its manufacturing
activities in support of commercial sales of the On-Command, 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 38% of BMT's net
sales during 1998 and the three months ended March 31, 1999, 




                                       18
<PAGE>   19

respectively, were derived from its manufacture of OEM medical device products.
BMT maintains no long-term OEM customer contracts and, during 1998 and the three
months ended March 31, 1999, BMT derived approximately 19% and 20%,
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
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.

Possible Volatility of Stock Price

        The stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
market price of the Company's Common Stock. In addition, the market price of the
Common Stock has been volatile. Factors such as fluctuations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors, FDA and international regulatory actions,
actions with respect to reimbursement matters, developments with respect to
patents or proprietary rights, public concern as to the safety of products
developed by the Company or others, changes in health care policy in the United
States and internationally, changes in stock market analyst recommendations
regarding the Company, other medical device companies or the medical device
industry generally and general market conditions may have a significant effect
on the market price of the Common Stock. In addition, it is likely that during
future quarterly periods, the Company's results of operations may fluctuate
significantly or may fail to meet the expectations of stock market analysts and
investors and, in such event, the Company's stock price could be materially
adversely affected. In the past, securities class action litigation has been
initiated following periods of volatility in the market price of a company's
securities. Such litigation, if brought against the Company, could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.





                                       19
<PAGE>   20

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.




                                       20
<PAGE>   21

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>
                10.6    Lease for Ranburn Woods Plaza in Gary, Indiana dated
                        February 1, 1999 between JVM Realty Corporation and
                        Bivona, Inc.

                27.1    Financial Data Schedule
</TABLE>

        (b)     Reports on Form 8-K:

                The Company did not file any reports on Form 8-K during the
                three months ended March 31, 1999.




                                       21
<PAGE>   22

                                   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: May 6, 1999                       /s/ Terry E. Spraker, Ph.D.
                                        ----------------------------------------
                                        Terry E. Spraker, Ph.D.
                                        President and Chief Executive Officer


Date: May 6, 1999                       /s/ Jeffrey L. Kaiser
                                        ----------------------------------------
                                        Jeffrey L. Kaiser
                                        Vice President, Chief Financial Officer,
                                        Treasurer and Secretary
                                        (Principal Financial Officer)





                                       22
<PAGE>   23
<TABLE>
<CAPTION>
               EXHIBIT
               NUMBER        EXHIBIT
               -------       -------
<S>                     <C>
                10.6    Lease for Ranburn Woods Plaza in Gary, Indiana dated
                        February 1, 1999 between JVM Realty Corporation and
                        Bivona, Inc.

                27.1    Financial Data Schedule
</TABLE>