AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1998
REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

UROSURGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

DELAWARE 3845 04-3222411
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)

2660 CROSSPARK ROAD
CORALVILLE, IOWA 52241
(319) 626-8311
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

DAVID H. MAUPIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UROSURGE, INC.
2660 CROSSPARK ROAD
CORALVILLE, IOWA 52241
(319) 626-8311
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------

COPIES TO:

CHRISTOPHER D. MITCHELL, ESQ. ALISON S. RESSLER, ESQ.
WILSON SONSINI GOODRICH & ROSATI SULLIVAN & CROMWELL
PROFESSIONAL CORPORATION 444 S. FLOWER STREET, SUITE 1200
650 PAGE MILL ROAD LOS ANGELES, CALIFORNIA 90071
PALO ALTO, CALIFORNIA 94304 (213) 955-8000
(650) 493-9300

------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

CALCULATION OF REGISTRATION FEE

========================================================================================================
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
Common Stock, par value $.01................................ $40,480,000 $11,942
========================================================================================================

(1) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(o) under the Securities Act of
1933, as amended.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(A),
MAY DETERMINE.
================================================================================
2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 9, 1998
PROSPECTUS
, 1998
SHARES

LOGO

UROSURGE, INC.

COMMON STOCK

All of the shares of Common Stock, par value $.01 (the
"Common Stock"), offered hereby are being issued and sold by UroSurge, Inc.
("UroSurge" or the "Company"). Prior to this offering, there has been no public
market for the Common Stock of the Company. It is currently estimated that the
initial public offering price will be between $ and $ per share. See
"Underwriting" for information relating to the factors to be considered in
determining the initial public offering price.

The Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market, under the symbol "URSG."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)

- --------------------------------------------------------------------------------------------------------------
Per Share................................ $ $ $
Total(3)................................. $ $ $
- --------------------------------------------------------------------------------------------------------------

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses of this offering estimated at $800,000, which will
be paid by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock at the Price to Public less
Underwriting Discounts and Commissions solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of share certificates will be made in New
York, New York, on or about , 1998.

DONALDSON, LUFKIN & JENRETTE CIBC OPPENHEIMER
SECURITIES CORPORATION
3

UroSurge(R), UroVive(TM), SANS(TM), SpiraStent(TM), FilaStent(TM),
AcuTrainer(R) and UroTherm(R) are trademarks of the Company. Trade names and
trademarks of other companies appearing in this Prospectus are the property of
their respective holders.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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PROSPECTUS SUMMARY

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements and
notes thereto appearing elsewhere in this Prospectus. Except as otherwise
indicated, all information in this Prospectus assumes (i) the filing of the
Company's Restated Certificate of Incorporation authorizing a class of
undesignated Preferred Stock, to be effective upon the completion of this
offering, (ii) the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the completion of this offering, (iii) a - for- reverse
stock split of the Company's Common Stock to be effected prior to the completion
of this offering and (iv) no exercise of the Underwriters' over-allotment
option. See "Description of Capital Stock" and "Underwriting."

THE COMPANY

UroSurge develops, manufactures and markets medical devices for the
treatment and management of genito-urinary disorders. The Company is developing
a broad range of proprietary products to address segments of the urology market
that are currently underserved as a result of ineffective or costly therapies.
The Company is initially focusing much of its efforts on addressing urinary
incontinence ("UI"), which afflicts approximately 13 million people in the U.S.
and accounts for approximately $15 billion in annual treatment costs. The UI
market presents a significant opportunity because approximately two-thirds of UI
sufferers are dissatisfied with current treatment alternatives according to a
recent U.S. study by the National Association for Continence. The Company
believes that its lead products, UroVive for stress UI and the Stoller Afferent
Nerve Stimulation ("SANS") devices for urge UI, represent superior alternatives
to existing therapies by offering minimally invasive, cost-effective, long-term
solutions for patients suffering from these conditions. The Company launched
these products in Europe in March 1998 and is currently conducting pivotal
(late-stage) clinical trials in the U.S. Additionally, the Company is developing
and marketing a number of other products to treat a variety of urological
conditions.

UroVive is a minimally invasive urethral bulking system for the treatment
of certain types of stress UI. The UroVive procedure involves the permanent
implantation of one or more hydrogel-filled microballoons around the urethra and
is designed to close the bladder neck and immediately restore urinary
continence. The procedure can be performed in about 20 minutes in an outpatient
setting under local anesthesia. The Company believes that UroVive is a
practical, safe, long-term solution and is more convenient and cost-effective
than palliative approaches such as diapers and urethral plugs that do not cure
the problem. The Company also believes that UroVive offers significant
advantages over competing injectable urethral bulking agents that suffer from
problems of absorption and migration (which can lead to the need for repeat
procedures or raise safety concerns) and are not easily retrievable should
urinary retention occur. UroVive also provides an advantage over invasive
surgical procedures, which are costly and can result in post-surgical
complications. The Company is marketing and selling UroVive in Europe under CE
mark certification, and is currently conducting pivotal clinical trials of
UroVive in the U.S. Results of pilot (early-stage) clinical trials indicate a
90% efficacy rate for patients with the target indication for which the Company
has 18-month follow-up data. By comparison, clinical results of the only
urethral bulking agent sold commercially in the U.S. indicate only a 52%
probability that such patients will maintain their initial continence for one
year. The Company expects to submit a pre-market approval ("PMA") application to
the U.S. Food and Drug Administration ("FDA") for UroVive in mid-1999.

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weekly in a physician's office. Percutaneous SANS consists of a generator that
delivers electrical impulses through a small disposable needle, temporarily
inserted near the ankle, and lead wire assembly. To facilitate in-home use and
enhance patient convenience, the Company is developing a second generation,
subcutaneous SANS device that involves the permanent implant of a small,
thumbtack-shaped electronic receiver near the patient's ankle, eliminating the
need for the use of a needle with each treatment. Few products exist for
effectively treating urge UI and the Company believes that SANS is superior to
other commercially available products due primarily to its minimally invasive
nature and cost-effectiveness. Clinical studies to date on percutaneous SANS,
encompassing over 1,000 treatment procedures in 90 patients with average
follow-up in excess of two years, indicate an 80% efficacy rate and no
complications. By comparison, clinical results of the only commercially
available implantable electronic nerve stimulation device also indicate a
comparable efficacy rate, but a high rate of post-treatment complications that
required reoperation in approximately one-third of all cases. This competing
product involves an invasive surgical implant procedure in the spinal area that
is costly and requires extensive physician training. The Company is marketing
and selling percutaneous SANS in Europe and is currently conducting a pivotal
clinical trial in the U.S. The Company expects to submit a PMA application for
acute use of percutaneous SANS by early 1999.

As part of its strategy of offering a broad range of products to physicians
treating genito-urinary disorders, the Company has also developed or licensed
SpiraStent, FilaStent and a kidney stone grasper for use in removing kidney
stones; AcuTrainer for diagnosing and managing urge UI; UroTherm for warming
irrigation fluids used in various gynecological and urological procedures;
demineralized bone paste for use in treating vesicoureteral reflux ("VUR") in
infants and children; and a urethral pressure catheter for the diagnosis of
stress UI. The Company has received FDA 510(k) clearance for U.S. marketing of
SpiraStent and AcuTrainer and has submitted 510(k) clearance applications for
FilaStent and UroTherm. The Company is currently marketing and selling
SpiraStent, FilaStent and AcuTrainer in Europe and SpiraStent and AcuTrainer in
the U.S.

STRATEGY

The Company's objective is to establish itself as the leader in the
development and commercialization of clinically effective solutions for UI and
other genito-urinary disorders treated by urologists, urogynecologists and
gynecologists. The following are the key elements of the Company's strategy.

Accelerate Commercialization of Existing Products. The Company has
substantially developed the infrastructure, including international
distributors, manufacturing capabilities and sales and marketing management,
that will help accelerate the commercialization of its products. The Company is
marketing and selling UroVive, percutaneous SANS, SpiraStent, FilaStent and
AcuTrainer in Europe and other international markets and is recognizing revenues
from these efforts in the second quarter of 1998. The Company is also marketing
and selling SpiraStent and AcuTrainer in the U.S. and intends to commence
marketing of UroVive and SANS in the U.S. upon receipt of PMA approval.

Become the Leader in the Treatment of UI. UI is a significant problem for a
large number of adults, particularly women and the elderly, and is one of the
most intractable and debilitating conditions treated by urologists and
urogynecologists. The UI market offers significant potential due primarily to
the inadequacy of existing treatments. The Company intends to offer improved
approaches for all levels of care, ranging from diagnosis to surgery, and for
all types of UI. The Company is focusing on the development of products that are
highly effective and minimally invasive, as compared to many current approaches
for managing UI, which are either palliative, such as diapers, or involve
invasive surgical procedures.

Offer a Comprehensive Product Line. Urologists, urogynecologists and
gynecologists are responsible for treating most genito-urinary disorders and use
a wide range of products. The Company is developing a broad line of products to
address the needs of these physicians while focusing on product opportunities
that represent significant improvements over currently available therapies. As
part of these efforts, the Company intends to explore the applicability of its
current products and technologies to additional clinical indications. The
Company also continually evaluates product concepts and technologies that may
present potential solutions for

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unmet needs in its targeted markets and, in addition to internal development
efforts, actively seeks to license or acquire rights to such potential products
and technologies.

Penetrate International Markets. The Company believes that there is a
significant international market for its products. The Company distributes
products internationally through local distributors on a country-by-country
basis to access such distributors' established networks and specialized
expertise regarding the health care system, including reimbursement practices,
in their respective markets. The Company's current distributors cover 14
European countries, South Korea, Australia and Japan. In addition, as part of
its international marketing efforts, the Company has established clinical
research relationships with leading international urologists. The Company
believes that its country-specific approach will accelerate sales growth,
provide comprehensive geographic market coverage and enable the Company to
access particular markets and customers.

Build Specialized, Direct Sales Force in the U.S. According to industry
sources, there are approximately 8,000 urologists and 800 urogynecologists in
the U.S. The Company believes that this relatively small number of physicians to
which it will market its products affords a unique opportunity to develop a
cost-effective, direct sales effort. Accordingly, the Company has retained all
U.S. sales and marketing rights to its products and has commenced hiring of a
marketing and sales force in the U.S. To gain acceptance of its products, the
Company conducts physician training and disseminates clinical and patient
outcome data. In addition, the Company markets its products by raising patient
awareness of its available treatments through advertising, magazine articles and
other media.

