<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

FORM 10-K Annual report pursuant to Section 13 of the Securities Exchange Act of
                                      1934
                  For the fiscal year ended: December 31, 1998
                        Commission file number: 000-23266

                               UroMed Corporation
             (Exact name of registrant as specified in its charter)

          Massachusetts                           04-3104185
      (State or other jurisdiction of              (I.R.S. Employer
    incorporation or organization)               Identification No.)

                    1400 Providence Highway, Norwood, Massachusetts 02194
                    (Address of principal executive offices)

                                 (781) 762-2080
              (Registrant's telephone number, including area code)
        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                           Common Stock, no par value
             [including the related Preferred Stock Purchase Rights]
                                (Title of Class)

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

                Yes       X                       No    -

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

As of March 10, 1999, the aggregate market value of the registrant's common
stock, no par value ("Common Stock"), held by non-affiliates of the registrant
was $6,293,208 based on 4,195,472 shares held by such non-affiliates at the
closing price of a share of Common Stock of $1.50 as reported on the Nasdaq
SmallCap Market on such date. Affiliates of the Company, defined as officers,
directors and owners of 10 percent or more of the outstanding shares of Common
Stock, owned 988,022 shares of the 5,183,494 shares of Common Stock
outstanding on such date. On March 10,1999, the registrant had outstanding a
total of 5,183,494 shares of Common Stock.

                  DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for its Special Meeting
of Stockholders to be held on May 20, 1999 to be filed with the Securities and
Exchange Commission on or prior to April 30, 1999 (the "1999 Proxy Statement"),
are incorporated by reference into Part III of this Annual Report on Form 10-K.
With the exception of the portions of the 1999 Proxy Statement expressly
incorporated into this Annual Report on Form 10-K by reference, such document
shall not be deemed filed as part of this Annual Report on Form 10-K.














<PAGE>

                               UROMED CORPORATION
                           ANNUAL REPORT ON FORM 10-K

Table of Contents

<TABLE>
<CAPTION>


Item                                                               Page
<S>  <C>                                                           <C>
                                    Part I

1    Business                                                        3
2    Properties                                                     16
3    Legal Proceedings                                              16
4    Submission of Matters to a Vote of Security Holders            16

                                    Part II

5    Market For Registrant's Common Stock
      and Related Stockholder Matters                               17
6    Selected Financial Data                                        18
7    Management's Discussion and Analysis of
      Financial Condition and Results of Operations                 20
8    Financial Statements and Supplementary Data                    25
9    Changes in and Disagreements With Accountants on
      Accounting and Financial Disclosure                           45

                                    Part III

10    Directors and Executive Officers of the Registrant            45
11    Executive Compensation                                        45
12    Security Ownership of Certain
       Beneficial Owners and Management                             46
13    Certain Relationships and Related Transactions                46

                                    Part IV

14    Exhibits and Financial Statement Schedules                    47

</TABLE>

     CaverMap(TM),  Symmetra (TM) I-125 seeds,  AlloSling(TM) ,BEACON Technology
System(TM),    Impress(TM),    INTROL(R),    Reliance(R),    PelvicFlex    (TM),
BreastExam(TM), BreastCheck(TM) and BreastView(TM) are trademarks and registered
trademarks of UroMed Corporation.  All other trademarks and trade names referred
to in this report are the property of their respective owners.

 











 













<PAGE>

PART I

Item 1.  Business

General

     The Company is  dedicated to  establishing  itself as a leader in providing
interventional  urological  products,  with primary emphasis on the treatment of
prostate cancer.  The Company seeks to market a portfolio of products  including
its two main  proprietary  products for the  treatment of prostate  cancer:  the
CaverMap  Surgical Aid,  available to aid physicians in preserving  vital nerves
during  prostate  cancer  surgery,   and  the  Symmetra   Iodine-125   ("I-125")
radioactive  seeds,  not  yet  cleared  by  the  United  States  Food  and  Drug
Administration  ("FDA"),  used in a  brachytherpay  procedure to treat localized
prostate cancer.  The Company's  product  portfolio also includes  brachytherapy
introducer needles and minimally  invasive  incontinence  surgical products.  In
addition to its current  portfolio of products,  the Company has also  developed
incontinence  products including the FDA-cleared Impress Softpatch,  and certain
product technology in the market for breast cancer screening.  The Company is in
the process of  evaluating  how best to capitalize  on these  potential  product
opportunities via partnerships, divestments,and/or spinoffs, if possible. UroMed
also continues to dedicate  resources to the development  and/or  acquisition of
product lines that fit into its strategic platform.
 
     The  CaverMap  Surgical  Aid is an  innovative  new product in the field of
urological   surgery.   The   CaverMap   Surgical   Aid  is  used   in   radical
prostatectomies, or surgical removal of the prostate, to assist the physician in
locating and avoiding nerves.  If the physician  avoids cutting nerves,  certain
adverse  side effects such as impotence  and  incontinence  may be avoided.  The
Company believes that, because of the highly proprietary nature of CaverMap,  it
is uniquely  positioned to offer  physicians  the  opportunity  to optimize both
surgical and brachytherapy for prostate cancer treatment.

     The Symmetra I-125 seed is a proprietary  Iodine-125 permanent seed implant
designed to be similar to the market leading prostate seed implant in dosimetry,
outer dimensions and  biocompatibility.  UroMed's  manufacturing  partner in the
brachytherapy seed business is Bebig  Isotopentechnik und Umweltdiagnostik  GmbH
of Berlin,  Germany ("Bebig").  Under UroMed's agreement with Bebig, Bebig is to
develop  an  effective  brachytherapy  implant.  UroMed  will have an  exclusive
license to market and distribute the Bebig implant in the Western hemisphere and
non-exclusive rights elsewhere in the world.

     The  Company  also hopes to leverage  its  relationship  with the  urologic
surgical community by offering surgical devices to correct urinary incontinence.
At the core of the  Company's  product line in this area is a strip of cadaveric
fascia marketed as the "AlloSling" product line.  These products can be used by
the same  physician  and  hospital  groups whom UroMed will be serving  with its
family of prostate cancer intervention products.
 

Markets

A.  Prostate Cancer

     UroMed is positioned to address the needs of the prostate  cancer market by
reason of its two complementary  product  offerings:  the CaverMap Surgical Aid,
used to map and monitor the  cavernosal  nerves during a radical  prostatectomy,
and the  Symmetra  I-125  seeds,  used in a  brachytherapy  procedure  to  treat
localized  prostate  cancer.  UroMed has a distinctive  approach in focusing its
efforts on prostate  cancer with product  offerings  addressing  the two largest
therapeutic segments of market for prostate cancer treatments.

     Prostate cancer is the most frequently  diagnosed cancer in American males.
The wide-spread adoption of prostate-specific antigen ("PSA") testing is largely
responsible  for an increase in the  age-adjusted  incidence of prostate  cancer
over the past decade.

     Until recently,  the American Cancer Society and other health organizations
predicted  a continued  rise in  prostate  cancer  incidence  in the U.S.,  with
predictions  of the number of annual  cases as high as 300,000 to 350,000 by the
year 2000.  However,  the  incidence  rate peaked in 1992 at 191 per 100,000 and
declined  each year from 1993 through 1995.  This decrease in incidence  rate is
believed to be due to the "cull"  effect  associated  with the advent of the PSA
test.  A significant  improvement  in  the  sensitivity  of a  diagnostic  test
generally leads to an increased number of detected cases of the disease that the
test is designed to detect.  Once these cases clear the system,  rates generally
fall back down to a level  similar to that seen before the improved  test.  That
appears  to be the case  with the PSA test and the  incidence  rate of  prostate
cancer.  The American  Cancer  Society now  estimates  there will be 185,000 new
cases in the U.S. during 1998. Prostate cancer can be fatal if not treated early
and  comprehensively.  In 1998,  an  estimated  39,200  Americans  died from the
disease.

     Decisions  about which  treatment to pursue are made by the patient and the
physician, usually a urologist, based on the localization of the cancer, the age
and  overall  health of the  patient,  and risks and  benefits  ascribed to each
treatment protocol.  When cancer has spread beyond the prostate,  the patient is
usually  guided  toward  chemotherapy  and  radiation  therapy.  For those  with
localized cancer of the prostate,  about 60% of those  diagnosed,  the treatment
options include:
     o Radical  Prostatectomy:  the surgical removal of the prostate and some of
     the surrounding  tissue.  Impotence and urinary  incontinence are potential
     complications
     o External Beam Radiation  Therapy:  the use of high-energy  x-rays to kill
     cancer cells and shrink  tumors.  Radiation is  administered  from machines
     outside  the  body.  Requires  daily  visits  for a  period  of 6-8  weeks.
     Impotence  and  incontinence  occur  slightly less often than after Radical
     Prostatectomy surgery, but damage to the rectum is a potential complication
     o  Brachytherapy  Radiation  Therapy:  an  alternative  method of radiation
     treatment,  where sealed sources of various  radioisotopes are implanted in
     the  prostate  to kill the  cancer  cells  during a one and  one-half  hour
     outpatient procedure. This procedure is discussed in more detail below.
     o  Watchful  Waiting:   careful   observation   without  further  immediate
     treatment.  This is considered an appropriate  option for men who have less
     aggressive  tumors,  are  older  than 70, or have  significant  co-existing
     illnesses.
     o Hormone Therapy:  manipulating  hormone levels to inhibit cell growth. To
     cause cancer cells to shrink,  patients may be given  LHRH-agonists,  which
     decrease the amount of  testosterone in the body, or  antiandrogens,  which
     block the  activity of  testosterone.  These drugs are often used to shrink
     the size of the prostate gland in preparation for additional therapies such
     as brachytherapy or surgery.
     o Other Treatment  Options:  include  cryoablation,  and other experimental
     procedures.

     Each of these options has  advantages and  disadvantages.  In recent years,
patient  demand has fueled very high growth in rates of prostate  brachytherapy,
even though the total number of new prostate cancer cases has decreased.  The
two treatment options that the Company is focused on are:

1.  Brachytherapy

     The  permanent  implant  brachytherapy  procedure  involves  the  permanent
placement of 65 to 120 tiny pellets or "seeds" containing  radioactive  material
into the  prostate  surgically.  A  therapeutic  dose of  radiation is delivered
locally to the tumor and prostate tissue,  while minimizing  radiation dosage to
the surrounding  tissues.  Some  brachytherapy  treatments are complemented with
external beam radiation therapy  ("EBRT").  The concept of using small radiation
sources to treat cancer was introduced  about a century ago, but it beganto show
promise for treating prostate cancer only in the last decade.

     The   permanent   brachytherapy   implant   procedure   has  been   growing
significantly.   The  procedure  provides  patients  with  a  minimally-invasive
alternative to surgical  removal of the prostate or EBRT, both of which may have
higher  costs and  higher  rates of  complication,  including  incontinence  and
impotence.

     The Company  expects that almost 29,000  brachytherapy  procedures  will be
performed in the U.S. in 1998,  accounting  for 26% of all therapy for localized
(treatable)  prostate cancer. We believe that the number of procedures utilizing
this therapy will continue to grow.




2.  Radical Prostatectomy

     At present,  nerve-sparing  radical  prostatectomies  ("NSRP") comprises up
50-75% of all  radical  prostatectomies  performed.  In 100  hospitals  that are
performing  more  than  100  prostatectomies   annually,   over  11,000  radical
prostatectomies were performed last year. Of those, 8,400, or approximately 75%,
were NSRP.

     Radical  prostatectomy  is  considered  to be the  preferred  treatment for
patients with localized  prostate  cancer,  and it offers  patients the greatest
chance for long term  survival.  Excellent  cure rates have been  obtained  with
radical prostatectomy in patients with localized tumors.  However, many patients
refuse the radical  prostatectomy  surgical option because of fears of potential
complications, including erectile dysfunction and urinary incontinence.

     The most common cause for erectile dysfunction after radical  prostatectomy
is intra-operative injury to the neurovascular bundles and nerve branches. These
nerve structures are susceptible to injury at several points during the surgical
procedure, when they are pulled, stretched, transected or possibly excised.
    
     Dr.  Patrick C. Walsh,  of Bradys  Urology  Institute  of Johns  Hopkins is
credited with developing and introducing a modified  approach to the traditional
radical prostatectomy.  His modified surgical approach reduced overall morbidity
associated  with the  operation  by making it possible  to spare the  cavernosal
neurovascular  bundles  responsible for erectile  function in most patients.  In
patients  with  localized  prostate  cancer,  NSRP  has been  shown  to  provide
effective cancer control with a minimal occurrence of associated complications.

     The reported incidence rate of erectile  dysfunction after NSRP ranges from
42 to 73%.  This wide  range is  likely  due to  variations  in the skill of the
surgeon, challenging anatomy, and the patient/physician  post-surgical reporting
process.  Physicians and patients consider erectile dysfunction as a significant
complication in determining the most  appropriate  course of treatment for their
disease.

     Erectile  dysfunction  is no  longer a  "behind  closed  doors"  discussion
subject.  It has become a major discussion topic of the American public,  and is
widely  recognized  as a problem  with drastic  affects on quality of life.  The
introduction   of  Viagra  has  helped  to  bring  the  discussion  of  erectile
dysfunction  into  mainstream  daily  conversation.  Hundreds  of  thousands  of
patients,  who  previously  did not discuss  their  impotence  problems  are now
seeking  relief from erectile  dysfunction  with Viagra.  As a result of Viagra,
physician  visits are  increasing  and it is  estimated  that PSA testing  could
increase as a result. The Company believes the general awareness level of Viagra
will drive  patients to be more aware of erectile  dysfunction  and  potentially
enhance nerve sparing procedure volume over time.


B.  Related Markets

     The first area in which the Company developed customer relationships in the
urologic community to is urinary incontinence ("UI"). The Company has elected to
enter the UI  surgical  market  with its  AlloSling  cadaveric  fascia  oriented
product line.

     Of the  approximately  13 million UI  sufferers in the United  States,  the
Company estimates that approximately 11 million are women. The Company believes,
based on its  market  research,  that each  year 3.5 to 4  million  women in the
United  States  discuss  their UI disorder  with a  gynecologist,  urologist  or
urogynecologist.  Physicians  currently  deal with  incontinence  by following a
program of therapy that  corresponds  to the severity of the  condition  and the
physician's familiarity with available treatment methods.

     Surgery is more appropriate for stress  incontinence than for urge or mixed
incontinence.  Surgeries of this nature are delicate and complicated  procedures
in which the outcome depends on a number of factors, including the degree of the
pathology and the operating physician's experience.
 
     Sling procedures,  which is the market for the Company's  AlloSling product
line,  involve  lifting  and  supporting  the bladder  neck with a sling,  which
provides  urethral support and compression.  The sling is placed at the proximal
urethra under the urethrovesical  junction, and is anchored to the retropubic or
abdominal  structures by utilizing suspending sutures or by utilizing anchors in
the pelvic bone.

     A  significant  shift to the sling  procedure  is rapidly  occurring in the
urologic surgical  marketplace.  Sling procedures now represent 40% of the total
female   incontinence   procedure   market  and  will  continue  to  grow.   The
justifications for the market shift to the sling procedure are as follows:

     o  Long  term  data  indicates  that  the  traditional   needle  suspension
     procedures have less than acceptable long term success rates.

     o New guidelines by the American  Urological  Association  ("AUA")indicate
     that the sling or retropubic  urethropexy  procedure should  immediately be
     adopted by the urological community.

     o The sling procedure, similar to the needle suspension, is a less invasive
     and  a  less  time  consuming   surgical  procedure  than  the  alternative
     retropubic  urethropexy  and  therefore  very  attractive  to  the  urology
     community.

     o  Leaders  in the  urology  field are  quickly  adopting,  lecturing,  and
     publishing on the sub-urethral sling procedure.




Products


A .  Symmetra I-125 Seeds

     The  UroMed  seed  entry  ("Symmetra")  is a  proprietary  I-125  permanent
radioactive seed implant. The Symmetra I-125 seed was designed to meet or exceed
established radioactive standards for sealed radioactive sources.

     UroMed entered into agreements with Bebig and Isotope Products Laboratories
Inc. of Burbank, California ("IPL") in March of 1998 as a means of entering into
the  brachytherapy  business.  Under the terms and  conditions  of the Company's
agreement with Bebig, Bebig will develop a brachytherapy implant to which UroMed
will  have  an  exclusive  license  to  market  and  distribute  in the  Western
hemisphere (and non-exclusive rights elsewhere in the world) for a period of six
and  one-half  years  from the date  Bebig is first  capable  of  producing  the
implant.

     The  Company is  currently  developing  with Bebig the  capability  to ship
product  directly  from Bebig to  customers in the U.S.,  and to  warehouse  and
distribute seeds from a single distribution point in the U.S.

     The Company's  Symmetra I-125 seed has not yet been cleared for sale by the
FDA or other appropriate authorities.


