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

                                  Form 10-QSB
(Mark One)
[X]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 1998
                               ------------- 
                                          OR

[_]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934


                        Commission File Number 0-27264


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


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


                10835 Altman Row, Suite A, San Diego, CA, 92121
              (Address of principal executive offices)  (Zip code)

      Registrant's Telephone Number, including area code:  (619) 450-5949

                                 Not Applicable
                                 --------------
        (Former name, former address and former fiscal year, if changed
                              since last report)

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 [_]
                                       
The number of shares of the Common Stock of the registrant outstanding as of
August 12, 1998, was 7,671,219.   
<PAGE>
 
                                 UROGEN CORP.
                       (A Development Stage Enterprise)

                             INDEX TO FORM 10-QSB

                        PART I.  FINANCIAL INFORMATION
                        ------------------------------

<TABLE>
<CAPTION>
                                                                Page No.
                                                                --------
<S>          <C>                                                <C>
Item 1.                    Financial Statements
 
             Condensed Balance Sheets                                 
               June 30, 1998 (Unaudited) and  December 31, 1997...... 2
 
             Condensed Statements of Operations (Unaudited) Six 
               Months Ended June 30, 1998 and 1997 and the period 
               from July 1, 1991 (inception) to June 30, 1998........ 3
 
             Notes to Unaudited Condensed Financial Statements....... 4
 
Item 2.      Management's Discussion and Analysis or
               Plan of Operation..................................... 8
 
                       PART II.  OTHER INFORMATION
                       ---------------------------
 
Item 1.      Legal Proceedings...................................... 10
Item 2.      Changes in Securities.................................. 10
Item 3.      Defaults Upon Senior Securities........................ 10
Item 4.      Submission of Matters to a Vote
               of Security Holders.................................. 10
Item 5.      Other Information...................................... 10
             Market For Registrant's Common Equity
Item 6.      Exhibits and Reports on Form 8-K....................... 10
             Signatures............................................. 11
</TABLE>

                                       1
<PAGE>
 
                                 UROGEN CORP.
                       (A Development Stage Enterprise)
                           CONDENSED BALANCE SHEETS
                           ------------------------
<TABLE>
<CAPTION>
 
                                              June 30,      December 31,
                                                1998           1997
                                            -----------     ------------
ASSETS                                       (Unaudited)       (Note)
------
<S>                                         <C>             <C>     
Current assets:
    Cash and equivalents                    $   106,895     $     74,353
                                            -----------     ------------
                                                              
    Total current assets                        106,895           74,353
                                                              
Property and equipment                            3,239            3,239
    Less accumulated depreciation                (1,524)          (1,128)
                                            -----------     ------------
Net property and equipment                        1,715            2,111
                                            -----------     ------------
                                                              
Deferred financing costs                         95,000                -
Other assets                                      1,065            1,065
                                            -----------     ------------
                                                              
                                            $   204,675     $     77,529
                                            ===========     ============

<CAPTION>  

LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT)
---------------------------------------------
 
Current liabilities:
  Accounts payable                          $   167,427     $     64,024
  Accrued liabilities                           340,178            4,800
                                            -----------     ------------
                                            
    Total current liabilities                   507,605           68,824
                                            
Stockholders' equity(deficit):              
  Preferred Stock - $0.01 par value,                  -                -
     5,000,000 shares authorized,           
     none issued at June 30, 1998           
     and December 31, 1997                  
  Common Stock - $.001 par value,                 7,538            7,538
     40,000,000 shares authorized,          
     7,537,319 issued at June 30,           
     1998 and at December 31,               
       1997                                 
  Additional paid-in capital                    751,584          751,584
  Note receivable for common stock issued        (7,242)          (7,242)
  Deficit accumulated during development    
     stage                                   (1,054,810)        (743,175)
                                            -----------     ------------ 
                                            
Total stockholders' equity (deficit)           (302,930)           8,705
                                            -----------     ------------
                                            
                                            $   204,675     $     77,529
                                            ===========     ============
</TABLE>

Note:  The Balance Sheet at December 31, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.


                            See accompanying notes.