HISTORY

UroSurge was incorporated in Delaware in August 1993. Since its inception,
the Company has received, licensed or obtained an option or right to license 10
issued or allowed U.S. patents and five pending U.S. patent applications and has
received three FDA investigational device exemption ("IDE") approvals for U.S.
clinical trials, two FDA 510(k) clearances and CE mark certifications for two
products. The Company's achievements to date are attributable to the experience
of its management team and to the Company's relationships with opinion leaders
at major research and treatment institutions, which include Children's Hospital
and Medical Center, an affiliate of Harvard Medical School, University of Iowa,
and University of California-San Francisco ("UCSF") School of Medicine. The
Company is located at 2660 Crosspark Road, Coralville, Iowa 52241 and its
telephone number is (319) 626-8311.

THE OFFERING

Common Stock offered by the Company................... shares
Common Stock outstanding after this offering.......... shares(1)
Use of proceeds....................................... For increased research and development,
including clinical trials, expansion of sales
and marketing activities, expansion of
manufacturing capabilities and general
corporate purposes, including working
capital. See "Use of Proceeds."
Proposed Nasdaq National Market symbol................ URSG

- ---------------
(1) Based upon shares outstanding as of March 31, 1998. Excludes (i) 968,958
shares issuable upon exercise of options outstanding at a weighted average
exercise price of $0.65 per share, (ii) 300,000 shares reserved for future
issuance under the Company's 1998 Employee Stock Purchase Plan, (iii)
300,000 shares reserved for future issuance under the Company's 1998
Director Option Plan and (iv) 612,000 shares reserved for future issuance
under the Company's 1994 Amended and Restated Stock Plan. See
"Capitalization," "Management -- Incentive Stock Plans" and "Description of
Capital Stock."

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SUMMARY FINANCIAL DATA

YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1996 1997

STATEMENTS OF OPERATIONS DATA:
Net revenues............................................ $ -- $ 20,166 $ 11,707
Operating expenses:
Cost of revenues...................................... -- 12,649 5,432
Research and development.............................. 848,301 1,940,795 3,594,613
Marketing and sales................................... 2,200 270,823 391,877
General and administrative............................ 466,207 771,047 1,479,722
----------- ----------- -----------
Total operating expenses...................... 1,316,708 2,995,314 5,471,644
----------- ----------- -----------
Loss from operations.................................... (1,316,708) (2,975,148) (5,459,937)
Net loss................................................ $(1,234,159) $(2,777,052) $(5,250,634)
=========== =========== ===========
Pro forma net loss per share(1)......................... $ (0.84)
Shares used in computing pro forma net loss per
share(1).............................................. 6,281,282

AS OF DECEMBER 31, 1997
-----------------------------
ACTUAL AS ADJUSTED(2)

BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 3,266,386 $
Working capital(3).......................................... 3,544,983
Total assets................................................ 5,525,819
Long-term debt.............................................. 109,728
Accumulated deficit......................................... (10,012,436)
Total stockholders' equity.................................. 4,474,400

- ------------------------------
(1) See Note 1 of notes to the Company's financial statements for an explanation
of the method used to determine pro forma net loss per share.

(2) As adjusted to reflect the sale of shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share and
the receipt of the net proceeds therefrom.

(3) Working capital consists of current assets minus current liabilities.

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RISK FACTORS

This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the following risk factors as well as those discussed
elsewhere in this Prospectus. The following risk factors should be considered
carefully in evaluating the Company and its business before purchasing the
shares of Common Stock offered hereby.

UNCERTAINTIES RELATED TO EARLY STAGE OF DEVELOPMENT. Of the Company's
products, only UroVive, percutaneous SANS, SpiraStent, FilaStent and AcuTrainer
are being marketed in Europe; only SpiraStent and AcuTrainer have been cleared
for marketing in the U.S.; and only AcuTrainer has been approved for marketing
in Japan. The products the Company is marketing in Europe may not reach the U.S.
market and future products may not reach Europe, the U.S. or any other market
for a number of reasons. Such reasons include the possibilities that the
potential products will be found ineffective or cause harmful side effects
during preclinical testing or clinical trials, fail to receive necessary
regulatory approvals or clearances, be difficult to manufacture on a large
scale, be uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. No assurance can be
given that any of the Company's development programs will be successfully
completed, that clinical trials will generate anticipated results or will
commence or be completed as planned, that required regulatory approvals or
clearances will be obtained on a timely basis, if at all, or that any products
for which approval is obtained will contain acceptable labeling or be
commercially successful. If any of the foregoing do not occur as planned, the
Company's business, financial condition and results of operations would be
materially adversely affected.

The Company's business is subject to the risks inherent in the development,
licensing and acquisition of new products using new technologies and approaches.
There can be no assurance that unforeseen problems will not develop with these
technologies or applications, that the Company will be able to successfully
address technological challenges it encounters in its research and development
programs or that commercially feasible products will ultimately be developed,
licensed or acquired by the Company. See "Business -- Research and Development."

LIMITED OPERATING HISTORY; HISTORY OF LOSSES AND EXPECTATIONS OF FUTURE
LOSSES. The Company has a limited operating history upon which its prospects can
be evaluated. Such prospects must be considered in light of the substantial
risks, expenses and difficulties encountered by entrants into the medical device
industry, which is characterized by an increasing number of participants,
intense competition and a high failure rate. To date, the Company has engaged
primarily in research and development efforts, and a number of the Company's key
management and technical personnel have only recently joined the Company. To
date, the Company has only generated minimal revenues from product sales and
marketed only four of its products in Europe since March 1998. The Company has
experienced net losses since its inception and, as of December 31, 1997, the
Company had an accumulated deficit of $10.0 million. The development and
commercialization of its products will require substantial development,
regulatory, sales and marketing, manufacturing and other expenditures. The
Company expects its net losses to continue through 1999 as it continues to
expend substantial resources to build its marketing and sales organizations,
continue research and development, obtain regulatory clearances or approvals and
expand manufacturing capabilities. There can be no assurance that the Company
will ever achieve profitability or that profitability, if achieved, will be
sustained. Results of operations may fluctuate significantly from quarter to
quarter and will depend upon numerous factors, including actions relating to
regulatory and reimbursement matters, progress of clinical trials, discounts to
distributors, introduction of alternative therapies for UI and competition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business -- Sales and Marketing," "-- Manufacturing,"
"-- Competition and Technological Change" and "-- Government Regulation."

LACK OF EXTENSIVE CLINICAL DATA. UroVive and percutaneous SANS are in the
pivotal stages of clinical testing in the U.S., and clinical data obtained to
date is insufficient to demonstrate the safety and efficacy of these products
under applicable FDA regulations and regulatory guidelines. The Company
completed pilot

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clinical trials and received FDA approval to conduct pivotal trials for UroVive
in the U.S. in December 1996. The Company obtained EC approval for UroVive in
March 1998 and anticipates submitting a PMA application to the FDA in mid-1999.
Percutaneous SANS received an Investigational Device Exemption ("IDE") approval
in the U.S. in January 1998. There can be no assurance that UroVive or
percutaneous SANS will prove to be safe and effective in clinical trials. In
addition, the clinical trials may identify significant technical or other
obstacles to be overcome prior to obtaining necessary regulatory or
reimbursement approvals. There can be no assurance that UroVive or SANS will
receive marketing approval from the FDA or that any of the Company's other
products will prove to be safe and effective or will be approved or cleared by
appropriate regulatory authorities or by health care payors. If UroVive, SANS
and the Company's other products under development do not prove to be safe and
effective in clinical trials, the Company's business, financial condition and
results of operations will be materially and adversely affected. The rate of
completion of the Company's clinical trials may be delayed by many factors,
including slower than anticipated patient enrollment or adverse events occurring
during clinical trials. Completion of preclinical and clinical activities may
take several years, and the length of time for completion of the required
studies is unpredictable. In addition, data obtained from preclinical and
clinical activities are susceptible to varying interpretations, which could
delay, limit or prevent regulatory approval. No assurance can be given that any
of the Company's clinical trials will be successfully completed on a timely
basis, or at all, that additional clinical trials will be allowed by the FDA or
other regulatory authorities or that such clinical trials will commence as
planned. See "Business -- Products and Products Under Development."

DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY. The Company's success
will depend on its ability to obtain patent protection for its products,
preserve its trade secrets, prevent third parties from infringing upon its
proprietary rights, and operate without infringing upon the proprietary rights
of others, both in the U.S. and internationally. There can be no assurance that
the Company's pending or future patent applications will issue, or that the
claims of the Company's issued or licensed patents, or any patents that may
issue in the future, will provide any competitive advantages for the Company's
products or that they will not be successfully challenged, narrowed, invalidated
or circumvented in the future. The Company believes that obtaining foreign
patents may be more difficult than obtaining domestic patents because of
differences in patent laws and believes the protection afforded by foreign
patents or any other foreign intellectual property protection, if obtained, may
be more limited than that provided domestically. In addition, there can be no
assurance that competitors will not seek to apply for and obtain patents that
will prevent, limit or interfere with the Company's ability to make, use, offer
for sale, sell and import its products. Because patent applications in the U.S.
are confidential until the patents issue, and publication of discoveries in the
scientific and patent literature tends to lag behind actual discoveries, the
Company cannot be certain that Company inventors or licensors were the first to
conceive of inventions covered by pending patent applications or that the
Company was the first to file patent applications for such inventions.

The Company licenses certain technologies and may desire to or may be
required to obtain additional licenses to patents or proprietary rights of
others. No assurance can be given that any licenses required under any patents
or proprietary rights of third parties would remain or be made available on
terms acceptable to the Company, or at all. If the Company does not maintain or
obtain such licenses, it could encounter delays in product introductions while
it attempts to design around or otherwise avoid such patents, or it could find
that the development, manufacture or sale of products requiring such licenses is
foreclosed. In addition, the medical device industry has been characterized by
litigation regarding patents and other intellectual property rights, and many
companies in the medical device industry have employed intellectual property
litigation to gain a competitive advantage. Litigation may be necessary to
defend against or assert claims of patent infringement or invalidity, to enforce
or defend patents issued to or licensed by the Company, to protect trade secrets
or know-how owned by the Company, or to determine the scope and validity of the
proprietary rights of others. In addition, interference proceedings in the U.S.
Patent and Trademark Office, or opposition proceedings in a foreign patent
office, may be necessary to determine the priority of inventions with respect to
patent applications of the Company or its licensors. Litigation, interference or
opposition proceedings could result in substantial costs to and diversion of
effort by the Company, and adverse determinations in any such proceedings could
prevent the Company from manufacturing, marketing or selling its products and
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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The Company also relies upon unpatented trade secrets and improvements,
unpatented know-how and continuing technological innovation to develop and
maintain its competitive position, which it seeks to protect, in part, by
confidentiality agreements with its employees and consultants. The Company also
has invention or patent assignment agreements with its employees and certain,
but not all, consultants. There can be no assurance that relevant inventions
will not be developed by a person not bound by an invention assignment
agreement. There can be no assurance that binding agreements will not be
breached, that the Company would have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors. See "Business -- Patents and Proprietary Technology."