B . UroMed Prostate Seeding Needles 

     The Company offers introducer  needles for brachytherapy use. These needles
were commercially available beginning in the fourth quarter of 1998.


C . CaverMap Surgical Aid

     The  CaverMap  Surgical  Aid was  cleared by the FDA for  marketing  in the
United States in November 1997. The Company began commercial selling efforts for
this product during the second quarter of 1998.

     The  CaverMap  Surgical  Aid is a new  product  in the  field  of  urologic
surgery.  This  product is the first tool of its kind,  developed to address the
surgical needs of the physician  during the "nerve location and sparing" segment
of the radical  prostatectomy.  Advances in nerve stimulation techniques coupled
with real-time feedback tumescence monitoring developed by UroMed can assist the
physician in the  identification,  mapping and preservation of the neurovascular
bundles  during NSRP.  The system  consists of a control  unit,  reusable  probe
handle,  disposable probe tip, disposable  tumescence sensor and related patient
and ground leads. The CaverMap Surgical Aid is used intraoperatively  during the
procedure by the physician to stimulate the cavernosal nerves and measure minute
changes in  tumescence of the penis.  The  physician  uses the device to map the
course of the nerves and then uses this  information to aid his dissection plan.
If the physician can perform the  dissection  without  damage to the  cavernosal
nerves, it is theorized that post-operative potency rates will improve.

     Two clinical  studies have been undertaken to evaluate the CaverMap device.
A  single-center  clinical  study  was  undertaken  by  Dr.  Laurence  Klotz  of
Sunnybrook Health Science Centre in Toronto, Canada to determine the feasibility
of using  intraoperative  nerve  stimulation  and real  time  penile  tumescence
monitoring to guide the physician's  dissection  during NSRP.  Erectile function
prior to surgery and during a one year period following  surgery was assessed by
patient  self-reporting.  Nineteen patients who reported erectile function prior
to  surgery  had  one-year  follow-up  data  available.   A  response  to  nerve
stimulation was elicited in seventeen of these nineteen patients. Sixteen of the
17 patients  (94%) who  demonstrated  a response to  stimulation  during surgery
reported  recovery  of partial  or full  erectile  function  during the one year
period  following   surgery.   The  two  patients  who  showed  no  response  to
intra-operative  nerve  stimulation  reported  no  erectile  function  following
surgery.  This  experience  contrasted  sharply  with the  investigator's  prior
historical experience of 30% erectile function, leading him to conclude that the
use of CaverMap could  significantly  improve outcomes for patients.  No adverse
events were reported  that related to the use of the device.  Dr. Klotz and five
other Canadian centers also undertook a multi-center study involving 61 patients
undergoing  radical  prostatectomy for early stage prostate cancer. The CaverMap
product was used  intraoperatively  to help locate the  cavernous  nerve  during
"nerve  sparing"  prostate  surgery.  Use of the  CaverMap  Surgical Aid in this
multi-center  study led to a 30%  improvement in  "successful"  bilateral  nerve
sparing patients when compared to the control group patients. Many patients have
been  able to  return  to a  normal  life,  experiencing  minimal  complications
post-operatively. This preliminary data was presented at the 93rd annual meeting
of the American Urological Association meeting on June 2, 1998.
 



Competition and Market Dynamics

     UroMed's primary competition comes from the major urology companies, namely
Mentor,  Bard,  Johnson & Johnson and Boston Scientific and, to a lesser extent,
the smaller  urology-focused  companies such as Imagyn and  Influence.  The only
non-urology  company that  competes  directly  with UroMed is  Nycomed-Amersham.
Nycomed Amersham was the first company to introduce  permanent seed implants for
prostate  brachytherapy  and  continues to be the market  leader in this market.
Amersham is the only supplier of implants  that does not have a urology  company
as a marketing partner.

     Although the Company anticipates  additional entries into the brachytherapy
seed market given the tremendous growth projected for this market, the number of
additional  entries may perhaps be limited because the barriers to entry such as
the long lead time required for regulatory  review,  and experience  required to
design,  evaluate,  and manufacture a sealed  radioactive source of this size in
substantial quantities.

     The Company is not aware of any  products  that  directly  compete with the
CaverMap  Surgical  Aid.  However,  competition  exists  in the  form  of  other
treatments and therapies for prostate  cancer,  as noted in the Prostate  Cancer
section of "Markets" in this document.


Marketing and Sales

A. Initial Positioning as "Prostate Cancer Leader"; Build on Prostate Cancer 
   Base

     UroMed's near term marketing  strategy is to position  itself as the leader
in  providing  innovative  treatment  options for  prostate  cancer with urology
department  heads and the prostate  cancer teams  located at the large  academic
centers and  community  hospitals  treating  the vast  majority of the  prostate
cancer  patients in the United  States.  Given the  Company's  offerings  in the
largest therapeutic segments of the prostate cancer market, the Company believes
that it is  able  to take a more  comprehensive  approach  to the  treatment  of
prostate cancer than any of its competitors.

     In  the  longer  term,  the  Company   intends  to  leverage  its  customer
relationships  and its core  technologies  to expand  into other  interventional
therapeutic  areas  outside  of  prostate  cancer.  If such  expansion  requires
distribution  outside of the  urology/radiation  oncology  markets,  UroMed will
intends to gain such distribution  through corporate  partnerships and strategic
alliances.


B. Marketing Strategy

     UroMed is dedicated to  establishing  itself as a leader in the  innovative
treatment of prostate cancer with the introduction of the CaverMap device. There
are four legs to the  Company's  marketing  strategy for  CaverMap:  (1) build a
strong  clinical data base and gain  endorsement for the product from leaders in
the field of urology as a potential  standard  of care;  (2)  establish  broader
clinical education and experience in favor of the product,  (3) generate patient
awareness of and demand for the product, and (4) secure favorable  reimbursement
for use of the device.


Sales Strategy and Organization

     The sales  organization  currently consists of a number of surgical account
managers  ("SAM's") and one  brachytherapy  account manager ("BAM") reporting to
the Vice President of Sales and Marketing.  The SAM's are currently  responsible
for selling the CaverMap  device,  the UroMed Prostate  Seeding Needle,  and the
AlloSling  product  line.  The SAM's are also  supplemented  in several areas by
independent  sales agents.  The efforts of the SAM's and the  independent  sales
agents are supported by an aggressive effort on the part of the CaverMap product
manager and members of the senior management team to call on key accounts.


Research and Development/Business Development

     The  Company  has  developed  a three  pronged  approach  to  Research  and
Development/Business Development.  Strategically, the Company is focusing on (1)
sustaining  Research and  Development,  which includes a focus on supporting the
CaverMap  device and the  Company's  other  existing  products  from a technical
perspective;  (2) future projects  (currently slated for the year 2000 or beyond
but  which  may be  moved up as  resources  become  available  or  market  needs
dictate).  (3) opportunistic product licensing  opportunities which leverage our
growing customer relationships.  The Company believes that this focused approach
to  expanding  the UroMed  portfolio  will  position  the Company as a leader in
prostate cancer therapies.


Manufacturing: Virtual Manufacturing  Strategy

     Currently,  all of the UroMed product  components are procured from outside
vendors with final  testing and  acceptance  occurring  at UroMed's  facility in
Norwood,  Massachusetts.  All orders for  UroMed's  products  are taken  through
UroMed's  customer  service  organization  and  finished  products  are  shipped
directly to medical  institutions.  Two  engineers are on-call 24 hours a day to
provide technical support for these products.

     Bebig is currently  designing and building an automated  brachytherapy seed
manufacturing  line,  based on its  proprietary  technology,  at its facility in
Berlin,  Germany.  The  production  line is designed to have a capacity of up to
500,000 - 1,000,000 Iodine-125 seeds per year


Medical Office-Based Products

     The Company has developed and acquired office-based products and technology
in the market for continence care. The Company believes that the best vehicle in
capitalizing on these products and technologies is via partnership(s), licenses,
divestments, and/or strategic alliances with larger, more established companies.
The Company believes that the Impress Softpatch holds the most promise of all
of its incontinence products. The Impress Softpatch was cleared by the FDA for
marketing in the United States in May 1996. The Impress Softpatch is a small,
prescription, disposable adhesive patch designed to be placed externally against
the urinary opening to block the leakage of urine in mild-to-moderate urinary
incontinence patients. The Impress Softpatch technology was acquired from the
successor to Advanced Surgical Intervention, Inc. in May 1996.  The
Company has since developed an initial commercial manufacturing process for the
Impress Softpatch  During the second half of 1997, the Company conducted
initial consumer tests and market analysis for the Impress Softpatch. Based on
the results of these tests, the Company has decided to pursue the potential
over-the-counter ("OTC") market for Impress, in addition to the prescription
("Rx") market. UroMed's application for the OTC market for Impress was approved
by the FDA in 1998.  The Company believes that the best vehicle for
capitalizing on both the OTC and Rx marketplaces is in one or more arrangements
with larger, more established companies. Therefore, UroMed is currently seeking
such arrangements, and has decided not to incur Impress launch costs until such
arrangements are in place.   No assurances can be made that the Company will be
able to locate suitable partners or negotiate and enter into these arrangements.

     During April 1997,  the Company  acquired the product line,  all associated
license  rights and all other  rights of  Johnson & Johnson  Medical,  Inc.  and
certain of its  affiliates to the INTROL  Bladder Neck Support  Prosthesis.  The
INTROL Bladder Neck Support Prosthesis,  cleared for Rx marketing in the U.S. by
the FDA in May of 1995, is a patented  intravaginal  device which is designed to
elevate the  bladder  neck to its normal  anatomical  position,  simulating  the
effect of bladder neck suspension  surgery.  The Company initially  serviced the
small group of  physicians  who had been  trained  and were  involved in limited
post-FDA  clearance  marketing of INTROL. The Company initiated a broader United
States launch of INTROL to healthcare practitioners in 1997.

     In July 1998,  the  Company  announced  the  signing of an  agreement  with
Johnson & Johnson  Medical K.K.  ("JJMKK "), a subsidiary  of Johnson & Johnson,
giving JJMKK the exclusive right to distribute the Company's INTROL Bladder Neck
Support  Prosthesis  in Japan.  The  agreement  has a term of three  years.  The
Company  decided to  supplement  its own sales efforts with INTROL via corporate
partnerships.


Breast Cancer

     In October 1997, the Company  unveiled a technology  designed to help women
and their  doctors  detect  suspicious  lumps - often  the early  sign of breast
cancer. The technology, still in its investigational stage, is the foundation of
three products the Company is creating - BreastCheck,  BreastExam and BreastView
- which are currently  undergoing  clinical  evaluation.  The  BreastCheck  is a
hand-held,  battery-operated  diagnostic  device that  assists  women in finding
suspicious  lumps  during  breast  self-examinations.  Its sister  product,  the
BreastExam, addresses a similar challenge physicians face during clinical breast
examinations.  BreastView,  currently under development,  is a personal computer
based visual system designed to enable physicians to further evaluate suspicious
breast  lumps.  Together,  these  products  have the  potential  to increase the
sensitivity of detection at an earlier stage for both women and physicians.

     Research  indicates  more than 180,000 women will be diagnosed  with breast
cancer in 1999 and nearly  44,000 women will die from the disease.  While breast
cancer is not preventable,  it is treatable when discovered at an early stage of
development.  In fact, the survival rate for breast cancer that is treated early
is nearly 96%, yet only 58% of all breast cancers are discovered at this stage.

     The American Cancer Society  recommends that 90 million American women over
the age of 20 perform monthly self-examinations. Women themselves first discover
as much as 80% of breast malignancies.  However, the average lump found by women
is often large and at the point where the cancer  already may have  spread.  The
reason for this is  two-fold.  First,  as few as 30% of women over the age of 20
actually  conduct monthly breast  self-examinations.  Second,  many women who do
practice regular self-examinations are not adept at discovering lumps of smaller
sizes.

     To address these problems, the Company developed the hand-held BreastCheck,
a device  designed  to  provide  women with a greater  comfort  level in regular
examinations  of  their  breasts  and to  improve  the  user's  sensitivity  for
detecting  suspicious  lumps.  While breast  self-examinations  are  universally
recommended,  many women rely on their  doctors  for the  discovery  of lumps or
abnormalities.  Physicians  perform more than 40 million  clinical  breast exams
annually. Currently, there is no method available to document these examinations
in an objective  manner.  The Company has developed  BreastVIew  Visual  Mapping
System that provides a PC-based  visual system for  time-course  managements  of
suspicious breast lumps.

     The  BreastCheck  device  utilizes a sensor  array  comprised  of miniature
pressure  sensors to  electronically  palpate the breast.  The pressure  data is
analyzed by sophisticated  computer  algorithms for the presence of a lump. Each
sensor array is a thin, flexible device which utilizes opposing rows and columns
of conductive material. The intersection of each row and column form the sensing
location.  By  separating  the rows and columns with a material  that varies its
electrical  resistance  in proportion  to the applied  load,  each  intersection
becomes a pressure  sensor  ("sensel").  The  BreastCheck  device  uses a sensor
containing 16 rows and 26 columns  forming an array of 416  individual  sensels.
Each row and column is electronically scanned, and the resistance of each sensel
is measured  and  converted  into  pressure  readings.  At any given  time,  the
collection of 416 sensel  readings  forms a pressure  "image" of the  underlying
tissue.  As the  BreastCheck  device is being  used,  a computer  chip inside is
continually  analyzing the pressure images.  Sophisticated  computer  algorithms
scan consecutive  images to ascertain  whether the head of the device is passing
over normal breast tissue or suspicious structures.

     The BreastCheck devices works in much the same way as the fingertips during
manual palpation. However, the power of the technology lies in the fact that (1)
the  sensors  can be made to be even  more  sensitive  than  the  nerves  in the
fingers,  (2) the sensor array covers a much larger area than the  fingertips at
any given time,  and (3) the computer  algorithms  identify lumps by quantifying
their  palpable  characteristics,  using  a  potentially  more  predictable  and
consistent method than the subjective analysis of manual palpation.

     The Company does not intend to proceed  with the further  commercialization
of this breast cancer  screening  methodology  by itself.  Instead,  the Company
intends to leverage  this  technology  by  spinning it off to a separate  entity
backed by third party  financing.  However,  no assurances  can be made that the
Company  will be able to spin off and  obtain  third  party  financing  for this
technology, if possible.


Third-Party Reimbursement

     Reimbursement for patient  management  products of urinary  incontinence is
generally not available.  The Company has been successful,  however, in securing
agreements with managed care organizations representing approximately 50 million
covered  lives.  With respect to the Company's  surgical  products in the United
States, third party reimbursement is generally available for surgical procedures
for incontinence and prostate surgery.
 

Patents and Proprietary Rights

     The  Company's  success  will  depend in part on its  ability to obtain and
maintain patent  protection for its products,  to preserve its trade secrets and
to operate  without  infringing the  proprietary  rights of 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  and
proprietary information.

     The Company believes that its patents, and any additional patents which may
be  issued   pursuant   to  these   applications   and  any   continuations   or
continuations-in-part,  may provide the Company with a  substantial  competitive
advantage.  However,  there can be no assurance  as to the degree of  protection
offered by any of these  patents or that any patents will be issued with respect
to the Company's pending patent applications.

     Some of the technology used in the Company's products is not covered by any
patent or patent  application of the Company.  The Company seeks to maintain the
confidentiality  of its proprietary  technology by requiring  employees who work
with proprietary information to sign confidentiality  agreements and by limiting
access by parties outside the Company to such  confidential  information.  There
can be no assurance,  however, that these measures will prevent the unauthorized
disclosure  or use of this  information,  or  that  others  will  not be able to
independently  develop  such  information.  Moreover,  as is the  case  with the
Company's  patent  rights,  the  enforcement  by the Company of its trade secret
rights can be lengthy and costly, with no guarantee of success.

     To date, no claims have been brought against the Company  alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no  assurance  that such  claims  will not be brought  against  the
Company in the future or that any such claims will not be successful.


Prostate Cancer

     The Company  presently  holds an  exclusive  license for two issued  United
States  patents.  A third United  States patent has been issued for the CaverMap
Surgical  Aid. The first two United  States  patents have been licensed from the
Brigham and Women's  Hospital with  exclusive  rights to the Company.  The third
United  States  patent is held  jointly by the  Company  and Brigham and Women's
Hospital.  International  patent  applications  are pending as well. The Company
believes that the issued  patents and allowed claims which cover both method and
device are a competitive  advantage for the Company. The Company has filed or is
in the process of filing additional  patents pertaining to the CaverMap Surgical
Aid.

     Bebig has filed a patent for their  Iodine-125  seed  design,  which UroMed
will market as the Symmetra  I-125 seed.  Under the terms of its agreement  with
Bebig,  UroMed will have exclusive  license rights to market and distribute this
seed in the Western  hemisphere  for a period of six and one-half years from the
date  Bebig is first  capable of  producing  the seed.  UroMed has filed patents
pertain to the packaging of its Symmetra seed.