                                       2
<PAGE>
 
                                  UROGEN CORP.
                        (A Development Stage Enterprise)
                       CONDENSED STATEMENTS OF OPERATIONS
                       ----------------------------------
                                   UNAUDITED
                                   ---------
<TABLE>
<CAPTION>
                                                      Three Months Ended               Six Months Ended
                                                -----------------------------   -----------------------------    July 1, 1991
                                                                                                                (inception) to
                                                  June 30,        June 30,        June 30,        June 30,         June 30,
                                                    1998            1997            1998            1997             1998
                                                -------------   -------------   -------------   -------------   ---------------
 <S>                                            <C>             <C>             <C>             <C>             <C>
Revenue                                         $      71,750   $           -   $     192,300   $           -   $       841,380
 
Costs and expenses:
  Cost of sales                                             -               -               -               -           821,878
  Research and development                            223,646         127,214         369,476         201,882         3,888,596
  Selling, general and administrative                  41,916          40,617         135,433          73,363           994,885
                                                -------------   -------------   -------------   -------------   ---------------  
Total costs and expenses                              265,562         167,831         504,909         275,245         5,705,359
                                                -------------   -------------   -------------   -------------   ---------------
 
Loss from operations                                 (193,812)       (167,831)       (312,609)       (275,245)       (4,863,979)
Gain on disposal of
   property and equipment                                   -               -               -               -            63,776
 
Interest income                                           497           1,376             974           2,866            19,600
                                                -------------   -------------   -------------   -------------   ---------------
 
Net loss                                        $    (193,315)  $    (166,455)  $    (311,635)  $    (272,379)  $   ( 4,780,603)
                                                =============   =============   =============   =============   ===============
 
 
Basic and diluted loss per share                $        (.03)  $        (.02)  $        (.04)  $        (.04)
                                                =============   =============   =============   =============   

Number of shares used in                           
   basic and diluted loss per share                 7,537,319       7,537,319       7,537,319       7,196,829 
                                                =============   =============   =============   ============= 
</TABLE>
                                 See accompanying notes.

                                       3
<PAGE>
 
                                  UROGEN CORP.
                        (A Development Stage Enterprise)

               NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
               -------------------------------------------------
                                 June 30, 1998
                                 -------------
                                        
1.  Organization and Summary of Significant Accounting Policies

Organization

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

Distribution and Capitalization

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

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

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

Basis of Presentation

The accompanying financial statements for the year ended December 31, 1997 have
been prepared assuming the Company will continue as a going concern.  However,
the Company incurred net losses of $299,177 during 1997 and has a deficit
accumulated during its development stage of $1,054,810 at June 30, 1998.  While
management intends to raise additional debt and/or equity financing in 1998 to
fund future operations and to provide additional working capital, cash raised
through the sale of the unsecured notes (Note 7) as well as funds provided by
Baxter Healthcare Corporation ("Baxter") will finance the Company for the next
twelve months.

                                       4
<PAGE>
 
The accompanying financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of the Company to continue as a going concern.

Net Loss Per Share

In accordance with the Financial Accounting Standards Board's Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings per Share,  net loss
per share is based on the average number of shares of common stock outstanding
during the six-month periods ended June 30, 1998 and 1997.  Equivalent shares
arising from outstanding stock options have not been included in the computation
of net loss per share as their effect would be antidilutive.

New Accounting Standards

In 1997, the Financial Accounting Standards Board issued SFAS No. 130, Reporting
Comprehensive Income, (SFAS 130) and SFAS No. 131, Segment Information, (SFAS
131).  Both these standards are effective for the year ending December 31, 1998.
SFAS 130 requires that all components of comprehensive income, including net
income, be reported in the financial statements in the period in which they are
recognized.  Comprehensive income is defined as the change in equity during a
period from transactions and other events and circumstances from non-owner
sources.  Net income and other comprehensive income, including foreign currency
translation adjustments, and unrealized gains and losses on investments, shall
be reported, net of their related tax effect, to arrive at comprehensive income.
The Company believes that comprehensive income or loss will not be materially
different than net income or loss.  SFAS 131 amends the requirements for public
enterprises to report financial and descriptive information about its reportable
operating segments.  Operating segments, as defined in SFAS 131, are components
of an enterprise for which separate financial information is available and is
evaluated regularly by the Company in deciding how to allocate resources and in
assessing performance.  The financial information is required to be reported on
the basis that is used internally for evaluating the segment performance.  The
Company believes it operates in one business and operating segment, and the
adoption of this standard will not have a material impact on the Company's
financial statements.


2.  Related Party Transactions

During 1998, the Company paid three shareholders/officers an aggregate of
$97,500 cash for consulting services.

During 1998, the Company paid a research organization/shareholder $9,028 cash
for rent and services.

                                       5
<PAGE>
 
3.  Stockholders' Equity

Preferred Stock

The Company is authorized to issue 5,000,000 shares of Preferred Stock $0.01 par
value.  As of June 30, 1998 there were no shares issued or outstanding.