LACK OF REGULATORY APPROVALS. The design, manufacturing, labeling,
distribution and marketing of the Company's products is subject to extensive and
rigorous government regulation in the U.S. and certain other countries where the
process of obtaining and maintaining required regulatory clearance or approvals
is lengthy, expensive and uncertain. In order for the Company to market its
products in the U.S., the Company must obtain clearance or approval from the
FDA. The Company is required to obtain a PMA prior to U.S. commercial sales of
its two lead products, UroVive and SANS. The PMA process can take several years
from the initial filing and requires the submission of extensive supporting data
and clinical information. The Company has received 510(k) clearance in the U.S.
for SpiraStent and AcuTrainer and marketing approval in Europe for UroVive and
AcuTrainer. The Company also has submitted applications seeking clearance to
market FilaStent and UroTherm through the 510(k) premarket notification process
and will be required to submit PMA or 510(k) applications for additional
products it is developing or may develop, license or acquire in the future.
There can be no assurance that the FDA will act favorably or quickly on such PMA
or 510(k) submissions, or that significant difficulties and costs will not be
encountered during efforts to obtain FDA clearance or approval. Specifically,
the FDA may request additional data or require additional clinical trials be
conducted to obtain clearance. In addition, there can be no assurance that the
FDA will not impose strict labeling, training or other requirements as a
condition to 510(k) clearances or PMA approvals, any of which could limit the
Company's ability to market its products. Further, if the Company wishes to
modify a product after FDA clearance of a 510(k) premarket notification or
approval of a PMA, including changes in indications or other modifications that
could affect safety and efficacy, additional clearances or approvals will be
required from the FDA. Any request by the FDA for additional data or any
requirement by the FDA that the Company conduct additional clinical trials or
submit to the more rigorous and lengthier PMA process could result in a
significant delay in bringing such products to market and substantial additional
research and other expenditures by the Company. Similarly, any labeling,
training or other conditions or restrictions imposed by the FDA on the marketing
of the Company's products could hinder the Company's ability to effectively
market its products in the U.S. Any of the foregoing actions by the FDA could
delay or prevent altogether the Company's ability to market and distribute its
products and could have a material adverse effect on the Company's business,
financial condition and results of operations.

In order for the Company to market its products under development in Europe
and certain other foreign jurisdictions, the Company and its distributors and
agents must obtain required regulatory registrations or approvals and otherwise
comply with extensive regulations regarding safety, efficacy and quality in
those jurisdictions. Specifically, certain foreign regulatory bodies have
adopted various regulations governing product standards, packaging requirements,
labeling requirements, import restrictions, tariff regulations, duties and tax
requirements. These regulations vary from country to country. There can be no
assurance that the Company will be successful in maintaining ISO 9001 or CE mark
certification. Failure to maintain ISO 9001 or CE mark certification or to
obtain or maintain other foreign regulatory approvals could have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that the Company will obtain any required
regulatory registrations or approvals in such countries or that it will not be
required to incur significant costs in obtaining or maintaining such regulatory
registrations or approvals. Delays in obtaining any registrations or approvals
required to market the Company's products, failure to receive these
registrations or approvals, or future loss of previously obtained registrations
or approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.

9
11

The Company will be required to adhere to applicable FDA Quality System
Regulations ("QSR"), which incorporate the FDA's former Good Manufacturing
Practice ("GMP") regulations, and similar regulations in other countries that
impose testing, control and documentation requirements. Ongoing compliance with
applicable QSRs and other applicable regulatory requirements will be strictly
enforced in the U.S. through periodic inspections by state and federal agencies,
including the FDA, and in foreign jurisdictions by comparable agencies. Failure
to comply with applicable regulatory requirements could result in, among other
things, warning letters, fines, injunctions, civil penalties, recall or seizure
of products, total or partial suspension of production, refusal of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of approvals previously obtained and criminal prosecution. The
restriction, suspension or revocation of regulatory approvals or any other
failure to comply with regulatory requirements would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Government Regulation."

UNCERTAINTY OF MARKET ACCEPTANCE. The Company's products are based upon new
methods of treating UI and there can be no assurance that these products will
gain commercial acceptance among physicians, patients and health care payors,
even if necessary international and U.S. marketing approval is obtained. The
Company believes that recommendations and endorsements by physicians will be
essential for market acceptance of its products and there can be no assurance
that any such recommendations or endorsements will be obtained. Market
acceptance of the Company's products will also be dependent upon the Company's
ability to convince health care payors and providers that such products
represent cost-effective alternatives to existing therapies. Such assessments of
cost-effectiveness will depend in large part upon the duration of relief from UI
provided by the Company's products, and a thorough analysis of long-term patient
follow-up data may be necessary to assess such durability. Failure of the
Company's products to achieve significant market acceptance would have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Products and Products Under
Development."

COMPETITION. The medical device industry in general and the market for
products and treatments in the area of UI in particular are highly competitive.
In Europe, the Company competes and, in the U.S., the Company will compete with
other providers of products and treatments for UI. There is currently one
urethral bulking agent for stress UI and one implantable nerve stimulation
device for urge UI approved for commercial sale in the U.S. and other such
products are in development. In addition, a number of competitors are currently
marketing products, such as absorbents and pharmaceuticals, to treat UI. Some of
these products are widely accepted in the health care industry and have a long
history of use.

Many of the Company's current and potential competitors have substantially
greater financial, research, technical, manufacturing, marketing and
distribution resources than the Company and have greater name recognition and
lengthier operating histories in the health care industry. There can be no
assurance that the Company will be able to compete effectively against these and
other competitors or that the Company's products will replace any currently used
devices or systems. Furthermore, there can be no assurance that the Company's
competitors will not succeed in developing, either before or after the
development and commercialization of the Company's products, devices and
technologies that permit more efficient, less expensive and less invasive
treatment of UI. It is also possible that one or more pharmaceutical or other
health care companies will develop therapeutic drugs, treatments or other
products that will substantially reduce the prevalence of UI or otherwise render
the Company's products obsolete or irrelevant. Such competition could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Competition and Technological Change."

LIMITED MANUFACTURING EXPERIENCE. The Company is currently scaling up its
manufacturing facilities for clinical and early commercial production of its
products. The Company does not have experience in manufacturing its products in
commercial quantities. There can be no assurance that the Company will be able
to attract, train and retain the required personnel or will be able to
manufacture commercial quantities of its products in a timely manner, or at all.
Manufacturers often encounter difficulties in scaling up production of their
products, including problems involving production yields, quality control and
assurance, component supply and shortages of qualified personnel. There can be
no assurance that the Company's manufacturing scale-up efforts will be
successful or that reliable, high-volume manufacturing can be established or
10
12

maintained at commercially reasonable costs on a timely basis, or at all. In
addition, there can be no assurance that the Company will not encounter
unanticipated problems and delays in connection with its contract manufacturers
and suppliers. Delays associated with or difficulties encountered in
establishing high-volume manufacturing, or problems encountered with contract
manufacturers and suppliers, would result in disruptions of product supply. Any
of the foregoing would have a material adverse affect on the Company's business,
financial condition and results of operations.

Medical devices, such as the Company's products, can experience performance
problems in the field that require review and possible corrective action by the
manufacturer. There can be no assurance that component failures, manufacturing
errors or design defects that could result in an unsafe condition or injury to
the patient will not occur. If any such failures or defects were deemed serious,
the Company could be required to withdraw or recall products, which could result
in significant costs to the Company. Any future product problems could result in
market withdrawals or recalls of products, which could have a material adverse
affect on the Company's business, financial condition and results of operations.
Furthermore, prior to approval of a PMA application, the Company's facilities,
procedures and practices, and the facilities, procedures and practices of its
third-party manufacturers, will be subject to a preapproval inspection by the
FDA. In addition, if the Company wishes to significantly modify its
manufacturing processes or change the supplier of a critical component,
additional approvals will be required from the FDA before the change can be
implemented. Failure to maintain compliance with the applicable regulatory
requirements of various regulatory agencies would have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Manufacturing."

DEPENDENCE UPON KEY SUPPLIERS. One of the primary components for the
manufacture of UroVive, the microballoon, is purchased by the Company from a
single source under a mutually exclusive supply agreement that expires in April
2000, subject to an automatic two-year extension. Other raw materials and
components used in the Company's products are purchased from various suppliers.
These materials have generally been readily available in the marketplace and
have not been the subject of shortages. There can, however, be no assurance that
the Company or its suppliers or contract manufacturers will not experience
shortages of materials in the future. Delays associated with any such future
shortages of materials or components, particularly as the Company scales up its
manufacturing activities in support of commercial sales, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Manufacturing."

LIMITED MARKETING AND SALES CAPABILITIES. The Company currently has limited
experience in marketing and selling its products. In order to achieve commercial
success for any product, UroSurge must increase its marketing and sales
capabilities or enter into arrangements with third parties to market and sell
its products. There can be no assurance that UroSurge will successfully develop
such marketing and sales capabilities or experience. As the Company develops its
own marketing and sales capabilities, it will compete with other companies that
currently have experienced and well-funded marketing and sales operations.

The Company markets and sells its products outside the U.S. primarily
through a network of international distributors, and the Company's international
sales are largely dependent on the marketing efforts of, and sales by, these
distributors. Sales through distributors are subject to several risks, including
the risk of financial instability of the distributors and the risk that
distributors will not effectively promote the Company's products. There can be
no assurance that the efforts of these third parties for the marketing and sale
of the Company's products will be successful. See "Business -- Sales and
Marketing."

INTERNATIONAL SALES AND OPERATING RISKS. The Company's limited sales of
UroVive, percutaneous SANS, SpiraStent and FilaStent have been outside the U.S.,
and the Company anticipates that a significant portion of its revenues for the
next several years will also be derived from international sales of its
products. A number of risks are inherent in international operations and
transactions. International sales and operations may be limited or disrupted by
the imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs or difficulties in staffing
and managing international operations. Foreign regulatory agencies often
establish product standards different from those in the U.S. and any inability

11
13

to obtain foreign regulatory approvals on a timely basis could have an adverse
effect on the Company's international business and its financial condition and
results of operations. Additionally, the Company's business, financial condition
and results of operations may be adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates. There can be no assurance
that the Company will be able to successfully commercialize its existing or
future products in any foreign market. See "Business -- Sales and Marketing."