 
Office-Based Continence Care Products
 
     The Company holds two United States patents and has two patent  application
pending with respect to the Impress Softpatch and related  products.  The issued
patents  relating to the Impress  Softpatch and related  products include device
claims and expire in the year 2011.  The  application  filed by the Company with
respect to the Impress Softpatch and related  technology contain both method and
device claims.


Breast Cancer

     The  Company  currently  has one issued  and seven  United  States  patents
pending.  relating to its breast cancer products.  In addition,  during 1997 the
Company  signed a  technology  and  supply  agreement  with a  manufacturer  and
developer of sensor  arrays and the agreement  includes an exclusive  license to
their four U.S. and numerous  foreign  patents  covering  sensor  technology and
manufacturing. The Company also has additional foreign patent filings pending.


Regulatory

Prostate Cancer

     The Company  received  regulatory  clearance by the FDA in November 1997 to
market the  CaverMap  Surgical Aid in the U.S.  The  clearance  was via a 510(k)
application  and the  pre-clinical  and clinical  testing  included a variety of
tests.

     The Company has filed a 510K application for FDA clearance for its Symmetra
I-125 seeds. FDA review of this filing is currently in process.


Office-Based Continence Care Products
 
     FDA  clearance to market the Impress  Softpatch  was granted in May 1996 on
the basis of a 510(k)  Notification  application  originally filed, based on the
clinical  trial data  compiled,  by  Advanced  Surgical  Intervention,  Inc.  in
September 1995.

     The INTROL Bladder Neck Support Prosthesis was cleared for marketing in the
United States by the FDA in May 1995 via a 510(k) application filed by Johnson &
Johnson  Medical,  Inc. A clinical trial was conducted to support the safety and
effectiveness of the INTROL Bladder Neck Support Prosthesis for the treatment of
stress urinary incontinence.


Breast Cancer

     Because  there are no  devices  similar  to the  BreastCheck  product,  the
Company is required to obtain FDA  clearance  through  the  Pre-Market  Approval
("PMA") process,  which typically is longer the the 510(k) approval process. The
Company  has had  several  meetings  with  representatives  from the FDA,  and a
clinical  protocol has been  designed.  The Company has been  granted  Expedited
Review Status from the FDA for its  BreastCheck  product.  While the Company has
completed numerous  non-significant risk U.S. clinical trials involving over 800
women,  certain formal clinicals are not anticipated to begin until late 1999 or
2000.


Government Regulation

     The CaverMap  Surgical Aid, the Symmetra  I-125 seeds,  the INTROL  Bladder
Neck Support Prosthesis and the BreastExam,  BreastCheck and BreastView devices,
as well as certain  products  currently  under  development by the Company,  are
regulated  as  medical  devices  by the FDA under  the  Federal  Food,  Drug and
Cosmetic  Act  (the  "FDC  Act")  and  require  regulatory  clearance  prior  to
commercialization  in the United  States.  Under the FDC Act, the FDA  regulates
clinical testing, manufacturing, labeling, distribution and promotion of medical
and surgical devices in the United States. Various states and other countries in
which the  Company's  products  may be sold in the future may impose  additional
regulatory requirements.

     Following the enactment of the Medical Device  Amendments to the FDC Act in
May 1976, the FDA classified medical devices in commercial distribution into one
of  three  classes,  Class  I, II or III.  This  classification  is based on the
controls  necessary  to  reasonably  ensure the safety and  efficacy  of medical
devices.  Class I devices are those whose safety and efficacy can  reasonably be
ensured  through  general  controls,  such  as  adequate  labeling,   pre-market
notification  and  adherence  to  FDA-mandated   "Quality  System   Regulation."
Generally,  Class II devices are those whose safety and efficacy can  reasonably
be ensured through the use of special controls,  such as performance  standards,
post-market  surveillance,  patient  registries  and FDA  guidelines.  Class III
devices are devices which must receive pre-market  approval by the FDA to ensure
their  safety  and  efficacy,  generally  life-sustaining,   life-supporting  or
implantable  devices,  and also include all new or not substantially  equivalent
devices introduced after May 28, 1976.

     If a manufacturer  or  distributor of medical  devices can establish that a
new device is "substantially  equivalent" to a legally marketed Class I or Class
II  medical  device or to a Class III  medical  device for which the FDA has not
required  pre-market  approval,  the  manufacturer  or distributor  may seek FDA
marketing clearance for the device by filing a 510(k) Notification  application.
The 510(k) Notification application and the claim of substantial equivalence may
have to be supported by various types of information  indicating that the device
is as safe and  effective for its intended use as a legally  marketed  predicate
device and a 510(k) Notification  application may require the submission of data
including clinical data.

     Following   submission  of  the  510(k)   Notification   application,   the
manufacturer   or  distributor   may  not  place  the  device  into   commercial
distribution  until an order is issued by the FDA. The FDA has no specific  time
limit by which it must respond to a 510(k) Notification application. The FDA may
agree  with  the  manufacturer  or  distributor  that  the  proposed  device  is
"substantially  equivalent" to another legally  marketed  device,  and allow the
proposed  device to be  marketed  in the United  States.  The FDA may,  however,
determine  that the  proposed  device is not  substantially  equivalent,  or may
require further information, such as additional clinical test data, before it is
able  to  make  a  determination   regarding   substantial   equivalence.   Such
determination  or request  for  additional  information  could  delay the market
introduction of a product.

     If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is  substantially  equivalent  to a legally  marketed  medical
device, the manufacturer or distributor will have to seek pre-market approval or
reclassification  of the device.  A PMA,  which must prove that a device is safe
and effective,  must be supported by extensive data,  including  preclinical and
clinical trial data, to demonstrate the safety and efficacy of the device.  Upon
receipt,  the FDA will  conduct a  preliminary  review  of the PMA to  determine
whether the submission is sufficiently  complete to permit a substantive review.
If  sufficiently  complete,  the submission is declared  fileable by the FDA. By
regulation, the FDA has 180 days to review a PMA after it has been determined to
be fileable.  While the FDA has at times  responded to PMA's within the allotted
time  period,  PMA  reviews  more  often  occur  over a longer  time  period and
generally  take  approximately  two  years or more  from the date of  filing  to
complete.  A number of devices for which FDA marketing clearance has been sought
have never been cleared for marketing

     If a  manufacturer  commercializes  a medical  device,  it is  required  to
register  with the FDA and to list all of its  devices.  In  addition,  any such
manufacturer  will be subject to inspection  on a routine  basis for  compliance
with the FDA's Quality  System  Regulation.  The Company's  facility in Norwood,
Massachusetts,   was  registered  with  the  FDA  and  successfully   passed  an
inspection.   The  FDA's   regulations  also  require  that  such   manufacturer
manufacture its products and maintain its documents in a prescribed  manner with
respect to manufacturing,  testing and quality control activities. Further, such
manufacturer  is required to comply with various FDA  requirements  for labeling
and reporting of adverse reactions,  and may be required to meet rules governing
product tracking and post-market surveillance.
 

Employees

     As of December 31, 1998, the Company employed  approximately 42 individuals
on a permanent basis.

     None of the  Company's  employees  are  covered  by  collective  bargaining
agreements.
 



            FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS

     Certain  statements  contained  in this  Annual  Report  may be  considered
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the  Securities  Exchange Act of 1934,  including
statements   regarding   (i)   the   planned   progression   of  the   Company's
commercialization  strategies for the CaverMap  Surgical Aid, the Symmetra I-125
brachytherpy  seed and introducer  needle and the Allosling  surgical  products,
including  the timing and  extent of  initial  or other  sales,  (ii) the timing
related to the commencement of marketing  activities for the commercial launches
of the Symmetra  I-125  brachytherapy  seeds,  (iii) the timing related to final
regulatory  clearance  for  the  Symmetra  I-125  brachytherapy  seed  (iv)  the
Company's  planned  uses for its cash and other  liquid  resources,  (viii)  the
extent  of  future  revenues,   expenses  and  results  of  operations  and  the
sufficiency  of the Company's  financial  resources to meet planned  operational
costs and other  expenditure  needs, and the development of partnerships  and/or
strategic  alliances for all  incontinence  and breast care products and related
assets and technology. These forward-looking statements are based largely on the
Company's  expectations and are subject to a number of risks and  uncertainties,
many of which are beyond the  Company's  control.  Actual  results  could differ
materially from these forward-looking statements as a result of certain factors,
including those described below:

     - - The uncertainty that the CaverMap Surgical Aid and Symmetra I-125 seeds
     will gain market acceptance either among physicians in the United States.

     - - The  uncertainty  that the Company will be able to develop an effective
     sales force and implement a successful  marketing campaign for the CaverMap
     Surgical  Aid and  the  Symmetra  I-125  brachytherapy  seed in the  United
     States.

     - - The  uncertainty  that the  Company  will be able to develop  effective
     partnerships  and/or  strategic  alliances for its assets and technology as
     part of its incontinence and breast cancer effort.

     - - The  uncertainty  of receiving  regulatory  clearance for the Company's
     Symmetra I-125 brachytherapy seed.

     - - The  Company's  dependence  on others  for raw  materials  and  certain
     components of its products, including certain materials available only from
     single sources.

     - - The  uncertain  protection  afforded the Company by its patents  and/or
     other intellectual property rights relating to the Company's products.
     - - The  uncertainty as to whether the Company will be able to manufacture,
     market  and  sell  its  products  at  prices  that  permit  it  to  achieve
     satisfactory margins in the production and marketing of its products.

     - - Risks relating to FDA or other governmental  oversight of the Company's
     operations,  including  the  possibility  that the FDA could impose  costly
     additional  labeling  requirements  on, or restrict the  marketing  of, the
     Company's  products,  or suspend operations at one or more of the Company's
     facilities.

     - - The  uncertainty of the size of the potential  markets of the Company's
     products.

 























                                  RISK FACTORS

The Company's financial condition and results of operation, as well as the
market price for the Company's outstanding securities, are also likely to be
affected by the following factors:

Limited Operating History; History of Losses; Profitability Uncertain

     The Company has experienced  significant  operating  losses since inception
and, as of December 31, 1998, had an accumulated deficit of $101.6 million.  The
Company has never successfully  commercialized any of its products. In addition,
the development and  commercialization  by the Company of its products and other
new products, if any, will require substantial product development  expenditures
for the foreseeable future. The Company's future profitability is dependent upon
its  ability  to  successfully  commercialize  these  products.  There can be no
assurance  that the Company will generate  sufficient  cash flow to pay interest
and principal on its 6% Convertible Subordinated Notes due October 15, 2003 (the
"Notes"),  of which  $24,756,000  aggregate  principal amount was outstanding at
December 31, 1998, or to achieve  continued  profitability.  The Company expects
its operating losses to increase over the foreseeable future and there can be no
assurance  that  the  Company  will be  profitable  in the  future  or that  the
Company's existing capital resources and any funds provided by future operations
will be sufficient to fund the Company's needs, or that other sources of funding
will be available.

Uncertainty of Market Acceptance for the Company's Products

     The  CaverMap  Surgical  Aid, the  Symmetra  I-125 seeds and the  Company's
incontinence  surgery products will be competing against existing treatments and
surgical  products  in the  prostate  cancer and urinary  incontinence  markets,
respectively.  There  can be no  assurance  of the  market  acceptance  of these
products.

Dependence on Few Products

     The Company  expects to derive a  substantial  part of its revenues for the
next  several  years from sales of the  CaverMap  Surgical  Aid and the Symmetra
I-125 seeds. The Company's failure to commercialize  successfully these products
would  have a  material  adverse  effect on the  Company's  business,  financial
condition  and  results  of  operations.   The  Company  does  not  expect  that
commercialization  of other new products will be feasible without a substantial,
continuing commitment to research and development for an extended period of time
or  acquisitions of new  properties,  or both.  Also, the development of any new
products may require that such products  will be subject to clinical  trials and
regulatory  clearance  or  approval  before  commercialization.  There can be no
assurance as to whether or when  commercialization of other products might begin
or as to the likelihood that any such initiative would be successful.
 
Dependence on Others for Components and Raw Materials

     Certain  of the raw  materials  for the  manufacture  and  assembly  of the
Company's  products are available only from single sources and are  manufactured
by third  parties.  Interruptions  in supplies of raw  materials  may occur as a
result of business  risks  particular  to such  suppliers  or the failure of the
Company and any such supplier to agree on satisfactory  terms.  Such sources may
also decide for  reasons  beyond the  control of the  Company,  such as concerns
about potential  medical product  liability risk in general,  to cease supplying
such materials or components for use in medical devices  generally.  Significant
interruption  in the supply of raw materials  currently  used by the Company for
its  products   could  have  a  material   adverse   effect  on  the   Company's
business,financial condition and results of operations.

Lack of Marketing and Sales Experience

     Although  the FDA has  cleared  the  CaverMap  Surgical  Aid in the  United
States,  the Company has sold only limited amounts of this product.  The Company
has  developed a direct  marketing  and sales group in the United States for its
products.  However,  there can be no  assurance  that the  Company  has built an
effective  sales  force,  will be able to  continue  to  attract  and  retain  a
qualified  marketing  and sales  group in the United  States,  or can  otherwise
design and implement an effective  marketing and sales strategy for the CaverMap
Surgical Aid, the Symmetra I-125 seeds,the urinary incontinence products, or any
future product developed by the Company.

Lack of Distribution Experience

     The Company has limited experience in distributing units of its products to
its  ultimate  consumers.  In  Europe,  where  nearly  all of the  sales  of the
Company's   products  have  been  made  to  date,  the  Company  relied  on  the
distribution systems of third party distributors.

Competition and Technological Advances

     The markets for prostate cancer treatment and incontinence surgery products
are highly  competitive.  The  Company's  ability to compete in these areas will
depend upon the  consistency of product quality and delivery,  price,  technical
capability and the training of health care  professionals  and consumers.  Other
factors within and outside the Company's control will also affect its ability to
compete,  including its product  development  and innovation  capabilities,  its
ability to obtain  required  regulatory  clearances,  its ability to protect the
proprietary  technology included in its products,  its manufacturing,  marketing
and  distribution  capabilities  and its ability to attract  and retain  skilled
employees.  Certain of the  Company's  competitors  have  significantly  greater
financial,   technical,  research,  marketing,  sales,  distribution  and  other
resources.

Risks Relating to FDA Oversight and Other Government Regulation

     The facilities at which the Company or its key suppliers  manufactures  its
products,  are  subject to  regulation  by the FDA and,  in many  instances,  by
comparable  agencies  in the  foreign  countries  in  which  these  devices  are
distributed  and sold.  The process of obtaining  regulatory  approvals  for the
marketing and sale of any additional  products,  or the modification of existing
products,  by the Company could be costly and time-consuming and there can be no
assurance that such approvals will be granted on a timely basis,  if at all. The
regulatory  process may delay the marketing of new products for lengthy periods,
impose substantial  additional costs and furnish an advantage to competitors who
have greater  financial  resources.  Moreover,  regulatory  approvals for new or
modified  products,  if granted,  may  include  significant  limitations  on the
indicated  uses for which a product  is  marketed.  In  addition,  the extent of
potentially  adverse  governmental  regulations  that might  arise  from  future
legislative,  administrative  or  judicial  action  cannot  be  determined.  Any
material product recall or loss of certification of the Company's  manufacturing
facility,  would  have a  material  adverse  effect on the  Company's  business,
financial  condition and results of  operations.  The Company is also subject to
regulation under federal, state and local regulations regarding maintenance of a
licensed pharmacy, work place safety, environmental protection and hazardous and
controlled  substance  controls,  among others.  The Company  cannot predict the
extent of government  regulations or impact of new government  regulations which
might have an adverse  effect on the  production  and marketing of the Company's
products.

Risk of Inadequate Funding; Future Capital Funding

     The Company  plans to continue to expend  substantial  funds on  marketing,
research and product  development,  seeking out  partnerships  that fit into its
strategic platforms and pursuit of regulatory approvals.

     There can be no assurance that the Company's existing capital resources and
any funds  generated  from future  operations  will be sufficient to finance any
required  investment or pay interest on and principal of the notes or that other
sources of funding will be available.  In addition,  future sales of substantial
amounts of the Company's  securities in the public market could adversely affect
prevailing  market prices and could impair the Company's future ability to raise
capital through the sale of its securities.

Uncertainty Regarding 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. There can
be no  assurance  as to the  validity of the United  States  patents held by the
Company with respect to all of its  products,  or as to the degree of protection
offered by these patents.  There can be no assurance that the Company's  patents
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 substantial investments in competing technologies,  will
not seek to apply for and obtain  patents that will prevent,  limit or interfere
with the Company's  ability to make, use and sell its products  either inside or
outside the United States.  The defense and prosecution of patent  litigation or
other legal or administrative  proceedings related to patents is both costly and
time-consuming,  even if the outcome is  favorable  to the  Company.  During the
pendency of any such  proceedings,  the Company may be  restrained,  enjoined or
otherwise  limited in its ability to make,  use or sell a product  incorporating
the patents or technology that are the subject of such claim, which would have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  An adverse outcome in any such proceeding  could subject
the Company to significant liabilities to third parties, require disputed rights
to be licensed  from others or require  the  Company to cease  making,  using or
selling any products. There can be no assurance that any licenses required under
any patents or proprietary rights would be made available on terms acceptable to
the Company, if at all.