Common Stock

The Company is authorized to issue 40,000,000 shares of Common Stock $0.001 par
value.  As of June 30, 1998 there were 7,537,319 shares issued and outstanding.

In connection with a License Agreement (see Note 4), the Company entered into a
Stock and Warrant Purchase Agreement with the licensee whereby the Company
issued 147,791 shares of Common Stock at $.05 per share for total proceeds of
$7,390.

Warrants

The Agreement granted to the same licensee a warrant to purchase additional
shares in the Company to maintain a fully diluted ownership percentage of two
percent (2%) or increase its ownership percentage up to three percent (3%).
Such warrant rights are exercisable at prices ranging from $.03 to $.04 per
share.  Such warrant rights expire on the later of March 5, 1999 or the first
date on which the aggregate outstanding shares of the Company equals or exceeds
15,000,000 shares on a fully diluted basis.

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

4.  License Agreement

In 1997, the Company entered into a License Agreement with an unrelated public
biotechnology company.  The Company obtained an exclusive license to use certain
patented technologies to develop and commercialize products based upon the
licensed patent rights.  The License Agreement requires the Company to pay
future cash royalties to the licensee based upon net sales.  In connection with
this License Agreement, the Company entered into a Stock and Warrant Purchase
Agreement with the licensee whereby the Company issued 147,791 shares of Common
Stock at $.05 per share for total cash proceeds of $148 and a note receivable of
$7,242.  Additionally, the Agreement granted to the licensee a Warrant to
purchase additional shares in the Company to maintain a fully diluted ownership
percentage of two percent (2%) or increase its ownership percentage up to three
percent (3%).  Such Warrant rights are exercisable at prices ranging from $.03
to $.04 per share.  Such Warrant rights expire the later of March 5, 1999 or the
first date on which the aggregate outstanding shares of the Company equals or
exceeds 15,000,000 shares on a fully diluted basis.

                                       6
<PAGE>
 
5. Technology Acquisition Agreement

On July 9, 1998 the Company executed various agreements with Baxter, pursuant to
which the Company acquired Baxter's proprietary gene transfer technologies (the
"Baxter Acquisition").  Under the terms of the agreements, the Company obtained
exclusive rights to Baxter's adenoviral-based gene transfer technologies in
exchange for 5,444 shares of non-voting convertible Series A Preferred Stock and
133,900 shares of common stock.  Each share of the Series A Preferred is
convertible into 1,000 shares of the Company's common stock.  The Company will
also acquire for an additional 1,768,319 common shares and 325 shares of Series
A Preferred Stock, certain property and equipment used in Baxter's gene therapy
program.  Baxter will provide funding to the Company for continued research and
development of this technology in exchange for additional convertible Preferred
Stock.  Baxter also will have exclusive worldwide rights to sell, market and
distribute products that are developed using this technology for blood clotting
disorders.


6. Commitments and Contingencies

In conjunction with the Baxter Acquisition (Note 5), the Company has agreed to
reimburse Baxter for all reasonable cancer related research expenses that Baxter
has incurred since January 1, 1998, not to exceed $35,000 per month.  As such,
the Company has accrued a total of $210,000 as of June 30,1998, which has been
included in research and development costs.

7. Subsequent Event

In a transaction concurrent with the Baxter Acquisition (Note 5), the Company
received $1,030,000 on July 13, 1998, representing the aggregate purchase price
for the securities under note and warrant purchase agreements.  The convertible
unsecured promissory notes bear interest at 8% with warrants to purchase an
aggregate of 515,000 shares of the Company's common stock.  The principal and
accrued interest on each note is due on June 30, 1999 unless converted, at the
option of the holder, into shares of the Company's common stock at $1 per share.
Each note shall automatically be converted into common stock immediately prior
to the filing of any registration statement.  The warrants are exercisable for
seven years and have an exercise price of $.74 per share.

                                       7
<PAGE>
 
Item 2.  Management's Discussion and Analysis or Plan of Operation
         ---------------------------------------------------------

General

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

Plan of Operation

The Company, a division of Medstone prior to January 1, 1996, had no independent
operating history of its own and, to date has generated an operating loss of
$4,780,603.  While the Company intends to seek additional outside financing, the
combination of the sale of $1,030,000 of convertible unsecured promissory notes,
as well as development financing provided by Baxter, will fund expanded
operations for approximately the next twelve months.  Thereafter, the Company
will need to raise substantial additional capital to fund its operations.
Based on its recent acquisition of gene transfer technologies from Baxter
Healthcare Corporation, the Company will substantially increase its number of
employees later in 1998.