NO ASSURANCE OF ABILITY TO MANAGE GROWTH. If demand for the Company's
products develops and grows, there can be no assurance that the Company will be
able to develop the necessary manufacturing capability for its products; build
the international sales and marketing capability for products; attract, retain
and integrate the required personnel; or implement the financial and management
systems necessary to meet the growing demand for its products. Failure of the
Company to successfully manage its growth could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Business -- Sales and Marketing," "-- Manufacturing," "-- Employees,"
"-- Facilities" and "Management."

PRODUCT LIABILITY RISK; LIMITED INSURANCE COVERAGE. The development,
manufacture and sale of medical products entail significant risks of product
liability claims. The Company has product liability insurance subject to
specified coverage limits. There can no assurance that such insurance coverage
will be adequate to protect the Company from any liabilities, including any
adverse judgments or settlements, it might incur in connection with the
development, clinical testing, manufacture and sale of its products. In
addition, product liability insurance is expensive and may in the future not be
available to the Company on acceptable terms, if at all. A successful product
liability claim or series of claims brought against the Company that results in
an adverse judgment against or settlement by the Company in excess of any
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Product Liability."

POSSIBLE FUTURE CAPITAL REQUIREMENTS. To the extent that the Company is
unable to successfully commercialize its products or experiences delays in
completing product testing and clinical trials or obtaining regulatory approvals
and clearances, it may be required to raise additional funds through public or
private financing or other arrangements. The Company believes that its existing
capital resources and the net proceeds of this offering will be sufficient to
satisfy its funding requirements through 1999. There can be no assurance that
any required additional funding, if needed, will be available on terms
attractive to the Company, or at all, which could have a material adverse effect
on the Company's business, financial condition and results of operations. Any
additional equity financing may be dilutive to stockholders, and debt financing,
if available, may involve restrictive covenants. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT. The Company's success
will be dependent upon, among other things, the ability of users of its products
to obtain satisfactory reimbursement from health care payors for the Company's
products and procedures employing such products. In the U.S. and international
markets, sales of medical products are dependent, in part, on the ability of
consumers of these products to obtain reimbursement for all or a portion of
their cost from third-party payors, such as government and private insurance
plans. Currently, third-party reimbursement is available for some existing
therapies used in the treatment of UI (other than for diapers and absorbents).
After such time, if ever, as FDA approval or clearance is received, third-party
reimbursement for UroVive and SANS will be dependent upon decisions by the
Health Care Financing Administration ("HCFA") for Medicare and Medicaid, as well
as by individual health maintenance organizations, private insurers and other
payors. Such reimbursement approvals will depend in part on the Company's
ability to convince payors that such products represent cost-effective
alternatives to existing therapies. Such assessments of cost-effectiveness will
depend in large part upon the duration of the relief from UI provided by the
Company's products, and a thorough analysis of long-term patient follow-up data
may be necessary to assess such durability. In addition, the Company has not
applied for or received either Medicare or private payor reimbursement approvals
for SpiraStent or AcuTrainer, and growth in SpiraStent or AcuTrainer sales in
the U.S. will be dependent upon the Company's ability to obtain such
reimbursement approvals.
12
14

Reimbursement systems in international markets vary significantly by
country. Many international markets have governmentally managed health care
systems that govern reimbursement for new devices and procedures. In most
markets, there are private insurance systems as well as governmentally managed
systems. Market acceptance of the Company's products will depend on the
availability of reimbursement in international markets targeted by the Company
and will require reimbursement approvals in addition to those already obtained.

Regardless of the type of reimbursement system, the Company believes that
physician advocacy of the Company's products will be required to obtain
reimbursement. There can be no assurance that reimbursement will be available or
sufficient to allow the Company to sell its products on a competitive basis, or
that physicians will support reimbursement for the Company's procedures.
Furthermore, the Company could be adversely affected by changes in reimbursement
policies of governmental or private health care payors. Failure by physicians,
hospitals and other users of the Company's products to obtain sufficient
reimbursement from health care payors or adverse changes in governmental and
private third party payor's policies toward reimbursement for procedures
employing the Company's products would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."

DEPENDENCE UPON KEY PERSONNEL. The Company's ability to operate
successfully and manage its potential future growth depends in significant part
upon the continued service of certain key scientific, technical, managerial and
finance personnel and its ability to attract and retain additional highly
qualified scientific, technical, managerial and finance personnel. None of these
key employees has an employment contract with the Company nor are any of these
employees covered by key person or similar insurance. The Company faces intense
competition for qualified personnel, many of whom are often subject to competing
employment offers, and there can be no assurance that the Company will be able
to attract and retain such personnel. The loss of key personnel or inability to
hire and retain additional qualified personnel in the future could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Employees."

NO PRIOR PUBLIC MARKET FOR COMMON STOCK. Prior to this offering, there has
been no public market for the Company's Common Stock, and there can be no
assurance that a regular trading market will develop and continue after this
offering or that the market price of the Common Stock will not decline below the
initial public offering price. The initial public offering price will be
determined through negotiations between the Company and the Underwriters and may
bear no relationship to the price at which the Common Stock will trade after
completion of this offering. The factors to be considered in determining the
initial public offering include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operation of the Company, the prospects for
future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the offering. See "Underwriting."

VOLATILITY OF COMMON STOCK PRICE. The market prices for securities of
medical device companies have historically been highly volatile, and the market
has from time to time experienced significant price and volume fluctuations that
are unrelated to the operating performance of particular companies. Factors such
as fluctuations in the Company's operating results, announcements of
technological innovations or new therapeutic products by the Company or others,
clinical trial results, government regulation, developments in patent or other
proprietary rights, public concern as to the safety of products developed by the
Company or others, future sales of substantial amounts of Common Stock by
existing stockholders, comments by securities analysts and general market
conditions can have an adverse effect on the market price of the Common Stock.
In addition, the realization of any of the risks described in these "Risk
Factors" could have a dramatic and material adverse impact on the market price
of the Company's Common Stock.

CONTROL BY EXISTING STOCKHOLDERS. After the completion of this offering,
current stockholders, including certain executive officers and directors of the
Company and their affiliates, will own approximately % of the outstanding
Common Stock. As a result, these stockholders will, to the extent they act
together, continue to have the ability to exert significant influence and
control over matters requiring the approval of the

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15

Company's stockholders, including the election of a majority of the Company's
Board of Directors. See "Principal Stockholders."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of Common Stock (including shares
issued upon the exercise of outstanding options) in the public market after this
offering could materially adversely affect the market price of the Common Stock.
Such sales also might make it more difficult for the Company to sell equity
securities or equity-related securities in the future. Upon completion of this
offering, the Company will have shares of Common Stock
outstanding, of which the shares offered hereby will be freely
tradable (unless held by affiliates of the Company). As a result of lock-up
agreements between certain stockholders and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), the remaining 6,956,037 shares will not become
available for sale in the public market until 180 days after the date of this
Prospectus, subject in some cases to the volume and other restrictions of Rule
144 and Rule 701 under the Securities Act of 1933, as amended (the "Securities
Act"). However, DLJ may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to the lock-up agreements.
See "Shares Eligible for Future Sale" and "Underwriting."

ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS ON PRICE OF
COMMON STOCK. Certain provisions of the Company's Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. Certain provisions of Delaware law
applicable to the Company, including Section 203 of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholders for a period of three
years unless certain conditions are met, could also delay or make more difficult
a merger, tender offer or proxy contest involving the Company. The possible
issuance of Preferred Stock, the procedures required for director nominations
and stockholder proposals and Delaware law could have the effect of delaying,
deferring or preventing a change in control of the Company. See "Description of
Capital Stock -- Preferred Stock" and "-- Certain Charter and Bylaws Provisions
and Delaware Anti-Takeover Statute."

DILUTION. Purchasers of Common Stock in this offering will experience
immediate and substantial dilution of $ per share in the net tangible book
value of the Common Stock from the initial public offering price. Additional
dilution is likely to occur upon the exercise of options, warrants and
conversion rights granted by the Company. See "Dilution."

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16

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby at an assumed initial public offering price of
per share are estimated to be million ( million if the
Underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and the estimated expenses of this
offering.

The Company expects to use a majority of the net proceeds to fund increased
research and development activities, including clinical trials, expansion of
marketing and sales activities, expansion of manufacturing capabilities and
capital expenditures. The Company intends to use the remaining net proceeds for
working capital, general and administrative expenses and general corporate
purposes. The amounts actually expended for each purpose and the timing of such
expenditures may vary significantly depending upon numerous factors, including
the timing of regulatory actions regarding the Company's products, the cost and
timing of expansion of marketing, sales and manufacturing activities, results of
clinical trials and competition. The Company may also use a portion of the net
proceeds for the licensing or acquisition of technologies, businesses or
products that are complementary to those of the Company. No such acquisitions
are currently planned or are being negotiated, and no portion of the net
proceeds has been allocated for any specific licensing or acquisition. Pending
such uses, the Company intends to invest the net proceeds of this offering in
short-term, interest-bearing, investment grade securities.

In addition, a portion of the net proceeds may be used to repay certain
amounts the Company may borrow from stockholders under a financing arrangement.
Under this arrangement, which is expected to be entered into in April 1998,
certain principal stockholders would provide the Company with a line of credit
of up to $5.0 million in the event that the Company requires any additional
funding prior to receiving the net proceeds from this offering. In exchange for
this line, the Company has agreed to issue warrants to the stockholders to
purchase an aggregate of 50,000 shares of Common Stock at the initial public
offering price per share. The remaining terms of this credit facility are
currently being negotiated by the Company and such stockholders. To date, the
Company has not borrowed any amounts under this arrangement.

DIVIDEND POLICY

The Company has never declared or paid any dividends on its capital stock.
The Company does not anticipate declaring or paying any cash dividends in the
foreseeable future.

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17

CAPITALIZATION

The following table sets forth, as of December 31, 1997, (i) the actual
capitalization of the Company and (ii) the as adjusted capitalization of the
Company reflecting the conversion of all outstanding shares of Preferred Stock
into Common Stock; the sale of the shares of Common Stock offered
hereby (at an assumed initial public offering price of $ per share) and
receipt of the proceeds therefrom, after deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company; and the
restatement of the Company's Certificate of Incorporation to increase the
authorized number of shares of Common Stock to 50,000,000 shares and create a
class of undesignated Preferred Stock. See "Use of Proceeds." This table should
be read in conjunction with "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto included elsewhere in this Prospectus.