     The Company also relies on unpatented  proprietary technology and there can
be no assurance  that others may not  independently  develop the same or similar
technology or otherwise  obtain access to the Company's  unpatented  proprietary
technology.  In  addition,  the Company  cannot be certain  that others will not
independently  develop  substantially   equivalent  or  superseding  proprietary
technology,  or that an equivalent  product will not be marketed in  competition
with the Company's  products,  thereby  substantially  reducing the value of the
Company's proprietary rights. There can be no assurance that any confidentiality
agreements  between the Company and its  employees or  consultants  will provide
meaningful  protection  for the  Company's  trade  secrets,  know-how  or  other
proprietary  information in the event of any  unauthorized  use or disclosure of
such trade secrets,  know-how or other proprietary  information.  Finally, there
can be no assurance that the Company's  trademarks  chosen and  registered  will
provide meaningful protection.

Product Liability Risk; Limited Insurance Coverage

     The  manufacture  and sale of medical  products and the conduct of clinical
trials using new technology entail the risk of product  liability claims.  There
can be no assurance that the Company's  existing  insurance  coverage limits are
adequate  to protect the Company  from any  liabilities  which it might incur in
connection   with  the  clinical   trials  for  any  of  its  products  or,  the
commercialization of any of its products. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. A successful product
liability  claim or series of  product  liability  claims  brought  against  the
Company in excess of its insurance coverage would have a material adverse effect
on the Company's  business,  financial  condition and results of operations.  In
addition, any claims, even if not ultimately successful,  could adversely affect
the market acceptance of the Company's products.

Volatility of Market Prices

     The  market  price of the  Common  Stock and Notes may be highly  volatile.
Factors such as  quarter-to-quarter  variations in the  Company's  operations or
financial  performance and  announcements  of  technological  innovations or new
products, results of clinical trials or other regulatory or reimbursement events
by the Company or its competitors or any of its or their  regulators could cause
the market  price of the Common Stock or Notes to  fluctuate  significantly.  In
addition,  in recent years the stock  markets in general,  and the market prices
for medical  technology  companies in particular,  have experienced  significant
volatility,  which often may have been unrelated to the operating performance of
the affected companies. Such volatility may adversely affect the market price of
the Common Stock or Notes. See "Market for Registrant's Common Stock and Related
Shareholder Matters."

Certain Charter and By-Law Provisions May Affect Market Prices

     The Company's  Restated  Articles of Organization and the Company's Amended
and Restated  By-Laws  contain  provisions that may have the effect of making it
more  difficult  for a third  party to acquire  control  of, or of  discouraging
acquisition  bids for,  the  Company.  This could  limit the price that  certain
investors might be willing to pay in the future for shares of Common Stock.

Certain Massachusetts Laws May Affect Market Prices

     Certain  Massachusetts  laws contain provisions that may have the effect of
making  it more  difficult  for a third  party  to  acquire  control  of,  or of
discouraging  acquisition bids for, the Company. These laws include Chapter 110F
of  the   Massachusetts   General  Laws,  which  prohibits   certain   "business
combinations"  with  "interested   stockholders,"  and  Chapter  110D,  entitled
"Regulation of Control Share  Acquisitions."  These  provisions  could limit the
price that certain investors might be willing to pay in the future for shares of
Common Stock.

Effect of Issuance of Preferred Stock

     Shares of  preferred  stock may be issued  in the  future  without  further
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences,  as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any  preferred  stock that may be issued in the
future.  In addition,  the issuance of preferred  stock could have the effect of
making  it more  difficult  for a third  party  to  acquire  control  of,  or of
discouraging  acquisition bids for, the Company. This could limit the price that
certain  investors  might be  willing  to pay in the future for shares of Common
Stock.

Concentration of Ownership

     As of December 31, 1998,  directors and  executive  officers of the Company
and their affiliates  owned  approximately  19% of the outstanding  Common Stock
(including  options to purchase Common Stock exercisable  within 60 days of such
date).  As a  result,  such  persons  have the  ability  to  assert  significant
influence  over the Company and the direction of its affairs and  business.  See
"Security Ownership of Certain Beneficial Owners and Management."

Absence of Dividends

     The Company has not paid cash  dividends and does not  anticipate  doing so
for the foreseeable future.

Shares Available for Future Sale

     The  future  sale of shares of the  Company's  Common  Stock  could have an
adverse effect on the market price of the Common Stock or the Notes. The Company
currently has two effective registration  statements on file with the Securities
and Exchange  Commission  initially covering the resale of up to an aggregate of
1,703,508  shares of Common Stock held by certain  current  shareholders  of the
Company.  Of  these  1,703,508  shares,   1,236,902  shares  are  covered  by  a
registration  statement which was declared effective in October 1995 registering
shares  of  Common  Stock  held  by  approximately  73  holders.  These  shares,
representing  shares of Common Stock issued upon the conversion of the Company's
previously  outstanding  convertible  preferred  stock,  were  registered at the
request of the holders of such shares. All of these shares may be sold currently
under Rule 144(k)  under the  Securities  Act without  regard to volume or other
limitations.  The  remaining  467,005  shares,  which were  issued to the former
shareholders  of Advanced  Surgical  Intervention,  Inc. in connection  with the
acquisition  of the Impress  Softpatch  technology in May 1996, are covered by a
registration  statement which was declared  effective in June 1996. These shares
are held by 273  holders,  with the largest  number of shares held by any single
holder thereunder being  approximately  50,000 shares. The Company believes that
many of the shares covered by these  registration  statements  have been sold in
the open market  prior to the date  hereof.  All of the shares  covered by these
registration  statements are freely  tradeable in the open market without volume
limitations. As of December 31, 1998 the Company also has options outstanding to
purchase an  aggregate of 371,158  shares of Common Stock and has an  additional
399,608  shares of Common Stock  reserved  for issuance of options  which may be
granted and exercised under the Company's  existing  employee benefit plans. Any
shares of Common Stock issued upon the exercise of such  outstanding  options or
any options  granted in the future will be, upon issuance,  freely  tradeable on
the open market, subject in some cases to the volume limitations imposed by Rule
144 under the Securities  Act. As of December 31, 1998, the Company had reserved
372,775 shares of Common Stock for issuance upon conversion of the Notes.

 









<PAGE>

Item 2.  Properties

     The Company currently leases space in two facilities in Massachusetts,  one
in Norwood and another in Hopkinton.  The Norwood lease  commenced in 1997 has a
five-year  term  and  is  for a  9,000  square  foot  area  which  occupies  all
administrative,  research and development,  marketing and manufacturing staff of
the   Prostate   Cancer   group,the   Incontinence   group  and  the   Corporate
administrative  staff of the Company. The Hopkinton lease is for a 13,000 square
foot area  occupied by the  clinical,  research and  development,  marketing and
administrative  staff of the  breast  cancer  screening  technology.  This lease
commenced in 1997 and has a five-year term.

     The Company  terminated  operating  leases at two locations  during 1998 as
part of its  restructuring.  The Company  occupied a 40,000  square-foot  leased
facility  in  Needham,  Massachusetts.  This  lease  was set to  expire in 2001;
however, the Company entered into a lease termination  agreement effective March
15, 1999. The Company leased a 9,200 square foot  fulfillment  center in Nashua,
New Hampshire,  where the Company's  staff  pharmacist  was located.  This lease
expired  in 1998.  As part of the 1998  restructuring,  the  Company  moved  its
continence care consumer product fulfillment and distribution from Nashua to the
Norwood facility.


Item 3.  Legal Proceedings

     The Company is not involved in any material legal  proceedings,  nor is the
property of the Company the subject of any such proceedings.


Item 4.  Submission of Matters to a
Vote of Security Holders.

     During the fourth quarter of the Company's 1998 fiscal year,  there were no
matters submitted to a vote of the security holders of the Company.

 























<PAGE>

Item 5. Market for Registrant's Common Stock and Related Shareholder Matters

     UroMed's  common  stock is traded on the Nasdaq  National  Market under the
symbol URMD.  As of December 31, 1998 there were 307  registered  holders of the
Company's  common stock.  The Company has not paid dividends on its common stock
since  inception  and does not  anticipate  paying  any  cash  dividends  in the
foreseeable  future. The following table set forth for the periods indicated are
the range of high and low sales prices of the Company's Common Stock as reported
by Nasdaq.
<TABLE>
<CAPTION>

Year Ended December 31, 1998                           High         Low
- -----------------------------------------------------------------------------
<S>                                                   <C>         <C>

First Quarter                                         $ 20  5/32   $8  1/8
Second Quarter                                          12   ---    4  13/16
Third Quarter                                            5  5/16    1  1/4
Fourth Quarter                                           3  5/8     1  1/8

Year Ended December 31, 1997                           High         Low
- -----------------------------------------------------------------------------
First Quarter                                        $ 48   3/4   $ 31  7/8
Second Quarter                                         39   3/8     11  7/8
Third Quarter                                          34   3/8     14  3/8
Fourth Quarter                                         42   1/2     17  1/2

</TABLE>


 










































<PAGE>


Item 6.  Selected Financial Data

                              Selected Financial Data

<TABLE>
<CAPTION>
Year Ended December 31,        
                     1998         1997          1996         1995         1994
                  ----------  ------------   ----------  ------------  ---------
(in thousands, 
except per share 
amounts)
<S>                  <C>          <C>             <C>          <C>         <C>
Statement of 
Operations Data:

Revenues          $   837     $   503         $ 2,622      $ 1,052      $    --
                  ----------  -------------  ------------ ------------ ---------
Cost and expenses:
 Cost of revenues   3,413       4,722           5,110        2,564           --
 Research and 
  development       5,367      11,692          37,597(1)     6,821        5,796
 Marketing and 
  sales             4,098      13,233           7,276        2,169        1,417
 General and 
  administrative    4,175       5,514           2,816        1,898        2,007
 Restructuring      1,704         --              --            --          --
                  ----------  ------------   ----------  ------------  ---------
 Total costs 
   and expenses    18,757      35,161          52,799       13,452        9,220
                  ----------  ------------   ----------  ------------  ---------
 Loss from 
  operations      (17,920)    (34,658)        (50,177)     (12,400)      (9,220)

Interest (expense) 
 income, net       (1,074)         25           2,517        2,688        1,610
                  ----------  ------------   ----------  ------------  ----------
Loss before
 extraordinary 
 gain on early
 retirement 
 of debt          (18,994)     (34,633)        (47,660)      (9,712)     (7,610)
 
Extraordinary 
 gain on early 
 reirement of 
 debt              23,273         --              --            --          --
                  ----------  ------------   ----------  ------------  ---------

Net income (loss)   4,279      (34,633)        (47,660)      (9,712)     (7,610)
 
Excess of 
 redemption price 
 over carrying
 costs of Series
 A redeemable 
 convertible  
 preferred stock     --          --              --            --          (383)
                  ----------  ------------   ----------  ------------  ---------
 

Net loss 
 attributable to 
 common 
 stockholders   $   4,279   $  (34,633)     $  (47,660)   $  (9,712)   $ (7,993)
                 ==========  =============  ===========  ============= =========

Basic and 
diluted net 
income (loss) 
per share  (2)  $    .81    $    (1.30)     $   (1.87)    $    (.46)   $   (.46)
                 ==========  =============  ===========  ============= =========

 Basic and 
 diluted 
 weighted average 
 common shares 
 outstanding       5,290         5,316           5,109        4,252       3,504
                 ==========  =============  ===========  ============= =========
 





















As of December 31,      
                      1998       1997          1996         1995         1994
                  ----------  ------------   ----------  ------------  --------- 

Balance Sheet 
 Data:
   Cash, cash 
    equivalents 
    and short-term 
    investments    $  26,280    $  65,025     $ 101,638    $  60,427   $ 45,704
   Working capital      (466)      60,907        98,013       57,681     44,288
   Total assets       33,606       76,593       110,488       64,264     47,818
   Long-term debt 
    and capital 
    lease 
    obligations       24,756       69,000        69,000          --          12
   Accumulated 
    deficit         (101,648)    (105,927)      (71,294)     (23,634)   (13,922)
   Total 
    stockholders' 
     equity            5,574        1,785        35,952       60,092     45,660
</TABLE>

(1)   Includes $30.2 million for the acquisition of the Impress Softpatch
      technology and related expenses. See Note 10 to the Financial Statements.

(2)   All net loss per share amounts have been restated to reflect the
      provisions of Statement of Financial Accounting Standards No. 128,
      "Earnings Per Share."  See Note 2 to the Financial Statements.
















<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations



     This  Management's  Discussion  and Analysis  should be read  incorporating
"Forward-Looking   Statements  and  Associated  Risks"  and  "Risk  Factors"  as
displayed in Item 1 of this document
Overview

     The Company is  dedicated to  establishing  itself as a leader in providing
interventional  urological  products,  with primary emphasis on the treatment of
prostate cancer.  The Company seeks to market a portfolio of products  including
its two main  proprietary  products for the  treatment of prostate  cancer:  the
CaverMap  Surgical Aid,  available to aid physicians in preserving  vital nerves
during prostate cancer surgery,  and the Symmetra I-125  radioactive  seeds, not
yet FDA-cleared,  used in a brachytherpay  procedure to treat localized prostate
cancer. The Company's product portfolio also includes  brachytherapy  introducer
needles and minimally invasive  incontinence  surgical products.  In addition to
its current portfolio of products,  the Company has also developed  incontinence
products  including  the  FDA-cleared  Impress  Softpatch,  and certain  product
technology  in the market for breast  cancer  screening.  The  Company is in the
process  of  evaluating  how  best to  capitalize  on  these  potential  product
opportunities via partnerships, divestments,and/or spinoffs, if possible. UroMed
also continues to dedicate  resources to the development  and/or  acquisition of
product lines that fit into its strategic platform.

 
Results of Operations
Years Ended December 31, 1998 and 1997
 

     The Company's  revenues  increased by 66% to $0.8 million from $0.5 million
for 1998 compared to 1997. The increase is primarily the result of the first two
full  quarters of sales of the  CaverMap  Surgical  Aid in 1998 and revenue from
INTROL  Bladder Neck Support  Prosthesis  via the  distribution  agreement  with
Johnson & Johnson Medical K.K. entered into in 1998. 1997 revenues  consisted of
the  recognition  of deferred  revenue  from a portion of the  advance  payments
received upon the signing of certain foreign distribution agreements,  which are
no longer in place, and small amounts of U.S. sales of the Reliance Insert,  the
INTROL Bladder Neck Support Prosthesis and the Impress Softpatch. The Company is
not actively  marketing  the Reliance  Insert and Impress  Softpatch and expects
minimal or no sales from these products in 1999.
 

Cost of Revenues

     Cost of revenues  decreased  by 28% to $3.4  million  from $4.7 million for
1998 as compared to 1997  primarily due to the decreased  level of headcount and
related  expenses as a result of the 1998  restructuring,  and a higher level of
inventory  obsolescence  charges in 1997 as compared  to 1998.  Cost of revenues
significantly  exceeds  product  revenue in 1998 and in 1997 due to the  current
level of variable product costs as well as the Company's  related overhead costs
relative to the low start-up volume of production in these periods.  The Company
expects  negative or low gross margins for the near term and,  accordingly,  has
considered this in its valuation of inventory.


Research and Development

     Research  and  development  expenses  decreased by 54% to $5.4 million from
$11.7  million  for 1998 as  compared  to 1997.  The  decrease  is the result of
decreased  headcount in 1998 as a result of the restructuring,  significant 1997
expenses incurred in connection with Impress Softpatch  scale-up  activities and
impairment charges in connection with Reliance Insert  manufacturing  equipment,
and reduced  consulting and prototype  spending in relation to the breast cancer
screeing technology.

 
Marketing and Sales

     Marketing  and sales  expenses  decreased  69% to $4.1  million  from $13.2
million  for  1998  as  compared  to  1997.  This  decrease  was the  result  of
significant 1997 expenditures  incurred in connection with the U.S.launch of the
Reliance Insert and market analysis for the Impress  Softpatch,  and the reduced
headcount in 1998 as the result of the restructuring.


General and Administrative

     General and  administrative  expenses decreased by 24% to $4.2 million from
$5.5 million  for1998 as compared to 1997.  The decrease is primarily the result
of the decreased headcount and less system and consulting expenditures in 1998.