Year 2000 Compliance

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

Liquidity and Capital Resources

Medstone funded all of the Company's operations from July 1, 1991 (inception)
and ending with a $500,000 capital contribution of cash on February 9, 1996.
The Company has incurred net losses of $4,780,603 since its inception and has
never been profitable during its existence. The Company expects to incur
significant additional operating losses over the next several years as the
Company's research and development efforts expand.  The Company's ability to
achieve profitability depends upon its ability, alone or with others, to
successfully complete development of pharmaceutical products, obtain required
regulatory approvals and manufacture and market its products.  There can be no
assurance that it will be successful or that profitability will ever be
obtained.

                                       8
<PAGE>
 
The Company's operations to date have consumed substantial amounts of cash.  The
negative cash flow from operations is expected to continue and to accelerate in
the foreseeable future.  The development of the Company's products will require
a commitment of substantial funds to conduct the costly and time-consuming
research, preclinical and clinical testing necessary to bring such products to
market and to establish manufacturing and marketing capabilities.  The Company's
future capital requirements will depend on many factors, including scientific
progress in its research and development programs, the ability of the Company to
establish collaborative arrangements with others for drug development, progress
with preclinical and clinical trials, the time and costs involved in obtaining
regulatory approvals and the effectiveness of commercialization activities.

The Company expects that its existing capital resources, including the proceeds
from its sale of $1,030,000 million of unsecured convertible notes and
development financing from Baxter Healthcare, will enable the Company to
maintain its expanded operations for approximately the next twelve months.
Thereafter, the Company will need to raise substantial additional capital to
fund its operations.  The Company intends to seek such additional funding either
through its corporate partner agreement with Baxter Healthcare, collaborative
arrangements with other corporate partners, or through public or private equity
or debt financing. There can be no assurance that additional financing will be
available on acceptable terms or at all.  If issuing equity securities raises
additional funds, further dilution to stockholders will result.  If adequate
funds are not available, the Company may be required to delay or reduce the
scope of its operations or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights it may have
acquired in the interim.

Results of Operations

For the six months ended June 30, 1998 and 1997, the Company had operating
revenues of $192,300 and -$0-, respectively, and net losses of $311,635 and
$272,379, respectively.  The increased loss for the current period reflects
primarily increased research and development costs, including costs associated
with the new technology acquisition agreement, which are offset by the revenue
from a research agreement.

                                       9
<PAGE>
 
                                  UROGEN CORP.
                        (A Development Stage Enterprise)

                          PART II.  OTHER INFORMATION
                          ---------------------------
                                        

Item 1.  LEGAL PROCEEDINGS

      None.

Item 2.  CHANGES IN SECURITIES

      None.

Item 3.  DEFAULTS UPON SENIOR SECURITIES

      None.

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

      None.

Item 5.  OTHER INFORMATION

      Market for Registrant's Common Equity

         None of the shares of capital stock of the Company issued in the
         Distribution or otherwise, or acquired through the exercise of stock
         options could be sold prior to December 31, 1997 except for the
         following transfers: (i) transfers by gift, will, bequest or the
         applicable laws of descent and distribution; (ii) non-sale
         distributions by partnerships, corporations or trusts to their
         partners, shareholders or beneficiaries; (iii) transfers to the
         Company; and (iv) transfers pursuant to qualified domestic relations
         order as defined by the Code or the rules thereunder. In the case of
         any such permitted transfers, the shares in the hands of the
         transferees will continue to be subject to the same transfer
         restriction. No market for the Company's shares of capital stock
         existed prior to January 1, 1998. A limited market on the Electronic
         Bulletin Board has recently been established. The Company trades under
         the symbol UROG. No assurance can be given that any active trading
         market will be sustained.


Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

      There were no reports on Form 8-K filed with the Commission during the
      quarter ended June 30, 1998.

      Exhibits 27 - Financial Statement Schedule

                                       10
<PAGE>
 
                                 SIGNATURES


In accordance with the requirements of the Exchange Act, the Registrant has
caused this Report to be signed on its behalf by the undersigned, hereunto duly
authorized.



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



Date:  August 12, 1998          /s/ Paul D. Quadros
                                    ---------------------
                                    Paul D. Quadros
                                    Chief Financial Officer
                                    (Principal financial and accounting officer)

                                       11