AS OF DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED

Cash, cash equivalents and short-term investments........... $ 3,266,386
=========== ========
Long-term debt (including current maturities)............... $ 174,691
Stockholders' equity:
Preferred Stock, par value $0.01 per share;
7,220,000 shares authorized, 5,834,404 shares issued
and outstanding on an actual basis; 5,000,000 shares
authorized, none issued and outstanding as adjusted.... 58,344
Common Stock, par value $0.01 per share; 15,000,000 shares
authorized, 1,121,633 shares issued and outstanding on
an actual basis; 50,000,000 shares authorized and
shares issued and outstanding as
adjusted(1)............................................ 11,216
Additional paid-in capital................................ 15,155,720
Deferred compensation..................................... (738,444)
Accumulated deficit....................................... (10,012,436)
----------- --------
Total stockholders' equity........................ 4,474,400
----------- --------
Total capitalization.............................. $ 4,649,091
=========== ========

- ------------------------------
(1) Based upon shares outstanding as of December 31, 1997. Excludes (i) 734,458
shares issuable upon exercise of options outstanding at a weighted average
exercise price of $0.26 per share, (ii) 300,000 shares reserved for future
issuance under the Company's 1998 Employee Stock Purchase Plan (the
"Purchase Plan"), (iii) 300,000 shares reserved for future issuance under
the Company's 1998 Director Option Plan and (iv) 846,500 shares reserved for
future issuance under the Company's 1994 Stock Plan. See
"Management -- Incentive Stock Plans" and "Description of Capital Stock."

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DILUTION

The pro forma net tangible book value of the Company's Common Stock as of
December 31, 1997, was $4,240,638 or $0.61 per share. Pro forma net tangible
book value per share represents the amount of the Company's total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding after giving effect to the conversion of outstanding shares of
Preferred Stock into Common Stock upon the completion of this offering. After
giving effect to the sale of the shares of Common Stock offered hereby (at an
assumed initial public offering price of $ per share) and after deducting
underwriting discounts and commissions and estimated offering expenses, the
Company's pro forma net tangible book value as of December 31, 1997 would have
been approximately $ or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors purchasing shares of Common Stock in this offering. The
following table illustrates this per share dilution:

Assumed initial public offering price.................. $
Pro forma net tangible book value per share at
December 31, 1997................................. $
Increase per share attributable to new investors.....
Pro forma net tangible book value after this
offering.............................................
Dilution to new investors.............................. $

The following table summarizes, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price paid per share by
existing stockholders and by investors purchasing shares in this offering
(assuming an initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering
expenses):

SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE

Existing stockholders......... 6,956,037 $14,428,653 % $ 2.07
New investors.................
--------- ----- ----------- -----
Total............... 100.0% 100.0%
========= ===== =========== =====

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SELECTED FINANCIAL DATA

The selected financial data presented below with respect to the Company's
financial statements as of and for each of the periods ended December 31, 1993,
1994, 1995, 1996 and 1997 are derived from financial statements of the Company
that have been audited by McGladrey & Pullen, LLP, independent auditors. The
selected financial data set forth below is qualified in its entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's financial
statements and notes thereto included elsewhere in this Prospectus.

YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993(1) 1994(1) 1995 1996 1997

STATEMENTS OF OPERATIONS
DATA:
Net revenues................ $ -- $ -- $ -- $ 20,166 $ 11,707
Operating expenses:
Cost of revenues.......... -- -- -- 12,649 5,432
Research and
development............ -- 238,212 848,301 1,940,795 3,594,613
Marketing and sales....... -- -- 2,200 270,823 391,877
General and
administrative......... -- 549,247 466,207 771,047 1,479,722
-------- --------- ----------- ----------- -----------
Total operating
expenses........ -- 787,459 1,316,708 2,995,314 5,471,644
-------- --------- ----------- ----------- -----------
Loss from operations........ -- (787,459) (1,316,708) (2,975,148) (5,459,937)
Interest income............. -- 36,868 85,003 184,099 187,010
Interest expense............ -- -- (2,454) (6,386) (9,023)
Income tax credits.......... -- -- -- 20,383 31,316
-------- --------- ----------- ----------- -----------
Net loss.......... $ -- $(750,591) $(1,234,159) $(2,777,052) $(5,250,634)
======== ========= =========== =========== ===========
Basic and diluted net loss
per share(2).............. $ -- $ (1.04) $ (1.23) $ (2.58) $ (4.72)
Weighted average shares
outstanding(2)............ -- 723,259 999,510 1,076,987 1,111,267
Pro forma net loss per
share(2).................. $ (0.84)
Shares used in computing pro
forma net loss per
share(2).................. 6,281,282

AS OF DECEMBER 31,
--------------------------------------------------------------------
1993(1) 1994(1) 1995 1996 1997

BALANCE SHEET DATA:
Cash, cash equivalents and
short-term
investments............. $ -- $ 919,039 $ 4,821,063 $ 2,113,202 $ 3,266,386
Working capital(3)........ -- 844,636 4,742,010 1,686,566 3,544,983
Total assets.............. -- 1,032,889 5,373,922 2,890,545 5,525,819
Long-term debt............ -- -- 107,314 92,870 109,728
Accumulated deficit....... -- (750,591) (1,984,750) (4,761,802) (10,012,436)
Total stockholders'
equity.................. -- 926,171 5,022,789 2,254,435 4,474,400

- ------------------------------
(1) The Company was incorporated August 6, 1993 and commenced operations in
March 1994.

(2) See Note 1 of notes to the Company's financial statements for an explanation
of the method used to determine basic and diluted net loss per share,
weighted average shares outstanding and pro forma net loss per share.

(3) Working capital is current assets minus current liabilities.

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20

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Prospectus contain forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Risk Factors" as well as those discussed elsewhere in this Prospectus. The
following discussion should be read in conjunction with the Company's financial
statements and notes thereto included elsewhere in this Prospectus.

OVERVIEW

UroSurge develops, manufactures and markets medical devices for the
treatment and management of genito-urinary disorders. The Company believes that
its lead products, UroVive and SANS, represent a significant revenue opportunity
in Europe and the U.S. Additionally, the Company has a number of other products
approved or in development to treat a variety of urological conditions. The
Company commenced marketing UroVive, percutaneous SANS, SpiraStent, FilaStent
and AcuTrainer in Europe and other international markets in March 1998 and is
recognizing revenues from these efforts in the second quarter of 1998. The
Company is marketing SpiraStent and AcuTrainer in the U.S. and intends to
commence marketing UroVive and percutaneous SANS in the U.S. upon receipt of PMA
approval. In addition, the Company has submitted 510(k) clearance applications
for FilaStent and UroTherm.

Since its inception, the Company has financed operations primarily through
the private placement of equity securities totaling $14.4 million. The Company
has incurred net losses in each year since its inception, including net losses
of $5.3 million in 1997, $2.8 million in 1996 and $1.2 million in 1995. The
Company's net losses have resulted primarily from expenses incurred in
connection with the Company's research and development activities, including
clinical and preclinical trials, development of manufacturing processes, general
and administrative expenses and sales and marketing expenses. The Company
expects to incur net losses through at least 1999 and may incur net losses in
subsequent periods although the amount of future net losses and time required by
the Company to reach profitability are highly uncertain. Although the Company
only sold limited numbers of AcuTrainers in 1996 and 1997, it is recognizing
revenues from the sale of UroVive, percutaneous SANS, SpiraStent, FilaStent and
AcuTrainer in Europe in the second quarter of 1998. The Company will not
generate revenues from commercial sales of UroVive, percutaneous SANS and
FilaStent in the U.S. unless FDA approvals are received.

The Company has entered into license agreements with various parties under
which the Company obtained certain intellectual property rights relating to its
products. See "Business -- Patents and Proprietary Rights." The Company is
obligated to pay royalties of up to 6% on sales of all of its products, except
for FilaStent and UroTherm, under such license agreements. The Company currently
accounts for such royalties as operating expenses. The Company is also obligated
to make certain milestone payments under these license agreements, which could
aggregate approximately $1.0 million.

The Company intends to sell its products through a direct sales force in
the U.S. and through local distributors in foreign markets with non-exclusive
rights in their respective designated territories. The Company expects gross
margins on U.S. sales to be higher than gross margins on international sales due
to distributor discounts. The Company believes its gross margins will be
primarily affected by product mix, manufacturing costs, sales channels and
product pricing.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996

Net revenues decreased to $12,000 in 1997 from $20,000 in 1996. AcuTrainer
was the only product sold commercially by the Company during these periods and
is expected to comprise only a small portion of the Company's future revenues.
The Company's primary focus has been on the development of UroVive and SANS and,
as a result, the Company did not devote significant sales efforts to AcuTrainer
sales. The

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21

Company is recognizing revenues from sales of UroVive and percutaneous SANS in
Europe in the second quarter of 1998.

Research and development expenses increased to $3.6 million in 1997 from
$1.9 million in 1996. This increase was due primarily to increased costs of
development, including materials for UroVive and SANS pivotal clinical trials
and preclinical animal testing for the Company's other products. In addition,
the increase in expense is associated with the Company's build-up of its
research and development personnel as well as payments to consultants. The
Company currently employs 17 individuals in research and development and
manufacturing on a full-time basis and five individuals on a part-time basis.
Research and development expenses are expected to increase as the Company
continues to develop its products.

Marketing and sales expenses increased to $392,000 in 1997 from $271,000 in
1996. This increase was due to the Company's build-up of its sales and marketing
personnel, which currently includes six executives and two telemarketers. In
addition, the Company is continuing to develop promotional materials, train
physicians and attend trade shows, which also contributes to the increase in
such expenses. Marketing and sales expenses are expected to increase as the
Company commercializes its products and completes the hiring of a direct sales
force in the U.S.

General and administrative expenses increased to $1.5 million in 1997 from
$771,000 in 1996. This increase was due primarily to increased personnel costs
and associated costs related to obtaining product clearances and establishing
administrative functions to support the Company's operations. General and
administrative expenses are expected to increase as additional personnel are
hired to support the Company's operations and needs as a public company, but at
a lower rate than research and development and marketing and sales expenses.

Interest income increased to $187,000 in 1997 from $184,000 in 1996.
Interest expense increased to $9,000 in 1997 from $6,000 in 1996.

With respect to certain stock options made during 1997, the Company is
recognizing compensation charges of $860,000. The Company recognized $122,000 of
the compensation charges in 1997, and will recognize the remainder over the
related vesting period. The future compensation charges are subject to reduction
for any employee who terminates employment prior to the expiration of such
employee's vesting period. See Note 5 of notes to the Company's financial
statements.

FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995

Net revenues were $20,000 in 1996 as a result of sales of AcuTrainers. No
revenues were recorded in 1995.

Research and development expenses increased to $1.9 million in 1996 from
$848,000 in 1995. This increase was due to increased costs for the development
of UroVive and SANS, including pilot clinical studies and preclinical animal
testing, the associated costs for the hiring of research and development
personnel and consultants and increased material and prototype expenses.

Marketing and sales expenses increased to $271,000 in 1996 from $2,000 in
1995. This increase was due primarily to advertising costs for AcuTrainer and
image brochures regarding the Company.