Restructuring
 
     During the year ended  December  31,  1998,  the  Company  recorded a total
charge of $1,704,000  representing the cost of  restructuring  its operations to
shift its strategic  emphasis to the  hospital-based  business and away from the
consumer-  oriented  continence  care business,  which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger  company.  During  the first  quarter  of 1998,  a plan to effect  this
restructuring  was  adopted by the Board of  Directors  and,  at that time,  the
Company recorded a restructuring charge of $1,024,000.  This charge consisted of
approximately  $579,000  of  employee  termination  benefits  and  approximately
$445,000 of costs to exit two of the Company's leased  facilities.  The employee
termination  benefits  related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas  of the  Company.  The  facility  exit  costs  include  the  write-off  of
approximately   $138,000  of   leasehold   improvements,   with  the   remainder
representing   certain   contractual   lease  payments  related  to  the  leased
facilities.

     During the fourth quarter of 1998, the Company made certain  changes to its
restructuring  plan and,  as a result,  an  additional  charge of  $680,000  was
recorded   at  that  time,   representing   additional   facility   exit  costs.
Specifically,  the  Company  decided  not to abandon  one of the  aforementioned
facilities  slated for closure and, at that same time,  committed to  abandoning
one of the facilities that it had previously expected to keep open. The facility
exit  costs  include  the  write-off  of  approximately  $500,000  of  leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.

     During the year ended December 31, 1998, the activity in the  restructuring
liability was as follows (in thousands):

                            Total 1998                              Balance at
                           Restructuring      Cash      Non-Cash    December 31,
                              Charge        Payments     Items         1998
                         --------------   ----------  ----------  ------------

Employee termination
Benefits                   $     579       $    524    $      --      $    55

Asset write-downs                638            --           638           --

Other facility exit costs        487            183           --          304
                          -------------   ----------  ----------  ------------
                           $   1,704       $    707    $     638      $   359
                          =============   ==========  ==========  ============

     The  remaining  balance of $359,000 at December  31, 1998 is expected to be
paid out during the year ended December 31, 1999.

     The annual  cost  savings  resulting  from the  restructuring  actions  was
approximately $11,000,000.


Interest Income and Interest Expense

     Interest income decreased by 38% to $2.8 million from $4.6 million for 1998
as compared to 1997.  The decrease was  attributable  to the reduced size of the
Company's  investment  portfolio,  caused  by the  need  to fund  the  Company's
operations and to repurchase the Notes (see Note 9 to the Financial Statements).

     Interest  expense  decreased 14% to $3.9 million from $4.5 million for 1998
as  compared to 1997 as a result of the  reduction  in  outstanding  convertible
Notes due to the repurchases during 1998.


Extraordinary Gain on Early Retirement of Debt

     During 1998, the Company repurchased approximately $44,244,000 in aggregate
principal amount of its Notes. Of the total repurchases,  $34,924,000 represents
Notes  repurchased  as part of the  Company's  announced  tender offer which was
completed on October 22, 1998.  The remaining  $9,320,000  of Notes  repurchased
occurred in  unsolicited  open  market  transactions  with  persons who were not
affiliates  of  the  Company.  The  total  cost  of  the  Note  repurchases  was
$19,321,000,  including accrued and unpaid interest and transaction fees related
to the tender offer.  These  repurchases  resulted in an  extraordinary  gain of
$23,273,000 for the year ended December 31, 1998.


Results of Operations
Years Ended December 31, 1997 and 1996


     The Company's  revenues  decreased by 81% to $0.5 million from $2.6 million
for 1997 compared to 1996.  The decrease is primarily due to the fact that there
were no stocking  shipments  of the  Reliance  Insert  product to the  Company's
European  distributors  during 1997 and that there were decreases in recognition
of deferred revenue from a portion of the advance payments received upon signing
of the European  distribution  agreements,  partially offset by small amounts of
U.S. sales of the Reliance  Insert,  the INTROL Bladder Neck Support  Prosthesis
and the Impress Softpatch

 
Cost of Revenues

     Cost of revenues decreased by 8% to $4.7 million from $5.1 million for 1997
as compared to 1996. The decrease is due to significantly lower variable product
cost due to lower product sales in 1997 as compared to 1996, partially offset by
the same level of  manufacturing-related  overhead  costs in 1997 as in 1996 and
charges in 1997 for the impairment of certain Reliance manufacturing  equipment.
Cost of revenues  significantly  exceeds product revenue in 1997 and in 1996 due
to the  current  level  of  variable  product  costs  as well  as the  Company's
manufacturing-related  overhead  costs  relative to the low  start-up  volume of
production in these periods.


Research and Development

     Research and  development  expenses  decreased by 69% to $11.7 million from
$37.6 million for 1997 as compared to 1996. The decrease is primarily due to the
1996 acquisition of technology for the Impress Softpatch (see Note 3 of Notes to
the  Financial  Statements).  This was  accounted  for as  purchased  in-process
research and development  and, as a result,  the purchase price of $30.0 million
and related expenses of $0.2 million were charged to operations in 1996. Without
the Impress  Softpatch  acquisition  charge,  research and development  expenses
increased by 58% to $11.7 million for 1997 as compared to $7.4 million for 1996.

     The increase in research and  development  costs for 1997 compared to 1996,
without  this  Impress  Softpatch  acquisition  charge,  was  primarily  due  to
increased  expenditures on the Impress Softpatch scale-up  activities,  specific
charges in  relation  to  product-line  acquisition  activity,  charges  for the
impairment  of  certain  Reliance  manufacturing  equipment  and the  additional
efforts  and  resources  on internal  development  activities  and  in-licensing
activities,  including  the  BreastCheck  breast  self-examination  device,  the
physician-use BreastExam, and BreastView devices, and the CaverMap Surgical Aid.
 

Marketing and Sales

     Marketing  and sales  expenses  increased by 82% to $13.2 million from $7.3
million  for  1997  as  compared  to  1996.  This  increase  was the  result  of
expenditures incurred in connection with the U.S. launch of the Reliance Insert,
which began in November 1996 and continued  throughout  most of 1997.  Increases
were also a result of the  commencement of test marketing  activities and market
analysis for the Impress Softpatch.  Increases relate  specifically to costs for
marketing  and sales  personnel,  costs to design and  conduct  advertising  and
public  relations  campaigns,  sales  training  and  costs in  conjunction  with
marketing activities in the prostate cancer and breast cancer detection areas.


General and Administrative

     General and  administrative  expenses increased by 96% to $5.5 million from
$2.8 million for 1997 as compared to 1996.  These increases are primarily due to
costs to support the U.S.  launch of the Reliance  Insert,  costs in  connection
with supporting the internal  development  activities in the prostate cancer and
breast cancer detection areas and increased consulting expenses.


Interest Income and Interest Expense

     Interest income increased by 32% to $4.6 million from $3.5 million for 1997
as compared to 1996. The increase was  attributable to the significant  increase
in the  Company's  interest-bearing  cash and cash  equivalents  and  short-term
investments  as a result of the issuance of the Company's  Notes in October 1996
and higher realized interest rates on invested cash balances in 1997.

     Interest expense increased  significantly to $4.5 million from $0.9 million
for 1997 as  compared  to 1996 as a result of the full year of  interest in 1997
for the Convertible Notes issued in October 1996.

 
Liquidity and Capital Resources

     At December 31, 1998, the Company had cash, cash equivalents and short-term
investments  totaling $26.3 million, a decrease of $38.7 million,  or 147%, from
$65.0  million at December 31, 1997. At December 31, 1998,  the Company's  funds
were invested in U.S.  government  obligations,  corporate debt  obligations and
money market funds.

     Net cash used in operating  activities  of $18.0 million for the year ended
December  31, 1998 was  primarily a result of the $18.9  million loss before the
extraordinary gain on the early retirement of debt and decreases of $2.5 million
in accounts payable and accrued  expenses,  partially offset by depreciation and
amortization  of $2.1  million,  the  $1.0  million  write-off  of the  Medworks
investment, and non-cash restructuring charges of $0.6 million.

     Net cash  provided by investing  activities  was $37.8 million for the year
ended  December  31, 1998,  primarily as a result of the maturity of  short-term
investments.

     Net cash used in financing  activities was $20.2 million for the year ended
December 31, 1998, primarily as a result of the $19.7 million used to repurchase
$44.2 million in aggregate principal amount of Notes.

     In October 1996,  the Company  completed the sale of  $69,000,000 of its 6%
Convertible Subordinated Notes.due October 15, 2003 (the "Notes").  During 1998,
the Company repurchased  approximately $44,244,000 in aggregate principal amount
of its Notes.  The  outstanding  principal  balance of the Notes at December 31,
1998 is  $24,756,000.  In March  1999,  the  Company  repurchased  approximately
$1,400,000 of Notes for approximately  $600,000. The Company is considering from
time to time additional  repurchases of its Notes.  Any repurchases of Notes may
be made on the open market or in privately negotiated transactions.  The Company
plans to fund such purchases from its working capital

     The Board of Directors of the Company  authorized a Common Stock repurchase
program  in 1998 (the  "Repurchase  program").  The  Company  is  authorized  to
repurchase up to one million shares of the outstanding  Common Stock,  from time
to time, subject to prevailing market  conditions.  As of December 31, 1998, the
Company has  repurchased  approximately  187,000  shares of its Common Stock for
approximately $500,000 as part of the Repurchase program.  Purchases pursuant to
the Repurchase program may be made on the open market or in privately negotiated
transactions. The Company plans to fund such purchases from its working capital.

     The Company  believes that available cash, cash  equivalents and short-term
investments  will be  sufficient to meet the  Company's  operating  expenses and
capital  requirements for at least the next twelve months.  The Company's future
long-term  liquidity  and  capital  requirements  depend  on  numerous  factors,
including,   but  not  limited  to:  development  of  the  Company's   marketing
capability,  market  acceptance  of the the CaverMap  Surgical Aid and the I-125
seed, development of partnerships and alliances for its assets and technology in
incontinence and breast cancer.  There can be no assurance that the Company will
not require  additional  financing or that, if required,  such financing will be
available on terms acceptable to the Company.


Year 2000

     The Company has identified its Year 2000 risk in three categories: internal
business  software;  imbedded chip technology;  and external  non-compliance  by
significant suppliers and service providers.

     INTERNAL  BUSINESS   SOFTWARE.   During  1996,  the  Company  purchased  an
Enterprise Resource Planning Sytem ("ERP System") which was Year 2000 compliant.
The  ERP  System  provides  for  significantly  all  of the  Company's  internal
accounting,   business  management  and  planning  needs.  The  total  hardware,
software, installation and testing cost of the ERP System was approximately $1.2
million which has been spent to date. The Company does not anticipate  incurring
significant  additional  costs for further  testing and  compliance  activities.
Given that its internal  business  software is Year 2000 compliant,  the Company
does not have a contingency plan in place.

     IMBEDDED CHIP TECHNOLOGY.  At this time, most of the Company's products are
manufactured  by  outside  suppliers  and,  as such,  the  Company  has  limited
manufacturing activities.  The Compnay does not rely materially on imbedded chip
technology in its manufacturing processes and therefore does not anticipate that
Year 2000 issues will significantly  affect its ability to manufacture  finished
goods.

     At this time, the Company  believes that it will not encounter  significant
operational  difficulties  from the effect of a Year 2000 issue arising from its
imbedded chip technology.  Accordingly, based on these expectations, the Company
does not have a  contingency  plan to  address  material  Year 2000  issues.  If
significant  Year 2000 issues arise,  there can be no assurance that the Company
will be able to develop and implement a contingency plan in a timely manner and,
if not, the Company's operations could be adversely effected.

     EXTERNAL NON-COMPLIANCE BY SIGNIFICANT SUPPLIERS AND SERVICE PROVIDERS. The
Company has identified all of its significant suppliers and service providers to
determine  the extent to which the  Company's  business is  vulnerable  to those
third  parties'  failure to remedy  their own Year 2000  issues.  The  Company's
significant  suppliers  include those that supply the products sold, or proposed
to be sold,  by the Company  including  the CaverMap  Surgical Aid, the Symmetra
I-125  seeds,  the  AlloSling  incontinence  surgical  products,  and the INTROL
Bladder Neck Support Prosthesis. At this time, the Company has begun the process
of  contacting  its  significant  suppliers  (including  those  that  supply its
products) and service providers concerning their successful completion of a Year
2000 compliance  testing or indication  that they were working toward  achieving
Year 2000 compliance.  At this time, the Company has received  notification from
some significant  suppliers and service providers of their Year 2000 compliance.
Based upon the results of the remaining  inquiries to significant  suppliers and
service  providers,  and to the extent  that  responses  to Year 2000  readiness
responses are unsatisfactory, the Company intends to develop a contingency plan.
There can be no assurance that all significant  suppliers and service  providers
will  successfully  complete  their  Year 2000  compliance,  that the  Company's
contingency  plans  could  replace  those  noncompliant   suppliers  or  service
providers  (including  those that supply its products) with suppliers or service
providers that are Year 2000 compliant, or that these Year 2000 issues would not
have a material  adverse effect on the Company.  The main risks  associated with
the Year 2000 issue are the uncertainties as to whether the Company's  suppliers
or service  providers can continue to perform to perform their  services for the
Company  uninterrupted  by the Year 2000  event.  The  Company's  suppliers  and
service  providers,  if they are unable to remediate their Year 2000 issues, may
be unable to produce or  deliver  goods  ordered  by the  Company.  The  Company
depends  significantly  upon telephone  orders;  should the Company's  telephone
service be  adversely  affected,  the  Company  will be unable to receive a high
percentage  of its retail  orders.  The Company also depends in large measure on
delivery services such as Federal Express and UPS to deliver goods to customers;
accordingly  should one or more of these delivery  services prove unable to make
deliveries as a result of Year 2000 issues, the Company's cash flow and business
would be severely  affected.  Although the state of  readiness of the  Company's
suppliers and service providers will be monitored and evaluated, and contingency
plans will be developed,  no assurances can be given as to the eventual state of
readiness of the  Company's  suppliers  and/or  service  providers.  Nor can any
assurance be given as to the eventual effectiveness of the Company's contingency
plans.

     The preceding discussion contains  forward-looking  statements  information
within the meaning of Section 21E of the Exchange Act.  This  disclosure is also
subject to protection under the Year 2000  Information and Readiness  Disclosure
Act of 1998,  Public  Law  105-271,  as a "Year  2000  Statement"  and "Year 200
Readiness  Disclosure" as defined therein.  Actual results may differ materially
from such projected information due to changes in underlying assumptions.
 


 

 
























                                      <PAGE>




Item 8.  Financial Statements and Supplementary Data

Index to the Financial Statements:

<TABLE>
                                                                     Page
                                                                    ------
     <S>                                                             <C>
     Report of Independent Accountants................................26
     Balance Sheet at December 31, 1998 and 1997..................... 27
     Statement of Operations for each of the three years
       in the period ended December 31, 1998..........................28
     Statement of Stockholders' Equity for each of the
       three years in the period ended December 31, 1998 .............29-30
     Statement of Cash Flows for each of the three years
       in the period ended December 31, 1998 .........................31
     Notes to the Financial Statements................................33-43


     Financial Statement Schedule:
       II - Valuation and Qualifying Accounts and Reserves............44

</TABLE>

     All other  financial  statement  schedules are omitted because they are not
applicable or the required  information is shown in the financial  statements or
footnotes thereto.

 

 














































<PAGE>

Report of Independent Accountants

To the Board of Directors and Stockholders of UroMed Corporation

In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of UroMed
Corporation at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Boston, Massachusetts
February 9, 1999

 



<PAGE>

Balance Sheet

<TABLE>
<CAPTION>
December 31,                                               1998         1997

- ------------------------------------------------------------------------------
(in thousands)
<S>                                                        <C>          <C>
  Assets
  Current assets:
     Cash and cash equivalents                          $  11,576    $  12,007
     Short-term investments                                14,704       53,018
     Inventories                                              422          287
     Prepaid expenses and other current assets                864        1,403
                                                          ----------------------
       Total current assets                                27,566       66,715
  Fixed assets, net                                         4,414        6,357
  Other assets                                              1,626        3,521
                                                          ----------------------
                                                        $  33,606    $  76,593
                                                          ======================
  Liabilities and Stockholders' Equity
  Current Liabilities:
     Accounts payable                                   $     250    $   1,197
     Accrued expenses                                       3,026        4,611
                                                          ----------------------
       Total current liabilities                            3,276        5,808
                                                          ----------------------

  Convertible subordinated notes                            24,756       69,000
                                                           ---------------------

  Commitments (Note 15)

  Stockholders' equity:
     Preferred stock, $.01 par value; 500 shares
       authorized; none issued                                --          --
     Common stock, no par value; 10,000 shares 
       authorized; 5,367 and 5,341  shares issued, 
       5,180 and 5,341 shares outstanding at
       December 31, 1998 and 1997, respectively             107,733     107,646
 
     Accumulated other comprehensive income                    --            66
     Accumulated deficit                                   (101,648)   (105,927) 
 
                                                          ----------------------
 
                                                              6,085       1,785
 
     Common stock held in treasury, 187 shares, 
       at cost                                                 (511)        --
                                                          ----------------------
         Total stockholders' equity                          5,574        1,785
                                                         -----------------------
                                                         $  33,606     $ 76,593
                                                        ========================
</TABLE>

The accompanying notes are an integral part of the financial statements.

 



 
<PAGE>
<TABLE>
<CAPTION>

Statement of Operations

Year Ended December 31,                          1998        1997        1996
- -----------------------------------------------------------------------------
(in thousands, except per share data)
<S>                                          <C>        <C>         <C>
Revenues                                     $   837      $  503    $   2,622
                                             --------------------------------

Costs and expenses:
   Cost of revenues                             3,413       4,722       5,110
   Research and development                     5,367      11,692      37,597
   Marketing and sales                          4,098      13,233       7,276
   General and administrative                   4,175       5,514       2,816
   Restructuring                                1,704        ---         ---
                                             --------------------------------
     Total costs and expenses                  18,757      35,161      52,799
                                             --------------------------------
Loss from operations                          (17,920)    (34,658)    (50,177)

Interest income                                 2,837       4,558       3,462
Interest expense                               (3,911)     (4,533)       (945)
                                             --------------------------------

Loss before extraordinary gain on early
retirement of debt                            $(18,994)   $(34,633)  $(47,660)
 
Extraordinary gain on early retirement
of debt                                          23,273       ---         ---
                                             --------------------------------

Net income (loss)                              $  4,279    $(34,633)   $(47,660)
                                              --------------------------------
Other comprehensive income (loss):

Unrealized gain (loss) on investments
available-for-sale                                 (66)          97       (191)
                                             ---------------------------------

Total comprehensive income (loss)              $  4,213    $(34,536)  $(47,851)
                                             =================================


Basic and diluted net income (loss)
per share amounts:

      Loss before extraordinary gain on
      early retirement of debt                $  (3.59)   $ (6.51)   $  (9.35)
 


      Extraordinary gain on early retirement
      of debt                                     4.40       ---        ---
                                             ---------------------------------
      Net income (loss)                       $   0.81     $ (6.51)  $  (9.35)
                                            ==================================

 
Basic and diluted weighted average common
shares outstanding                              5,290        5,316      5,109
                                             =================================

The accompanying notes are an integral part of the financial statements.
</TABLE>

 


<PAGE>

Statement of Stockholders' Equity

<TABLE>
<CAPTION>
 
 
 
                   
                                                    
For the Three 
Years in the 
Period Ended              
December 31, 1998                     
 (in thousands)
                                                                    Common
                                       Other                        Stock
                     Common Stock    Accumulated                    Held
                    Number          Comprehensive  Deferred Accum-   In
                     of   Carrying     Income      Compen-  ulated  Treas-
                    Shares Value       (Loss)      sation   Deficit  ury   Total
<S>                       <C>          <C>          <C>       <C>            <C>
<C>
Balance, December 31, 
 1995                 4,795  $83,839   $160     $(273)   $(23,634)  --  $ 60,092
   Issuance of common 
    stock in conn-
    ection with 
    acquisition of 
    technology          467   23,000     --        --        --     --    23,000
   Issuance of common 
    stock options
    for services        --       451     --        --       --      --       451
   Issuance of common 
    stock upon
    exercise of stock 
    options             25       89      --        --       --      --        89
   Issuance of common
    stock under
    employee stock 
    purchase plan        2      113      --        --       --      --       113
   Net unrealized 
    loss on 
    investments
    available-for-
    sale                --       --    (191)       --       --       --    (191)
   Amortization of
    deferred 
    compensation        --       --     --         58       --       --       58
   Net loss             --       --     --         --    (47,660)    -- (47,660)
 
-----------------------------------------------------------------------------------------
Balance, December 31, 
1996                  5,289  107,492    (31)     (215)   (71,294)    --   35,952
   Issuance of 
    common stock
    options for 
    services            --       65      --        --        --      --       65
   Issuance of 
    common stock
    upon exercise
    of stock 
    options             41      103      --        --        --      --      103
   Issuance of 
    common stock 
    under employee
     stock purchase
     plan, net of 
     cancellations      11      151      --        --        --      --      151
   Net unrealized 
    gain on 
    investments
    available-for-
    sale                --       --       97       --        --      --       97
   Amortization of 
    deferred 
    compensation        --       --       --        50       --      --       50
   Reversal of 
    deferred compen-
    sation related 
    to employee 
    termination         --     (165)      --       165       --      --      --
   Net loss             --       --       --       --    (34,633)    -- (34,633)
 
--------------------------------------------------------------------------------
Balance, December 
 31, 1997            5,341  107,646       66       --   (105,927)    --    1,785











   Repurchase of 
    common stock       --        --       --       --        --    (511)   (511)
   Issuance of 
    common stock
    options for
    services           --        48       --       --        --      --       48
   Issuance of 
    common stock 
    upon exercise
    of stock 
    options            25        46       --       --        --      --       46
   Issuance of 
    common stock 
    under employee
    stock purchase 
    plan, net of 
    cancellations       1        (7)      --       --        --      --      (7)
   Net unrealized 
    loss on 
    investments
    available-for-
    sale              --         --      (66)      --        --      --     (66)
   Net income         --         --       --       --     4,279      --    4,279
--------------------------------------------------------------------------------
Balance, December 
 31, 1998           5,367  $ 107,733    $ --    $  -- $(101,648)  $(511)  $5,574
================================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.

 


 
<PAGE>

Statement of Cash Flows

<TABLE>
<CAPTION>
Year Ended December 31,                          1998        1997        1996
- ------------------------------------------------------------------------------
(in thousands)
<S>                                            <C>         <C>         <C>
Increase (Decrease) in Cash and Cash 
 Equivalents
Cash flows from operating activities:
   Net income (loss)                           $4,279     $(34,633)   $ (47,660)
   Adjustments to reconcile net income (loss) 
    to net cash used in operating activities:
     Depreciation and amortization              2,151        3,575          867
     Issuance of common stock in connection
      with acquisition of technology              --           --        23,000
     Issuance of common stock and stock 
      options for services                         48           65          451
     Extraordinary gain on early retirement 
      of debt                                 (23,273)         --            --
     Write-off of investment in Medworks 
      Corporation                               1,000          --            --
     Non-cash portion of restructuring charges    638          --            --
     Increases (decreases) resulting from 
      changes in assets and liabilities:
        Inventories                              (135)         300         (357)
        Prepaid expenses and other assets        (211)        (79)         (128)
        Accounts payable and accrued expenses  (2,532)         272        1,376
                                              ----------------------------------
 
         Net cash used in operating 
          activities                          (18,035)    (30,500)      (22,451)
                                              ----------------------------------

Cash flows from investing activities:
   Sales (purchases) of short-term 
    investments, net                           38,248      3,161        (14,011)
   Purchases of fixed assets                     (554)    (5,525)        (2,647)
   Proceeds from sales of fixed assets             82        --            --
   Investment in Medworks Corporation             --      (1,000)          --
   Decrease in other assets                        37         61             75
                                              ----------------------------------

         Net cash provided by (used in) 
          investing activities                 37,813     (3,303)       (16,583)
                                              ----------------------------------

Cash flows from financing activities:
   Proceeds from issuance of convertible
    subordinated notes, net of issuance costs     --         --          66,235
   Repurchase of convertible subordinated 
    notes                                     (19,737)       --            --
   Repurchase of common stock                    (511)       --            --
   Principal payments on capital lease 
    obligations                                   --         --            (12)
   Proceeds from issuance of common stock,
    net of issuance costs                         39        254            202
                                             -----------------------------------

         Net cash provided by (used in) 
          financing activities                (20,209)       254        66,425
                                             -----------------------------------

Net (decrease) increase in cash and cash
 equivalents                                    (431)    (33,549)      27,391

Cash and cash equivalents, beginning of year  12,007      45,556       18,165     
                                             -----------------------------------

Cash and cash equivalents, end of year      $ 11,576   $  12,007     $ 45,556
                                              ==================================

Supplemental disclosure of cash flow 
 information:
   Interest paid                            $  4,114    $  4,140   $         1
</TABLE>                                     ==================================

The accompanying notes are an integral part of the financial statements.

 










<PAGE>

Notes to Financial Statements

1: Nature of Business

     UroMed  Corporation  (the  "Company"),  a  Massachusetts  corporation,  was
incorporated in October 1990 and is dedicated to establishing itself as a leader
in providing interventional  urological products, with a primary emphasis on the
treatment  of  prostate  cancer.  The Company has also  developed  and  acquired
technology in urinary incontinence products and in breast cancer detection.


2: Summary of Significant Accounting Policies

Basis of Presentation

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from these estimates.

     Operations  of the Company are subject to certain  risks and  uncertainties
including,  but not  limited  to,  uncertainties  related  to  clinical  trials,
regulatory   approvals,   technological   uncertainty,   uncertainty  of  future
profitability and access to capital,  dependence on collaborative  relationships
and key personnel.

Cash Equivalents and Short-Term Investments

     The Company  accounts  for  investments  in  accordance  with  Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity  Securities" ("SFAS 115"). At December 31, 1998 and 1997, all of
the Company's investments are classified as available-for-sale  and are reported
in the  balance  sheet  at fair  value.  Any  unrealized  gains  and  losses  on
available-for-sale  securities are reported as accumulated  other  comprehensive
income in stockholders' equity. Upon the sale of securities,  realized gains and
losses are reported in the statement of operations.

     The  Company  invests  its excess  cash  primarily  in  securities  of U.S.
government  agencies,  high grade  corporate debt  obligations  and money market
funds that are subject to minimal credit and market risks. The Company considers
investments  with  original  maturities  of  three  months  or  less  to be cash
equivalents.  All other  investments  are  classified as short-term  investments
because they are highly liquid and are available to meet working capital needs.

Revenue Recognition

     Revenue  from  product  sales is recorded  upon  shipment of product to the
customer. The Company accrues anticipated product warranty costs at that time.

Major Customers

     During each of the three years  ended  December  31,  1998,  a  substantial
portion of the Company's revenue has been derived from its distributors. Revenue
from the Company's  distributor  for Japan  amounted to 29% of total revenue for
the year ended  December 31, 1998.  Revenue from the Company's  distributor  for
Scandinavia,  the United Kingdom and The Netherlands amounted to 75% and 63% for
the years ended  December  31,  1997 and 1996,  respectivley.  Revenue  from the
Company's  distributor for Germany amounted to 34% of total revenue for the year
ended December 31, 1996.

     Of total revenue reported, 0%, 75% and 43% for the years ended December 31,
1998,  1997 and 1996,  respectively,  resulted from the  recognition  of revenue
(initially  deferred)  related to  payments  received  by the  Company  upon the
signing of distribution agreements.

Inventories

     Inventories  are  stated  at the  lower  of  cost  or  market,  cost  being
determined using the first-in,  first-out method. Cost includes material,  labor
and manufacturing overhead.

Fixed Assets

     Fixed assets are recorded at cost and depreciated over the estimated useful
lives of the assets using the straight-line method.  Leasehold  improvements are
depreciated using the straight-line method, over their estimated useful lives or
the term of the lease,  if shorter.  Additions,  renewals  and  betterments  are
capitalized. Repair and maintenance costs are expensed as incurred.

Financing Costs

     Deferred  financing  costs,  which are included in other assets,  are being
amortized over the seven-year life of the Company's 6% Convertible  Subordinated
Notes due October 15,  2003  ("Notes")  using the  straight-line  method,  which
approximates  the interest  method.  Unamortized  costs at December 31, 1998 and
1997 are $680,000 and $2,288,000,  respectively.  During the year ended December
31, 1998,  approximately $1,234,000 of deferred financing costs were written-off
in connection with the the early retirement of debt (see Note 9).

Accounting for the Impairment of Long-Lived Assets

     The Company periodically evaluates its long-lived assets whenever events or
changes in  circumstances  indicate that the carrying amount of an asset may not
be recoverable.  At the occurrence of such an event or change in  circumstances,
the  Company  evaluates a potential  impairment  of an asset based on  estimated
future undiscounted cash flows. In the event that future undiscounted cash flows
are  less  than  the  carrying  amount  of such  asset,  an  impairment  loss is
recognized  for the  difference  between  estimated  fair value and the carrying
amount of the asset.  During the year  ended  December  31,  1997,  the  Company
recorded an impairment as described in Note 5.

Net Income (Loss) Per Share

     Net  income  (loss)  per  share  has been  calculated  in  accordance  with
Statement of Financial  Accounting Standards No. 128, "Earnings Per Share"("SFAS
128"),  which  requires  the  presentation  of  "basic"  earnings  per share and
"diluted"  earnings per share.  Basic earnings per share is computed by dividing
net income (loss) by the weighted  average shares of  outstanding  common stock.
For purposes of computing  diluted earnings per share, the denominator  includes
both the  weighted  average  shares of  outstanding  common  stock and  dilutive
potential common stock shares.

     For each of the periods presented,  basic and diluted net income (loss) per
share are the same due to the  antidilutive  effect of  potential  common  stock
shares.  Antidilutive  potential  common stock excluded from the 1998,  1997 and
1996  computation   included   371,438,   344,508  and  309,372  common  shares,
respectively,  issuable upon the exercise of  outstanding  common stock options,
and 372,775, 1,039,078 and 1,039,078 common shares ,respectively,  issuable upon
the conversion of the Company's Notes.

Accounting for Stock-Based Compensation

     The Company  accounts for  stock-based  awards to its  employees  using the
intrinsic  value based  method as  prescribed  by  Accounting  Principles  Board
Opinion  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
interpretations  ("APB 25") and follows the provisions of Statement of Financial
Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS
123") for disclosure purposes (see Note 13).

Reclassifications

     Certain prior year amounts have been reclassified to conform to the current
year financial statement  presentation.  The  reclassifications had no impact on
net loss for those years.
 



3 : Investments

Following is a summary of available-for-sale investments, by balance sheet
classification:
<TABLE>
<CAPTION>

                                   Amortized     Unrealized
                                     cost      Gains (Losses)   Fair value
- -----------------------------------------------------------------------------
(in thousands)

<S>                                 <C>          <C>               <C>
December 31, 1998:
Cash equivalents:
  U.S. Government obligations       $  2,571       $  --          $  2,571
  Corporate debt obligations           1.004          --             1,004
  Money market funds                   7,719          --             7,719
                                    -------------------------------------------
                                    $ 11,294       $  --          $ 11,294
                                    ===========================================
Short-term investments:
  U.S. Government obligations       $    751        $ --           $    751
  Corporate debt obligations          13,953          --             13,953
                                    -------------------------------------------
                                    $ 14,704        $ --           $ 14,704
                                    ============== ============================
December 31, 1997:
Cash equivalents:
  U.S. Government obligations        $ 1,495        $ --           $  1,495
  Corporate debt Obligations           4,961          --              4,961
  Money market funds                   4,004          --              4,004
                                    -------------------------------------------
                                    $ 10,460       $  --           $ 10,460
                                    ===========================================
Short-term investments:
  U.S. Government obligations       $  3,991       $  6           $   3,997
  Corporate debt obligations          48,961         60              49,021
                                    -------------------------------------------
                                    $ 52,952       $ 66            $ 53,018
                                    ===========================================
</TABLE>

     At December  31,  1998,  the fair value of  short-term  investments  having
contractual  maturities  of one year or less  totaled  $13,617,000  and the fair
value of short-term  investments  with contractual  maturities  greater than one
year but less than four years  totaled  $1,087,000.  The proceeds  from sales of
securities amounted to approximately $16,255,000,  $21,098,000,  and $15,853,000
for the years  ended  December  31,  1998,  1997 and 1996,  respectively.  Gross
realized gains and losses on these sales were not significant.







4: Inventories

Inventories consist of the following:
<TABLE>
<CAPTION>

December 31,                      1998    1997
- ----------------------------------------------
(in thousands)
<S>                              <C>      <C>
Raw materials                    $ 85     $ 23
Work in process                    22        9
Finished goods                    315      255
- ----------------------------------------------
                                 $422     $287
==============================================
</TABLE>







5 : Fixed Assets

Fixed assets consist of the following:
<TABLE>
<CAPTION>

                                Useful Life      December 31,
                                   in Years    1998       1997
- ---------------------------------------------------------------
(in thousands)
<S>                             <C>           <C>        <C>
Machinery and equipment               3-4     $1,430     $1,617
Computer and office equipment         3-4      1,360      3,105
Leasehold improvements                  7        --         924
Machinery and equipment not
 yet placed in service                 --      3,852      3,789
                                             ------------------
                                               6,642      9,435
Less - Accumulated depreciation
 and amortization                              2,228      3,078
                                             ------------------
                                              $4,414     $6,357
                                             ==================
</TABLE>

     During 1997, the Company recorded an impairment loss of $1,455,000  related
to automated manufacturing equipment that was used or was intended to be used in
production  of the  Reliance  Insert.  The loss of  $1,455,000  represented  the
carrying value of the equipment at the time the loss was recorded.  The loss has
been included in depreciation and  amortization  expense within the research and
development  ($900,000) and cost of sales ($555,000) components of the Statement
of Operations.