General and administrative expenses increased to $771,000 in 1996 from
$466,000 in 1995. This increase was due primarily to increased personnel and
associated costs related to obtaining an IDE for UroVive and a 510(k) clearance
for AcuTrainer and establishing administrative functions to support the
Company's operations.

Interest income increased to $184,000 in 1996 from $85,000 in 1995. This
increase is due primarily to higher cash balances as a result of a $5.3 million
private placement of equity securities completed in September and October 1995.

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22

LIQUIDITY AND CAPITAL RESOURCES

From inception through December 31, 1997, the Company has financed
operations primarily through the private placement of equity securities totaling
$14.4 million. The Company's principal source of liquidity as of December 31,
1997 consisted of cash, cash equivalents and short-term investments of $3.3
million. The Company's cash used in operating activities increased to $5.7
million in 1997 from $2.5 million in 1996, primarily resulting from an increase
in the Company's net loss due to increased research and development, sales and
marketing, and general and administrative expenses for preparation and support
of clinical trials for UroVive and percutaneous SANS.

As of December 31, 1997, the Company had approximately $110,000 in
long-term debt. The Company expects to enter into a financing arrangement with
certain of its principal stockholders during April 1998. Under this arrangement,
such stockholders would provide the Company with a line of credit of up to $5.0
million in the event that the Company requires any additional funding prior to
receiving the net proceeds of this offering. In exchange for this line, the
Company has agreed to issue warrants to purchase an aggregate of 50,000 shares
of Common Stock at the initial public offering price per share. The remaining
terms of this credit facility are currently being negotiated by the Company and
such stockholders. To date, the Company has not borrowed any amounts under this
arrangement.

The Company is completing improvements to a leased building to be used as a
manufacturing facility. Leasehold improvements and other capital equipment
purchases with an estimated cost of $500,000 are anticipated through the second
quarter of 1998. The Company does not anticipate that material capital or other
expenditures will be necessary in connection with computer problems associated
with year 2000 concerns.

The Company believes that the proceeds from this offering together with
current cash balances will be sufficient to meet the Company's operating and
capital requirements through 1999. The Company's liquidity and capital
requirements will depend on numerous factors, including the extent to which the
Company's products gain market acceptance, the timing of regulatory actions
regarding the Company's products, the costs and timing of expansion of sales,
marketing and manufacturing activities, obtaining and enforcing patents
important to the Company's business, results of clinical trials and competition.
There can be no assurance that the Company will not be required to raise
additional capital, or that such capital will be available on acceptable terms,
or at all.

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23

BUSINESS
OVERVIEW

UroSurge develops, manufactures and markets medical devices for the
treatment and management of genito-urinary disorders. The Company is developing
a broad range of proprietary products to address segments of the urology market
that are currently underserved as a result of ineffective or costly therapies.
The Company is initially focusing much of its efforts on addressing UI, which
afflicts approximately 13 million people in the U.S. and accounts for
approximately $15 billion in annual treatment costs. The UI market presents a
significant opportunity because approximately two-thirds of UI sufferers are
dissatisfied with current treatment alternatives according to a recent U.S.
study by the National Association for Continence. The Company believes that its
lead products, UroVive for stress UI and SANS devices for urge UI, represent
superior alternatives to existing therapies by offering minimally invasive,
cost-effective, long-term solutions for patients suffering from these
conditions. The Company launched these products in Europe in March 1998 and is
currently conducting pivotal clinical trials in the U.S. Additionally, the
Company is developing and marketing a number of other products to treat a
variety of urological conditions.

UroVive is a minimally invasive urethral bulking system for the treatment
of certain types of stress UI. The UroVive procedure involves the permanent
implantation of one or more hydrogel-filled microballoons around the urethra and
is designed to close the bladder neck and immediately restore urinary
continence. The procedure can be performed in about 20 minutes in an outpatient
setting under local anesthesia. The Company believes that UroVive is a
practical, safe, long-term solution and is more convenient and cost-effective
than palliative approaches such as diapers and urethral plugs that do not cure
the problem. The Company also believes that UroVive offers significant
advantages over competing injectable urethral bulking agents that suffer from
problems of absorption and migration (which can lead to the need for repeat
procedures or raise safety concerns) and are not easily retrievable should
urinary retention occur. UroVive also provides an advantage over invasive
surgical procedures, which are costly and can result in post-surgical
complications. The Company is marketing UroVive in Europe under CE mark
certification, and is currently conducting pivotal clinical trials of UroVive in
the U.S. Results of pilot clinical trials indicate a 90% efficacy rate for
patients with the target indication for which the Company has 18-month follow-up
data. By comparison, clinical results of the only urethral bulking agent sold
commercially in the U.S. indicate only a 52% probability that such patients will
maintain their initial continence for one year. The Company expects to submit a
PMA application to the FDA for UroVive in mid-1999.

The Company has two SANS devices, percutaneous (through the skin) and
subcutaneous (below the skin), for the treatment of urge UI. Both are minimally
invasive systems that modulate bladder action through stimulation of the
afferent nerve fibers in the ankle area that lead to nerves located in the
spinal region that control bladder function. Such stimulation has been shown to
greatly reduce the likelihood that the patient will have an uncontrollable spasm
of the bladder wall muscle that can cause the bladder to empty. The percutaneous
SANS procedure entails approximately 30 minutes of electrical stimulation and is
repeated weekly in a physician's office. Percutaneous SANS consists of a
generator that delivers electrical impulses through a small disposable needle,
temporarily inserted near the ankle, and lead wire assembly. To facilitate
in-home use and enhance patient convenience, the Company is developing a second
generation, subcutaneous SANS device that involves the permanent implant of a
small, thumbtack-shaped electronic receiver near the patient's ankle,
eliminating the need for the use of a needle with each treatment. Few products
exist for effectively treating urge UI and the Company believes that SANS is
superior to other commercially available products due primarily to its minimally
invasive nature and cost-effectiveness. Clinical studies to date on percutaneous
SANS, encompassing over 1,000 treatment procedures in 90 patients with average
follow-up in excess of two years, indicate an 80% efficacy rate and no
complications. By comparison, clinical results of the only commercially
available implantable electronic nerve stimulation device also indicate a
comparable efficacy rate, but a high rate of post-treatment complications that
required reoperation in approximately one-third of all cases. This competing
product involves an invasive surgical implant procedure in the spinal area and
requires extensive physician training. The Company is marketing percutaneous
SANS in Europe and is currently conducting a pivotal clinical trial in the U.S.
The Company expects to submit a PMA application for acute use of percutaneous
SANS by early 1999.

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24

As part of its strategy of offering a broad range of products to physicians
treating genito-urinary disorders, the Company has also developed or licensed
SpiraStent, FilaStent and a kidney stone grasper for use in removing kidney
stones; AcuTrainer for diagnosing and managing urge UI; UroTherm for warming
irrigation fluids used in various gynecological and urological procedures;
demineralized bone paste for use in treating VUR in infants and children; and a
urethral pressure catheter for the diagnosis of stress UI. The Company has
received FDA 510(k) clearance for U.S. marketing of SpiraStent and AcuTrainer,
and has submitted 510(k) clearance applications for FilaStent and UroTherm. The
Company is marketing SpiraStent, FilaStent and AcuTrainer in Europe and
SpiraStent and AcuTrainer in the U.S.

STRATEGY

Accelerate Commercialization of Existing Products. The Company has
substantially developed the infrastructure, including international
distributors, manufacturing capabilities and sales and marketing management,
that will help accelerate the commercialization of its products. The Company is
marketing UroVive, percutaneous SANS, SpiraStent, FilaStent and AcuTrainer in
Europe and other international markets and is recognizing revenues from these
efforts in the second quarter of 1998. The Company is also marketing SpiraStent
and AcuTrainer in the U.S. and intends to commence marketing of UroVive and SANS
in the U.S. upon receipt of PMA approval.

Build Specialized, Direct Sales Force in the U.S. According to industry
sources, there are approximately 8,000 urologists and 800 urogynecologists in
the U.S. The Company believes that this relatively small number of physicians to
which it will market its products affords a unique opportunity to develop a
cost-effective, direct sales effort. Accordingly, the Company has retained all
U.S. sales and marketing rights to its products and has commenced building a
sales and marketing sales force in the U.S. To gain acceptance of its products,
the Company conducts physician training and disseminates clinical and patient
outcome data. In addition, the
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25

Company markets its products by raising patient awareness of its available
treatments through advertising, magazine articles and other media.

URINARY INCONTINENCE

In the normal urinary tract, continence, or the appropriate storage of
urine, is maintained by a complex interplay of anatomic structures. The primary
structures responsible for controlling continence are the bladder neck and the
urinary sphincter. The urinary sphincter is a muscle at the base of the bladder
that surrounds the bladder neck and urethra and aids the bladder in maintaining
continence. In a normal system, the bladder neck and the urinary sphincter work
in a coordinated fashion to act as a valve. As the bladder fills and relaxes,
the urinary sphincter contracts to prevent urination. During urination, the
urethra and urinary sphincter muscle relax and open, the bladder contracts and
the bladder neck opens, all in a coordinated fashion, causing the passage of
urine. In normal continence, when the bladder neck opens involuntarily in
response to intra-abdominal pressure, the lower portion of the urinary sphincter
tightens in turn so as to maintain continence. Similarly, the urethra is also
under muscular control so as to keep this tube closed during the urine storage
phase. The following diagram depicts the anatomy of the urinary tract.

[DIAGRAM OF URINARY TRACT]

A malfunction in any part of this system can cause UI. The most common
anatomic incontinence pathology is bladder neck or urethral hypermobility, which
results from a lack of bladder neck support caused primarily by weak surrounding
tissue. The weakening of tissue surrounding the bladder, urethra and bladder
neck arises most commonly in women as a consequence of pelvic trauma cause by
pregnancy and childbirth. Other causes of UI include birth defects, injuries to
the pelvic region or to the spinal cord, neurological diseases and degenerative
changes associated with aging.

UI may cause depression, discomfort and embarrassment about appearance and
odor. Patients suffering from UI may withdraw from social interaction with
others, including friends and family, and sexual activity may be restricted or
avoided entirely. Spouses and other intimates also may share the burden of the
condition. There are three main categories of UI.

Stress urinary incontinence. Stress UI refers to the involuntary loss of
urine during coughing, laughing, sneezing, jogging or any other physical
activity which causes a sufficient increase in intra-abdominal pressure. This
condition varies in severity from those women who leak urine as a result of
certain sudden movements or physical activities to those who leak urine simply
upon standing up. Stress UI is caused by one of two conditions (i) urethral
hypermobility, a lack of anatomic stability caused primarily by weak surrounding
tissues, which results in the abnormal movement of the bladder neck and urethra
in response to sufficient intra-abdominal pressure or exertion; and (ii)
intrinsic sphincter deficiency, or the inability of the urinary sphincter valve
muscle to function properly due to atrophy of the urinary sphincter muscle.
Approximately 15% of stress UI cases are solely the result of intrinsic
sphincter deficiency. Urethral hypermobility is the principal cause of the
remaining 85% of stress UI cases; however, the Company believes that many of
these patients have a mix of urethral hypermobility and intrinsic sphincter
deficiency.

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26

Urge urinary incontinence. Urge UI refers to the involuntary loss of urine
due to an unexpected bladder contraction that is associated with a strong,
uncontrollable desire to urinate, often referred to as urgency. Causes of urge
UI include an overactive bladder muscle, neurologic abnormalities, such as those
caused by a stroke, and urethral instability or abnormal bladder relaxation
patterns.

Mixed urinary incontinence. Mixed UI is a mixture of stress and urge UI.

URINARY INCONTINENCE MARKET

The U.S. Department of Health and Human Services reports that approximately
13 million adults suffer from UI in the U.S., although precise figures are
uncertain because of underreporting due to the stigma associated with the
condition. The National Association for Continence estimates that approximately
31% of adults with UI suffer from stress UI, approximately 21% of adults with UI
suffer from urge UI, and approximately 30% of adults with UI suffer from mixed
UI. The U.S. Department of Health and Human Services has estimated that the
annual cost for treatment of UI in the U.S. exceeds $15 billion. This amount
includes all costs associated with the treatment of UI, including physician fees
and nursing home and long-term care costs. The Company believes that medical
devices for UI, which amounted to an estimated $250 million in sales in 1997,
represent a relatively small portion of the potential market due primarily to
the limitations of currently available devices.

UI particularly affects the elderly and women. Industry sources estimate
that approximately 19% of people over 65 living in non-institutional settings
and 40% of such persons living in institutional settings suffer from UI. UI is
believed to be a primary reason for admission to long-term nursing care
facilities. In addition to being prevalent in the elderly, UI is a major women's
health concern with women accounting for approximately 85% of the estimated 13
million adults with UI in the U.S. The higher incidence of UI among women is
generally attributed to pelvic trauma during pregnancy and childbirth, menopause
and abdominal surgery. UI will continue to be a significant health care problem
in the elderly and institutionalized populations and among adult females, and
the number of individuals suffering from UI is expected to increase as the
population continues to age.

CURRENT TREATMENTS AND THEIR LIMITATIONS

The Company views the treatment of UI at five levels of intervention: (i)
diagnosis; (ii) simple self-management through the use of products and
approaches that manage, but do not cure the condition, such as disposable or
reusable absorbents, behavioral therapy and pelvic muscle training exercises;
(iii) complex self-management through the use of products or procedures that can
be performed by the patient but require a device to be manually inserted in the
body, such as urethral and vaginal inserts and plugs; (iv) minimally invasive
treatments that can be accomplished on an outpatient basis, such as urethral
bulking agents, pharmaceuticals and Foley catheters; and (v) invasive surgery
under general anesthesia that involves suspension and sling procedures,
artificial sphincters and implantable nerve stimulation devices.

Disposable or reusable absorbents. Many cases of stress and urge UI are
managed through the use of disposable adult diapers, shields and reusable
absorbent pads. These products are palliative and do not treat the causes of the
patient's UI. The cost of diapers and pads over time can be substantial and is
not covered by medical insurance, creating a continuous financial burden for the
patient. Industry sources estimate that the annual sales of disposable diapers
and pads in the U.S. constitutes a $1.0 to $2.0 billion market. In addition,
this management technique requires frequent changing of diapers and pads to
control odor. Diapers and pads are also uncomfortable and wearing them can be an
embarrassment to the patient.

Behavioral therapy and pelvic muscle training exercises. Behavioral therapy
and related techniques are also used to manage UI through bladder and habit
training, pelvic muscle exercises (known as Kegel exercises) and biofeedback.
These techniques are primarily used in managing stress UI but can also be used
by persons suffering from urge UI. These therapies and techniques first teach
the patient to be aware of the group of muscles in the perineal area and to
contract them in a way that builds muscle tone around the bladder neck. These
treatments are time consuming, take several weeks or months before results are
evident, present uncertain outcomes and require strict patient compliance.
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27

Urethral and vaginal inserts and plugs. Urethral inserts act as expandable
stoppers to block the flow of urine when inserted in the urethra. When the
patient feels the need to urinate, these devices are either opened or removed to
allow the patient to urinate. The insertion method and the need to periodically
replace or remove these devices require a high degree of complex self-management
by the patient, which limits the usefulness of these devices to a small segment
of highly-motivated, extremely compliant patients. Potential adverse side
effects include urinary tract infections. Vaginal inserts are used to manage
stress UI by obstructing the bladder neck and urethra by applying pressure
through the neighboring vaginal cavity. These devices are frequently ineffective
in preventing leakage because it is difficult to fit patients properly and apply
sufficient pressure to eliminate the leakage of urine without causing
discomfort. Potential side effects observed with vaginal inserts include vaginal
discharge and tissue erosion.

Urethral bulking agents. Bulking agents are either biologically derived or
synthetic materials designed to be injected or implanted in or near the bladder
neck to treat stress UI by increasing tissue bulk. These bulking agents decrease
the urethral opening at the sphincter and compensate for the lack of muscle tone
that is needed to offset the hydrodynamic pressure of the bladder, thus
preventing urine leakage under stress. Bulking procedures are gaining acceptance
as a method of treating certain types of stress UI as a result of the high
efficacy rates achieved in clinical trials. However, biologically-derived
bulking agents currently available have experienced problems with absorption by
the body and may require retreatments within six to twelve months. Synthetic
bulking agents currently available have experienced problems with migration
because particles may be small enough to migrate to other areas of the body such
as the brain, lungs or lymphatic system. In addition, both synthetic and
biologically-derived bulking materials are not encapsulated and cannot be
contained after injection and therefore are not easily retrievable in the event
of chronic urinary retention.

Pharmaceuticals. Drug treatments can be used to manage both urge UI and
stress UI, but have demonstrated a limited efficacy, particularly in managing
stress UI. Drugs for the management of urge UI affect the contraction of the
muscle tissue of the bladder. Drugs for the management of stress UI attempt to
either affect contraction of the muscle tissue of the bladder neck or improve
the quality of the mucosal lining of the bladder neck and urethra. Drugs seldom
represent a long-term, effective solution and potential side effects include
dryness of the eyes (resulting in blurred vision) and mouth, urinary retention,
nausea, dizziness and the possibility of adverse drug interactions.

Foley catheters. Foley catheters, which are typically used to assist
patients unable to urinate post-surgery, may also be used to manage UI in
hospitals and long-term care facilities. The Foley catheter is inserted through
the urethra into the bladder. Once in place, the catheter is either clamped at
the exit point from the body or connected to an external urine collection bag.
Aside from the physical and emotional discomfort experienced by patients, the
direct path from the exterior to the bladder provides a conduit for bacteria,
and often results in bladder infections.

Suspension and sling procedures. Bladder neck suspension and sling
procedures involve invasive surgical intervention to elevate and stabilize the
urethra and the bladder neck in order to treat stress UI. In a bladder neck
suspension, the bladder neck and urethra are elevated to prevent urethral and
bladder neck prolapse (descent) during exertion. In a sling procedure, either an
autologous (patient tissue) or synthetic piece of material is placed under the
urethral-bladder junction, pulling it forward in a way that reinforces and
strengthens the sphincter. Surgeries of this nature are costly, delicate and
complicated procedures in which the outcome depends on a number of factors,
including the degree of severity of the patient's condition and the surgeon's
experience.

Artificial sphincters. Artificial sphincters are implantable, miniature,
hydraulic medical devices consisting of an inflatable cuff placed around the
urethra and a pump and tubing required to activate the cuff. The most common
applications are for post-prostatectomy incontinence and patients with
neuropathic bladders. Artificial sphincter implantation currently requires a
major inpatient surgical procedure and hospitalization with associated
discomfort, lengthy recovery period and high expense. Initial complications that
may arise are mainly associated with post-operative infection or urethral or
bladder injury during implantation. Delayed complications include mechanical
problems such as pump malfunctioning, fluid leaks, tubing kinks and tissue
atrophy.

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Implantable Nerve Stimulation Devices. Implantable nerve stimulation
devices stimulate the nerve bundle located in the spinal column that controls
bladder activity in an attempt to reduce the bladder spasms that cause urge UI.
The only such device currently sold commercially is derived from traditional
pacemaker technology, and the implantation of the device is an open surgical
procedure which is usually performed by a urologist and assisted by a
neurosurgeon, if necessary. This device involves a lead that is attached to the
spinal column and connected to an electrical stimulation device (which contains
a battery) implanted in the abdomen. Periodically, the patient must submit to
additional surgical procedures in order to change the batteries or replace the
implanted device. Implantation of the device requires costly major invasive
surgery including exposure of the spine. In clinical testing, the device showed
efficacy in approximately 75% of patients. However, 35% of patients reported
long-term pain from the device and required additional surgery to reposition the
implant.

THE UROSURGE SOLUTION

Stress UI solution. The Company believes that UroVive is an effective
method for treating stress UI and addresses the major problems associated with
existing treatments. UroVive is a minimally invasive system that is initially
being targeted for the treatment of stress UI caused by intrinsic sphincter
deficiency. The Company may seek to expand the targeted indications for UroVive
by conducting additional clinical trials and seeking additional regulatory
approvals.

The Company believes that the following are the principal advantages of
UroVive compared to other urethral bulking agents and other approaches for
treating stress UI:

- No absorption. The membrane of the UroVive microballoon completely
contains the hydrogel filler material, preventing loss of volume through
absorption. In contrast, other injectibles such as collagen can be
absorbed by the body, resulting in the potential need for retreatments
within six to twelve months in order to maintain bulk in the urethral
sphincter. With UroVive, long-term bulking of the urethral sphincter can
be achieved in a single procedure.

- No migration. UroVive does not spread along tissue planes or migrate to
other parts of the body like unencapsulated bulking agents such as
teflon or silicone microparticles. Migration causes difficulty in
maintaining bulk in the desired area, requiring the injection of large
amounts of material as well as possible retreatment. Furthermore,
migration to other parts of the body may result in the occurrence of
unpredictable and unintended side effects.

- Ease of use and patient convenience. Placement of UroVive microballoons
is a relatively easy procedure that takes approximately 20 minutes and
is performed using a cystoscope, a visualization device that is commonly
used in urinary tract procedures. In addition, UroVive is convenient for
the patient who experiences immediate continence and who is not required
to adhere to ongoing treatment regimens, which are necessary with
reusable or disposable absorbents, behavioral therapy, pelvic muscle
training exercises, pharmaceuticals and urethral and vaginal inserts and
plugs.