     Depreciation  expense for the year ended December  1998,  1997 and 1996 was
$1,746,000, $3,129,000 and $727,000,respectively.





6 : Investment in Medworks Corporation

     In August 1997, the Company  invested  $1,000,000 in the preferred stock of
Medworks Corporation of Louisville, KY as part of a license and supply agreement
between the Company and  Medworks  Corporation,  enabling the Company to market,
sell and  distribute  Medworks'  surgical  technology to correct  female urinary
stress incontinence. This investment was accounted for under the cost method and
was included in other assets in the balance sheet at December 31, 1997.

     In December 1998, the license and supply agreement  between the Company and
Medworks  was  terminated.  In  connection  with the  termination,  the  Company
evaluated the $1,000,000 carrying value of its Medworks investment and concluded
that an "other  than  temporary"  decrease  in the value of its  investment  had
occurred.   Accordingly,  the  Company  wrote-off  the  carrying  value  of  the
investment  during  the  fourth  quarter of the year  ended  December  31,  1998
(included in general and administrative expenses).

     During  1998 and 1997,  as part of the license  and supply  agreement,  the
Company  purchased  $155,000  and  $311,000  of  inventory,  respectively,  from
Medworks Corporation.


7 . Accrued Expenses

Accrued expenses consist of the following:
<TABLE>
<CAPTION>

December 31,                        1998         1997
- -----------------------------------------------------
(in thousands)
<S>                               <C>          <C>
Clinical trials                   $  308       $  565
Professional fees                    414          944
Interest                             309          863
Employee-related                     665        1,088
Restructuring                        359           --
Other                                971        1,151
                                ---------------------
                                  $3,026       $4,611
                                =====================
</TABLE>




8 : Restructuring

     During the year ended  December  31,  1998,  the  Company  recorded a total
charge of $1,704,000  representing the cost of  restructuring  its operations to
shift its strategic  emphasis to the  hospital-based  business and away from the
consumer-  oriented  continence  care business,  which the Company has concluded
will be best approached by entering into a partnership or other arrangement with
a larger  company.  During  the first  quarter  of 1998,  a plan to effect  this
restructuring  was  adopted by the Board of  Directors  and,  at that time,  the
Company recorded a restructuring charge of $1,024,000.  This charge consisted of
approximately  $579,000  of  employee  termination  benefits  and  approximately
$445,000 of costs to exit two of the Company's leased  facilities.  The employee
termination  benefits  related to the termination of approximately 40 employees,
all of which have been terminated as of December 31, 1998, across all functional
areas  of the  Company.  The  facility  exit  costs  include  the  write-off  of
approximately   $138,000  of   leasehold   improvements,   with  the   remainder
representing   certain   contractual   lease  payments  related  to  the  leased
facilities.

     During the fourth quarter of 1998, the Company made certain  changes to its
restructuring  plan and,  as a result,  an  additional  charge of  $680,000  was
recorded   at  that  time,   representing   additional   facility   exit  costs.
Specifically,  the  Company  decided  not to abandon  one of the  aforementioned
facilities  slated for closure and, at that same time,  committed to  abandoning
one of the facilities that it had previously expected to keep open. The facility
exit  costs  include  the  write-off  of  approximately  $500,000  of  leasehold
improvements, with the remainder representing certain contractual lease payments
related to the abandonment of the leased facility.

     During the year ended December 31, 1998, the activity in the  restructuring
liability was as follows (in thousands):

                            Total 1998                              Balance at
                           Restructuring      Cash      Non-Cash    December 31,
                              Charge        Payments     Items         1998
                         --------------   ----------  ----------  ------------

Employee termination
Benefits                   $     579       $    524    $      --      $    55

Asset write-downs                638            --           638           --

Other facility exit costs        487            183           --          304
                          -------------   ----------  ----------  ------------
                           $   1,704       $    707    $     638      $   359
                          =============   ==========  ==========  ============


     The  remaining  balance of $359,000 at December  31, 1998 is expected to be
paid out during the year ended December 31, 1999.


9 : Convertible Subordinated Notes
 
     In October  1996,  the Company  completed  the sale of  $69,000,000  of its
Notes.  The Notes are convertible at any time into shares of common stock of the
Company at a conversion  price of $66.41 per share,  subject to adjustment under
certain  circumstances.  Interest  on the  Notes is  payable  each  April 15 and
October 15 unless previously converted or repurchased.  The Notes are redeemable
at the  option  of the  Company  on or after  October  15,  1999,  at  specified
redemption prices, ranging from 100.857% to 103.429% of the face amount per Note
plus  accrued  and  unpaid  interest  to the date of  redemption.  The Notes are
unsecured  obligations of the Company and are  subordinated  to all other Senior
Debt (as defined) of the Company.

     During 1998, the Company repurchased approximately $44,244,000 in aggregate
principal amount of its Notes. Of the total repurchases,  $34,924,000 represents
Notes  repurchased  as part of the  Company's  announced  tender offer which was
completed on October 22, 1998.  The remaining  $9,320,000  of Notes  repurchased
occurred in  unsolicited  open  market  transactions  with  persons who were not
affiliates  of  the  Company.  The  total  cost  of  the  Note  repurchases  was
$19,321,000,  including accrued and unpaid interest and transaction fees related
to the tender offer. As a result of these repurchases,  an extraordinary gain of
$23,273,000  was  recorded in the  Statement  of  Operations  for the year ended
December 31,  1998.  During March 1999,  the Company  repurchased  approximately
$1,400,000  in  aggregate  principal  amount  of  its  Notes  for  approximately
$600,000.


10 : Acquisition of Technology

     In May 1996, the Company acquired all of the incontinence technology of the
ASI Liquidating  Trust, the successor to Advanced Surgical  Intervention,  Inc.,
including the Miniguard(TM)  Patch, an FDA-cleared  prescription  adhesive patch
placed  externally  against the urethral  opening to help block leakage in women
with  mild-to-moderate  stress urinary  incontinence.  The Company purchased the
Miniguard Patch technology for $30,000,000, consisting of $7,000,000 in cash and
common  stock  valued  at  $23,000,000.  The  acquisition  of this  incontinence
technology was accounted for as purchased  in-process  research and  development
and, as a result,  the purchase  price and related  expenses of $2,000,000  were
charged to operations in 1996. In 1997, the name Miniguard  Patch was changed to
Impress Softpatch.(TM)

     As discussed in Note 8, during 1998 the Company restructured its operations
and in connection  therewith concluded that the best vehicle for capitalizing on
the Impress Softpatch product opportunity was a partnership with, and/or sale of
the technology to, a large company that has an extensive  distribution  channel.
The Company is currently in pursuit of such  arrangement  and does not intend to
incur product launch costs until such time that an  arrangement is in place.  At
December 31, 1998 there is appoximately  $3,900,000 of  manufacturing  equipment
included  within  fixed  assets  (see Note 5) that is  specific  to the  Impress
Softpatch manufacturing process. At this time, the Company expects to enter into
an  arrangement  during 1999 that would allow it to fully  recover its  carrying
value of the Impress manufacturing equipment.


11: Stockholders' Equity

Preferred Stock

     The  Company  has  authorized  500,000  shares of $.01 par value  preferred
stock, none of which have been issued at December 31, 1998.  Preferred stock may
be issued at the  discretion  of the Board of Directors of the Company with such
designations,  rights and  preferences  as the Board of Directors may determine.
Upon   issuance,   the  preferred   stock  may  include,   among  other  things,
extraordinary dividend, redemption, conversion, voting or other rights which may
adversely affect the holders of the common stock.

Common Stock

     At December 31, 1998,  the Company has  reserved  399,608  shares of common
stock for issuance  pursuant to exercise of common stock  options  granted under
the Stock Option  Plan,  45,417  shares of common  stock for issuance  under the
Employee Stock Purchase Plan, and 372,775 shares for issuance upon conversion of
the Notes.

Common Stock Split

     On May 18, 1998 the Company  effected a  one-for-five  reverse  stock split
(the  "Reverse  Stock  Split").  All common  stock,  stock options and per share
amounts  included  in these  financial  statements  have been  adjusted  to give
retroactive effect to the Reverse Stock Split for all years presented.

Treasury Stock

     The Board of Directors of the Company  authorized a Common Stock repurchase
program on June 17,  1998 (the  "Repurchase  Program")  whereby  the  Company is
authorized to  repurchase  up to one million  common  shares,  which  represents
approximately 19% of the total shares outstanding, from time to time, subject to
prevailing  market  conditions.   As  of  December  31,  1998  the  Company  has
repurchased  187,000  shares of its  common  stock for  $511,000  as part of the
Repurchase Program.

Shareholder Rights Plan

     In June 1997, the Company's Board of Directors adopted a Shareholder Rights
Plan. This Plan provides shareholders with special purchase rights under certain
circumstances,  including if any new person or group acquires 15 percent or more
of the Company's outstanding common stock.


12 : Employee Benefit Plans

Stock Option Plan

     On June 7,  1991,  the  Company  adopted  the 1991 Stock  Option  Plan (the
"Plan")  which  provides for the granting of either  incentive  stock options or
non-statutory stock options to employees, officers, directors and consultants of
the Company.  The Plan,  as amended,  allows for a maximum of 640,000  shares of
common stock to be issued.

     The exercise price of any incentive stock option shall not be less than the
fair value of the stock on the date of grant or less than 110% of the fair value
in the case of  optionees  holding  more than 10% of the total  combined  voting
power of all  classes  of  stock  of the  Company.  Options  under  the plan are
exercisable over periods determined by the Board of Directors, not to exceed ten
years from the date of grant,  except for  incentive  stock  options  granted to
optionees  holding  more  than 10% of the  total  combined  voting  power of all
classes of stock, which must be within five years.

     Under the Plan,  non-employee directors of the Company will receive options
to purchase  4,000  shares of common  stock upon their  election to the Board of
Directors  and,  after  having  served on the Board of  Directors  for one year,
options to purchase  150 shares of common  stock on a quarterly  basis,  up to a
maximum of 24 grants. All of these option grants are exercisable over a ten-year
period and must have an exercise  price  equal to the fair  market  value of the
shares on the grant date.

Option activity for the years ended December 31, 1998, 1997 and 1996 is
summarized as follows:

<TABLE>
<CAPTION>
 Years Ended December 31,    
                        1998                  1997                   1996
------------------------------------------------------------------------------- 
                      Weighted               Weighted              Weighted
                       average                average               average
                       exercise               exercise              exercise
                  Shares      price     Shares       price     Shares     price
-------------------------------------------------------------------------------

<S>               <C>          <C>      <C>          <C>       <C>          <C>
Outstanding at 
 beginning of 
 period          344,507    $ 21.65    309,371    $ 26.55     253,705     $15.55
   Granted       491,900    $  6.16    184,302    $ 20.70       92,395    $51.25
   Cancelled    (439,499)   $ 19.94   (108,401)   $ 41.10      (12,091)   $32.55
   Exercised     (25,750)   $  1.82   ( 40,765)   $  2.55     ( 24,637)   $ 3.60
                ---------             ---------              ---------
Outstanding at 
 end of period   371,158     $ 5.31    344,507    $ 21.65      309,372    $26.55
                =========             =========              ==========
Options 
 exercisable 
 at end of
 period          103,593     $ 9.82    125,174    $ 14.05      119,686    $ 6.95
                =========             =========              ==========
Weighted average 
 fair value of 
 options granted
 during the period           $ 2.97                $10.05                 $33.65
                          =========              =========             =========
</TABLE>


     At December 31,  1998,  options to purchase  28,450  shares of common stock
were available for future grants under the Plan.

     In  September  1997,  March 30, 1998 and  December  15,  1998,  the Company
repriced 31,860,  167,000 and 106,300 , respectively,  outstanding  common stock
options to reflect  the  current  market  value per share of common  stock.  The
cancellation  and  issuance  of  replacement  options is  recorded in the option
activity above.
 
























     The following table summarizes  information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>

                                             Options outstanding
- ------------------------------------------------------------------------------
                                                   Weighted
                                                   average           Weighted
                                 Number           remaining           average
Range of exercise prices    outstanding       contractual life    exercise price
- ------------------------------------------------------------------------------
<S>                         <C>              <C>                  <C>
$ .01 to $1.06                   24,020                   4.3            $ 0.44
$1.37 to $1.51                  225,567                   9.1            $ 1.42
$1.94 to $11.00                  97,771                   7.7            $ 9.74
$13.44 to $66.88                 23,800                   6.9            $29.12
                              ---------

Total                           371,158
                              =========
</TABLE>

<TABLE>
<CAPTION>

                                             Options exercisable
- ------------------------------------------------------------------------------
                                                                      Weighted
                                                    Number            average
Range of exercise prices                       exercisable        exercise price
- ------------------------------------------------------------------------------
<S>                                            <C>                <C>
$ .01 to $ 1.06                                     24,020                $ 0.44
$1.37 to $ 1.51                                     18,444                $ 1.42
$1.94 to $11.00                                     42,529                $ 9.10
$13.44 to $66.88                                    18,600                $31.90
                                                   -------

Total                                              103,593
                                                   =======
</TABLE>

Fair Value Disclosures

     As discussed in Note 2, the Company follows APB 25 in accounting for awards
under its stock option plans.  Had  compensation  cost for the Company's  option
plans been determined  based on the fair value at the grant dates, as prescribed
by SFAS 123,  the  Company's  net loss and net loss per share would have been as
follows:

<TABLE>
<CAPTION>

Year Ended December 31,             1998        1997        1996
- ------------------------------------------------------------------------------
(in thousands, except per share data)
<S>                               <C>         <C>         <C>
Net income (loss):
 As reported                      $4,279   $(34,633)   $(47,660)
 Pro forma                        $3,554   $(35,477)   $(48,620)

Basic and diluted net income
 (loss) per share:
 As reported                      $ 0.81    $ (6.51)   $ (9.35)
 Pro forma                        $ 0.67    $ (6.65)   $ (9.50)
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes  model with the following  assumptions used for grants for all
periods:  dividend yield of 0.0%;  risk-free interest rates ranging from 5.5% to
6.8%;  expected  option terms of 0.3 years to 5.8 years in 1996 and 1997,  and 2
years to 6 years in 1998;  and a volatility  of .60 for options  granted in 1996
and 1997 and .66 for options granted in 1998.

 

<PAGE>

 
Employee Stock Purchase Plan

     On May 19, 1995,  the Company  approved the 1995  Employee  Stock  Purchase
Plan. This plan provides for the purchase by employees of up to 60,000 shares of
common  stock at 85% of the fair  market  value on the  first or last day of the
offering  period (as defined in the plan),  whichever is lower.  During the year
ended December 31, 1998,  10,491 shares were issued under the plan at a range of
$1.22 to $4.73 per share. During the year ended December 31, 1997, 10,776 shares
were issued under the plan at a range of $14.90 to $15.00 per share.  During the
year ended December 31, 1996, 2,548 shares were issued under the plan at a range
of $41.45 to $59.25 per share.

 
13 : Income taxes

The components of deferred income tax (expense) benefit are as follows:

<TABLE>
<CAPTION>

Year Ended December 31,                      1998           1997           1996
- ------------------------------------------------------------------------------
(in thousands)
<S>                                      <C>            <C>            <C>
Income tax (expense) benefit:
 Federal                                 $   (980)       $ 11,315      $ 15,497
 State                                       (137)          3,678         4,796
                                         ---------------------------------------
                                           (1,117)         14,993        20,293
Change in deferred tax
 asset valuation allowance                  1,117         (14,993)      (20,293)
                                         ---------------------------------------
                                         $     --       $     --       $    --
                                         =======================================
</TABLE>
     No federal or state taxes were  payable in any year  through  December  31,
1998 as a result of losses  incurred and the  utilization  of net operating loss
carryforwards.

Deferred tax assets consist of the following:

<TABLE>
<CAPTION>

Year Ended December 31,                                    1998            1997
- ------------------------------------------------------------------------------
(in thousands)
<S>                                                    <C>             <C>
Deferred tax assets:
 Purchased research and development                    $ 10,432        $ 11,277
 Deferred research and development
  expenses                                                3,401           3,921
 Accrued expenses                                           943             674
 Depreciation                                             1,316           1,149
 Operating reserves                                         540             476
 Deferred revenue                                            96              --
 Tax credit carryforwards                                 2,683           2,262
 Net operating loss carryforwards                        24,998          25,863
 Other                                                      440             344
                                                       -------------------------
Gross deferred tax assets                                44,849          45,966
Deferred tax asset
 valuation allowance                                    (44,849)        (45,966)
                                                       -------------------------
                                                       $     --        $     --
                                                       =========================
</TABLE>






     A  reconciliation  between  the amounts of  reported  income tax  (expense)
benefit and the amount determined by applying the U.S. federal statutory rate of
35% to net (income) loss follows:

<TABLE>
<CAPTION>

Year Ended December 31,                      1998           1997           1996
- ------------------------------------------------------------------------------
(in thousands)
<S>                                      <C>            <C>            <C>
Net (income) loss at statutory rate        $ (1,498)       $ 11,892     $ 16,681

 State tax (expense) benefit, net of
  federal tax effect                           (264)          2,098        2,988

 Federal and state research
  and development credits                       314             710          292

 Non-qualified stock
  options and warrants                           --             183           82

Other                                           331             110          250
                                         ---------------------------------------
                                             (1,117)         14,993       20,293
Benefit of loss not
 recognized, decrease (increase) in
  valuation allowance                         1,117         (14,993)     (20,293)
                                         ---------------------------------------
                                         $      --       $     --     $     --
                                         =======================================
</TABLE>

 

<PAGE>

     The Company has provided a valuation  allowance  for the full amount of the
deferred tax assets since there is no assurance that future tax benefits will be
realized. As the Company achieves profitability, these deferred tax assets would
be  available  to offset  future  income tax  liabilities  and  expense.  Of the
$44,849,000  valuation  allowance at December 31, 1998,  $1,000,000  relating to
deductions  for  non-qualified  stock  options  will be credited  to  additional
paid-in capital upon realization.

     At December 31, 1998, the Company had net operating loss  carryforwards for
federal and state income tax reporting purposes of approximately $61,000,000. At
December  31,  1998,  the  Company  had  research  and  development  tax  credit
carryforwards for federal and state income tax reporting  purposes of $1,626,000
and $1,057,000, respectively. The federal carryforwards expire between the years
2006 and 2018 and the state  carryforwards  expire  between  the years  1999 and
2003.

     Ownership  changes,  as defined in the Internal  Revenue Code (the "Code"),
have limited the amount of net operating loss and tax credit  carryforwards that
can be used annually to offset future  taxable  income or tax  liabilities.  The
annual limitation amount as defined in the Code is approximately  $8,600,000 and
the net operating loss and tax credit  carryforwards  subject to this limitation
are  approximately  $20,900,000  and $802,000,  respectively.  Future changes in
ownership could further affect the limitation in future years.


14.   Segment Reporting

     In 1998, the Company adopted SFAS No. 131,  "Disclosures  about Segments of
an  Enterprise  and  Related  Information,"  which  changes  the way the Company
reports information about its operating segments. The Company has determined its
reportable   segments  based  on  its  method  of  internal   reporting,   which
disaggregates  its  business  by  product  category.  The  Company's  reportable
segments are (i) its prostate cancer and incontinence  business,  which includes
the Cavermap  surgical  aid,  the I-125  brachytherapy  seeds and  needles,  all
consumer  and  surgical  incontinence  products,  and  (ii)  its  breast  cancer
business,  which includes all development  efforts for its proposed  BreastExam,
BreastView and BreastCheck products.

     The accounting  policies of the segments are the same as those described in
Note 2, "Summary of Significant  Accounting Policies." The Company evaluates the
performance of its operating  segments based on operating loss which  represents
income  before  interest  income and  expense  and  extraordinary  gain on early
retirement of debt. There are no intersegment revenues.

     The table below presents  information about the Company's  segments for the
three years ended December 31, 1998. Asset information  reportable by segment is
not reported, since the Company does not produce such information internally:

                                 Prostate cancer
                                       and             Breast
                                    Incontinence       Cancer         Totals
                                ----------------      --------      --------
Year ended December 31, 1998

Revenues                              $    837         $    -         $   837
Restructuring                           (1,704)             -          (1,704)
Depreciation                            (1,692)            (54)        (1,746)
Operating Loss                         (11,156)         (2,725)       (13,881)

Year ended December 31, 1997

Revenues                                   503              -             503
Depreciation                            (3,102)           (27)         (3,129)
Operating Loss                         (26,723)        (3,405)        (30,128)

Year ended December 31, 1996
 
Revenues                                 2,622              -            2,622
Depreciation                              (715)            (12)           (727)
Operating Loss                         (46,005)           (932)        (46,937)



     The following are  reconciliations  of the operating loss amounts presented
above to corresponding totals in the accompanying financial statements:

Years ended December 31,                      1998          1997        1996
-------------------------------------------------------------------------------
         Total for reportable segments      $( 13,881)    $(30,128)    $(46,937)
         Corporate                             (4,039)      (4,530)      (3,240)
         Interest income                        2,837        4,558        3,462
         Interest Expense                      (3,911)      (4,533)       ( 945)
                                            ----------     --------    --------
            Loss before extraordinary
              gain on the early retirement
              of debt                        $(18,994)     $(34,633)   $(47,660)
                                             =========   ==========  ==========



















15  Commitments

Leases

     The Company  leases  space under  operating  leases which expire on various
dates through  2003.  Total rent expense  under  operating  leases was $645,000,
$532,000  and $390,000  for the years ended  December  31, 1998,  1997 and 1996,
respectively.  Future minimum  payments for the operating  leases as of December
31, 1998 are as follows:
<TABLE>
<CAPTION>

                                Operating
                                   Leases
-------------------------------------------
(in thousands)
<S>                             <C>
1999                               $  623
2000                                  626
2001                                  632
2002                                  212
2003                                   59
                                   ------
Total future minimum lease
 payments                          $2,152
                                   ======
</TABLE>






















<PAGE>

                        UroMed Corporation
SCHEDULE II  Valuation and Qualifying Accounts and Reserves

<TABLE>
<CAPTION>

                  Balance at   Charged to              Balance at
                  beginning     costs and                end of
Description        of period     expenses   Write-offs   period

<S>               <C>          <C>          <C>        <C>

Allowance for
  uncollectible
  accounts
Year ended
  December 31,
  1998              $   --       $ 3,000        --        $ 3,000
Year ended
  December 31,
  1997              $  36,000    $    --     ($ 36,000)     $  --
Year ended
  December 31,
  1996              $  21,000    $15,000        --        $ 36,000       -
Reserve for
  inventory
  valuation
Year ended
  December 31,
  1998              $1,564,000   $329,000  ($1,580,000)   $ 313,000
Year ended
  December 31,
  1997              $919,000     $740,000   ($95,000)    $1,564,000
Year ended
  December 31,
  1996               $530,000     $466,000   ($77,000)   $919,000

</TABLE>




























 




<PAGE>

Item 9.  Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure

None.




PART III

Item 10.  Directors and Executive
Officers of the Registrant

Executive Officers of the Registrant

The names of the Company's executive officers as of December 31, 1998 and
certain information about them are set forth below:

<TABLE>
<CAPTION>

Name                      Age                    Position
<S>                       <C>      <C>

Richard M. Epstein        42       Managing Director of New Product Research,
                                   Development and Acquisitions
John G. Simon             36       Chairman of the Board of Directors,
                                   President, and Chief Executive Officer
Alan I. West              51       Managing Director, Assurance Medical Division
Domenic C. Micale         34       Director of Finance

</TABLE>

RICHARD M. EPSTEIN joined the Company as Managing Director of Male Healthcare
Programs in October 1996. In February, 1998 he became the Managing Director of
New Product Research, Development and Acquisition. Prior to joining the Company,
he served as Vice President Sales, Marketing and Business Development for
Nextran, an affiliate of Baxter Healthcare. Mr. Epstein helped create Nextran
during his ten years with Baxter Healthcare where he also held positions as
Director of the Transplant Business and Director of Advanced Product and New
Business Development. Mr. Epstein holds a B.S. from the University of Illinois,
an M.S. from Stanford University and an M.B.A. from the University of Chicago.

JOHN G. SIMON is the founder of UroMed and has served as President, Chief
Executive Officer and Chairman of the Board of Directors of the Company since
inception in 1990. Prior to founding the Company, Mr. Simon served as an
associate at Highland Capital Partners, L.P., a venture capital firm, from 1988
to 1990, and as a research associate at Charles River Ventures, a venture
capital firm, from 1985 to 1987. He was also the Vice President of Marketing and
Sales for Adaptive Networks Inc. from 1987 to 1988. Mr. Simon holds a B.A. from
Harvard University and received a second B.A. from Oxford University while on a
Rhodes Scholarship.

ALAN I. WEST joined the Company in February 1996 as Managing Director of Female
Healthcare Programs, bringing with him twenty years of medical product
development experience. In February, 1998 he became Managing Director, Assurance
Medical Division. Most recently, he was Business Manager of Vision Sciences, an
endoscopy company. Previously, he joined Boston Scientific Corporation's
Microvasive division, and he left there in 1990 as Vice President of Research
and Development. From 1976 to 1981, he worked in research and development at the
Codman division of Johnson & Johnson and as Marketing Manager of a small company
involved in biomechanics, sports medicine and sensors. Mr. West holds a B.S.
from Brown University and an M.S. from Tufts University.

DOMENIC C. MICALE joined the Company in September 1996 as Corporate Accounting
Manager.  In July 1998, he became Director of Finance.  Prior to joining the
Company, he served in Assistant Corporate Controller positions at both
Sequoia Systems, Inc. and TransNational Group Services from 1992 to 1996.  
Prior to then from 1987 to 1991, he served as, most recently, audit supervisor
at Coopers & Lybrand in Boston.  Mr. Micale holds a B.S.B.A. from Northeastern
University and an M.B.A. with a finance concentration from Boston University.

     Information  relating to the  Directors of the Company will be set forth in
the sections  entitled  "Election of  Directors",  "Background of Directors" and
"Director  Compensation"  on pages 5 and 6 of the 1999  Proxy  Statement,  which
sections  are  incorporated  herein  by  reference.   Information   relating  to
compliance with Section 16(a) of the Securities Exchange Act of 1934 will be set
forth in the section  entitled  "Reports of  Beneficial  Ownership"  in the 1999
Proxy Statement, which section is incorporated herein by reference.

 
Item 11.  Executive Compensation

     Information  relating to  executive  compensation  will be set forth in the
section entitled  "Executive  Compensation"  in the 1999 Proxy Statement,  which
section is incorporated herein by reference.











Item 12.  Security Ownership of Certain
Beneficial Owners and Management

     Information  relating to ownership of  securities of the Company by certain
beneficial  owners  and  management  will be set forth in the  section  entitled
"Stock Ownership of Principal Stockholders and Management" on page 4 of the 1999
Proxy Statement, which section is incorporated herein by reference.


Item 13.  Certain Relationships and
Related Transactions

None.


 
































<PAGE>

PART IV

Item 14.  Exhibits and Financial
Statement Schedules

(a)(1) Index to Financial Statments

       The financial statements filed as part of this Annual Report on Form 10-K
       are listed above under Part II, Item 8.

(a)(2) Index to Financial Statement Schedules

       The financial statement schedule filed as part of this Annual Report on
       Form 10-K is listed above under Part II, Item 8.

(a)(3) Index to exhibits. The following documents are filed as exhibits to this
       Annual Report on Form 10-K.

<TABLE>
<CAPTION>

Exhibit
No.                       Description

<S>           <C>

  3.2         Amended and Restated By-Laws of the Registrant
              *(a) (filed as Exhibit No.  3.2)

  3.3         Restated Articles of Organization of the Registrant
              *(b) (filed as Exhibit No.  3.3)

  10.1        Amended and Restated Registration Rights Agreement dated as of
              September 15, 1993 among the Registrant and certain of its
              security holders
              *(a) (filed as Exhibit No. 10.1)

  10.2        Consulting Agreement dated as of November 3, 1993
              between the Registrant and Kenneth Thurston
              *(a) (filed as Exhibit No.  10.5)

  10.3        Amended and Restated 1991 Stock Option Plan of the
              Registrant
              *(c) (filed as Exhibit No.  4.3)

  10.4        UroMed Corporation 1995 Employee Stock Purchase Plan
              *(d) (filed as Exhibit No.  4.3)

  10.5        Forms of Nonstatutory Common Stock Option Agreements
              between the Registrant and its Directors
              *(a) (filed as Exhibit No.  10.7)

  10.6        Forms of Nonstatutory Common Stock Option Agreements
              between the Registrant and members of its Medical
              Advisory Board and its Scientific Advisory Board
              *(a) (filed as Exhibit No.  10.8)

  10.7        Forms of Incentive Stock Option Agreements between the
              Registrant and its Employees
              *(a) (filed as Exhibit No.  10.9)

</TABLE>

 













<TABLE>
<CAPTION>

Exhibit
No.                       Description

<S>           <C>


  10.8        Form of Consulting, Confidentiality and Non-Competition Agreement
              between the Registrant and members of its Medical Advisory Board
              and its Scientific Advisory Board
              *(a) (filed as Exhibit No. 10.10)

        
  10.9        Lease between the Company and Trustees of New England
              Industrial Center *(f) (filed as Exhibit No.  10.1)

  10.10       Employment Agreement between the Company and John G. Simon
              *(g) (filed as Exhibit No.  10.2)

 
  10.11       Asset Purchase Agreement, dated as of May 9, 1996, among the
              Registrant, Robert F. Rosenbluth and Donald B. Milder as Trustees,
              the ASI Liquidating Trust and the Indemnifying Beneficiaries named
              on Schedule A thereto.
              *(k) (filed as Exhibit 2.1)

  10.12       Registration Rights Agreement, dated as of May 9, 1996, among the
              Registrant and certain of its Securityholders.
              *(l) (filed as Exhibit 4.4)

  10.13       Indenture, dated as of October 15, 1996, by and between the
              Registrant, as issuer, and State Street Bank and Trust Company, as
              Trustee
              *(m) (filed as Exhibit 10.1)

  10.14       Purchase Agreement, dated as of October 8, 1996, by and between
              the Registrant and the Purchasers (as defined therein)
              *(m) (filed as Exhibit 10.2)

  10.15       Employment Agreement between the Registrant and Richard
              Epstein.
              *(n) (filed as Exhibit 10.24)

</TABLE>
 

<TABLE>
<CAPTION>

Exhibit
No.                       Description

<S>           <C>


 10.16        Employment Agreement between the Registrant and Alan
              West.
              *(n) (filed as Exhibit 10.25)

 10.17        Employment Agreement between the Registrant and Robert
              Lorette.
              *(n) (filed as Exhibit 10.26)

     
 10.18        Employment Agreement, dated as of March 17, 1997,
              between the Company and John G.  Simon
              *(n) (filed as Exhibit 10.28)

 10.19        Rights Agreement, dated as of July 2, 1997.
              *(o) (filed as Exhibit 10.29)

  21          Subsidiaries of Registrant
              *(a) (filed as Exhibit No.  21)

  23          Consent of PricewaterhouseCoopers LLP

  27          Financial Data Schedule

</TABLE>


All exhibit descriptions followed by an asterisk (*) were previously filed with
the Securities and Exchange Commission (the "SEC") as Exhibits to, and are
hereby incorporated by reference from, the document to which the letter in
parentheses following the asterisk corresponds, as set forth below. The Exhibit
number of the document in that previous filing is indicated in parentheses after
the incorporation by reference code:

(a) Registrant's Registration Statement on Form S-1, as amended, (Registration
No. 33-74282).

(b) Registrant's Annual Report on Form 10-K for its fiscal year ended December
31, 1994.

(c) Registrant's Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on October 18, 1995 (Registration No. 33-98262).

(d) Registrant's Registration Statement on Form S-8 filed with the Securities
and Exchange Commission on October 18, 1995 (Registration No. 33-98264).

(e) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 1994.

(f) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1994.

(g) Registrant's Registration Statement on Form S-3 (File No. 333-03843) filed
May 16, 1996.

(h) Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
September 30, 1996.

(i) Registrant's Annual Report on Form 10-K for its fiscal year ended
December 31, 1996.

(j) Registrant's Current Report on Form 8-K filed July 2, 1997.


 
<PAGE>

+ An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.15 was issued on July 19, 1994.

++ An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.16 was issued on December 13, 1994.

+++ An unexpired order granting confidential treatment to deleted portions of
Exhibit 10.17 was issued on June 6, 1995.

++++ An unexpired order granting confidential treatment to deleted portions of
Exhibits 10.18 and 10.19 was issued on January 26, 1996.






















































SIGNATURES

Pursuant to the requirements to Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.

                               UroMed Corporation
Date:  March 31, 1999


                               By:     s/ Domenic C. Micale
                                       Director of Finance

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below as of March 30, 1998 by the following
persons on behalf of the Registrant and in the capacities indicated.

/s/ John G. Simon              Chairman of the Board, Chief Executive
- -----------------              Officer and President (principal
                               executive officer)
 


/s/ Elizabeth B. Connell, MD   Director
- ----------------------------


/s/ David P. Fialkow           Director
- --------------------


/s/ Steven J. Gilbert          Director
- ---------------------


/s/ Richard A. Sandberg        Director
- -----------------------


/s/ Thomas F. Tierney          Director
- ---------------------