- Minimally invasive procedure. The UroVive procedure is minimally
invasive and can be performed in an outpatient or physician office
setting under local anesthesia. Unlike suspension and sling procedures
and artificial sphincters that may require several days of
hospitalization, patient recovery time is minimal and hospitalization is
not required.

- Long-term, cost-effective solution. The UroVive procedure is designed to
provide immediate, long-term continence from a one-time treatment. As
such, UroVive offers a cost-effective solution compared to palliative
measures that do not restore continence, other urethral bulking agents
that often require costly retreatments or invasive surgery.

- Retrievability. In cases of chronic urinary retention, it may be
necessary to retrieve the urethral bulking agent. UroVive microballoons
are retrievable transurethrally through a small incision in the urethra.
No practical method exists for retrieving competing urethral bulking
agents, all of which are unencapsulated.

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Urge UI solution. The Company believes that SANS is an effective system for
treating urge UI and addresses many of the problems with existing treatments.
SANS is a minimally invasive system that modulates bladder action through
stimulation of the afferent nerve fibers in the ankle area that lead to nerves
located in the spinal region that control bladder function.

The Company believes that the following are the principal advantages of
SANS compared to the only commercially available implantable electronic nerve
stimulation device and other approaches for treating urge UI:

- Effective and less invasive solution. SANS stimulates the same nerves
and achieves equivalent efficacy with significantly reduced invasiveness
and risk as compared to the only commercially available implantable
electronic nerve stimulation device, which requires an invasive
implantation of an electrical lead in close proximity to the spinal
column along with a battery operated electronic stimulation device in
the abdomen. Furthermore, clinical trials indicated that 35% of patients
treated with this spinal implant device required surgical reintervention
due to lead migration and other complications.

- Patient comfort. Percutaneous SANS delivers electrical stimulation
through a small diameter needle temporarily inserted in the ankle area
and subcutaneous SANS will deliver electrical stimulation through a
small receiver implanted in the ankle area. In contrast, the spinal
implant system delivers electrical stimulation through an implanted
device that is complex and bulky, which can result in patient
discomfort.

- Cost-effectiveness. The percutaneous SANS procedure is performed in
periodic, short visits to the doctor's office and uses a relatively
inexpensive disposable needle and lead wire assembly. By contrast, the
competing spinal implant entails the implantation of a costly,
self-contained electrical stimulation device in an invasive surgical
procedure, requiring retreatments for battery replacement and
reintervention due to complications. In addition, subcutaneous SANS
should enable the Company to reduce the cost of each SANS treatment by
ultimately enabling SANS treatments to be performed at home. Unlike the
spinal implant, SANS will not require reoperation for battery
replacement.

- Ease of use. Both percutaneous and subcutaneous SANS procedures are
relatively easy and will be performed in a physician office setting. The
percutaneous SANS treatment can be performed in approximately 30 minutes
by the urologist and implantation of the subcutaneous SANS receiver will
be performed in a short, outpatient procedure under local anesthesia.

- Curative approach. Other than a spinal implant, few approaches exist for
treating urge UI. SANS is designed to be a curative approach for
treating urge UI, unlike palliative approaches such as diapers. In
addition, SANS does not present the side-effects often associated with
pharmaceuticals, which also may have short-term effectiveness.

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PRODUCTS AND PRODUCTS UNDER DEVELOPMENT

The following table summarizes the status of the Company's products and
products under development as of March 31, 1998:

PRODUCT DESCRIPTION PRIMARY INDICATION STATUS

PRINCIPAL PRODUCTS
UroVive Self-detachable, self- Stress UI due to Commenced marketing in
sealing microballoon intrinsic sphincter Europe in March 1998.
implanted into the deficiency Pivotal clinical trials
urethral sphincter and in U.S. PMA expected to
permanently inflated be submitted in mid-
with a biocompatible 1999.
hydrogel.
Percutaneous SANS Needle device to Urge UI Commenced marketing in
electrically stimulate Europe in March 1998.
peripheral nerve fibers Pivotal clinical trials
located in ankle area in U.S. PMA expected to
that regulate bladder be submitted by early
and pelvic floor 1999.
function.
Subcutaneous SANS Implantable device to Urge UI IDE to be submitted in
electrically stimulate late 1998.
peripheral nerve fibers
located in ankle area
that regulate bladder
and pelvic floor
function.
OTHER PRODUCTS
SpiraStent Spiral-shaped stent Kidney drainage (i.e. Commenced marketing in
designed to facilitate urine, stones) U.S. and Europe in March
urine flow and removal 1998. 510(k) clearance
of kidney stones from received.
the kidney and ureter.
FilaStent Filament-reinforced Kidney drainage (i.e. Commenced marketing in
stent designed to urine, stones) Europe in March 1998.
facilitate urine flow 510(k) clearance
and removal of kidney application submitted.
stones from the kidney
and ureter.
AcuTrainer Non-invasive electric Urge UI Marketed in U.S. and
device to assist Europe.
patients with bladder
retraining exercises.
UroTherm Device to warm BPH surgical 510(k) clearance
irrigation fluids. procedures application submitted.
Kidney stone grasper Device to facilitate Kidney stones 510(k) clearance
removal of multiple application expected to
small and large kidney be submitted in late
stones from the ureter. 1998.
Demineralized bone paste Biologically derived VUR in infants and IDE approved in U.S.
paste. children
Urethral pressure catheter Hardware and disposable Intrinsic sphincter Functional prototype
device for measuring deficiency diagnosis expected by late 1998.
stress UI due to
intrinsic sphincter
deficiency.

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PRINCIPAL PRODUCTS

UROVIVE

UroVive system. The UroVive system includes a delivery system, a
microballoon and a syringe filled with biocompatible hydrogel, which will be
sold in an integrated kit. The microballoons are made of cross-linked silicone
polymer and are available in various sizes depending on the amount necessary to
provide the muscular tension for continence. The hydrogel material is a
hydrophilic, or water-absorbing polymer, which has been demonstrated to be safe
when used in other devices, including contact lenses. The microballoons can be
delivered periurethrally or transurethrally.

In a periurethral UroVive procedure, a cystoscope is inserted through the
urethra and used for visualization of the sphincter muscle while a catheter and
deflated microballoon are delivered directly into the sphincter muscle using a
needle and sheath. After proper needle positioning, the needle is removed, the
sheath is retracted and the deflated balloon is exposed in the tissue pocket
created in the sphincter muscle. Once inside the pocket, a syringe connected to
the catheter containing hydrogel is used to inflate the microballoon. When the
microballoon is sufficiently filled, the sheath and catheter are retracted, the
microballoon is detached, seals itself and remains in place. In a transurethral
UroVive procedure, a cystoscope is inserted in the urethra and a needle and
sheath are advanced through the working channel of the cystoscope and inserted
into the sphincter muscle, creating a small tissue pocket. The closed-end needle
is removed, leaving the sheath in place. A catheter and a deflated microballoon
are inserted through the lumen of the delivery sheath until the balloon is
positioned in the tissue pocket. As in a periurethral procedure, when the
microballoon is sufficiently filled, the microballoon is detached, seals itself
and remains in place.

[SERIES OF DIAGRAMS DEMONSTRATING THE UROVIVE PROCEDURE]

A typical UroVive procedure will involve the placement of three balloons
around the perimeter of the sphincter muscle to achieve closure. The procedure
can be performed in about 20 minutes in an outpatient

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setting and is designed to immediately restore the patient to normal urinary
continence. A typical procedure using three or four microballoons is comparable
to other urethral bulking agents.

UroVive clinical trials. In February 1996, the Company initiated clinical
testing of UroVive in a pilot study involving 27 women with stress UI due to
intrinsic sphincter deficiency. The study was completed in February 1997. The
Company's clinical investigators have been following the progress of these
patients, and the Company currently has one to two year follow-up data. Results
indicate a 90% efficacy rate for female patients with stress UI due to intrinsic
sphincter deficiency for which the Company has 18-month follow-up data. The
UroVive treatment is considered effective if the patient is either dry
(continent) or achieves an improvement on a scale, known as the Stamey Scale,
which is used to measure the grade and severity of UI symptoms.

The Company received FDA approval to enroll up to 216 patients at up to 10
U.S. sites in a pivotal clinical trial of UroVive for the treatment of females
with stress UI caused by intrinsic sphincter deficiency. This is a controlled,
randomized study in which two-thirds of the patients will be randomized into the
UroVive treated group and one-third will be randomized into a control group. The
control group patients will be treated with a commercially available collagen
urethral bulking agent. As of March 31, 1998, approximately 100 patients had
been enrolled with 70 patients in the UroVive treated group and 30 patients in
the control group. This clinical trial is designed to obtain data to support a
PMA application for UroVive, which the Company expects to submit in mid-1999.

The Company is conducting clinical trials for the treatment of other UI
indications using UroVive. For example, another indication in clinical trials
involves males who experience stress UI after undergoing a radical
prostatectomy. The Company is currently in the pilot phase of this trial in
which 10 patients will be treated. The Company plans to pursue regulatory
approvals for these other indications to expand UroVive's application.

SANS

Percutaneous SANS. The percutaneous SANS system consists of a generator
that delivers electrical impulses through a small disposable needle and lead
wire assembly. In a SANS procedure, the physician temporarily inserts the needle
into the proper location in the ankle area. After the lead wire and electrode
are attached, the SANS device is turned on and amplitude is slowly increased
until the patient's large toe starts to curl or the toe digits fan out,
indicating proximity to the nerve bundle. Amplitude is then reduced slightly and
the patient receives intermittent electrical pulses for approximately 30 minutes
per visit. The treatment is repeated weekly in a physician office setting and
after approximately 10 weeks, the physician can assess patient progress. If
improvement is significant, the physician may place the patient on a regimen
requiring less frequent treatments. SANS was originally developed by Dr.
Marshall Stoller, a leading urologist at UCSF School of Medicine.

Percutaneous SANS clinical trials. Clinical studies to date, encompassing
90 patients with average follow-up in excess of two-years, demonstrated an 80%
efficacy rate in the treatment of urinary urgency, frequency and pelvic pain
with no complications in over 1,000 treatment procedures. Efficacy is defined as
an at least 50% improvement in one or more of a patient's urge UI symptoms.

In the first quarter of 1998, the Company received FDA approval to enroll
up to 60 patients at up to four sites in a nonrandomized, pivotal clinical
trial. In this study, urgency and frequency will be used as benchmarks for
measuring patient progress over a period of at least 10 weeks and up to one
year. This clinical trial is designed to obtain data to support a PMA
application for percutaneous SANS, which the Company expects to submit in early
1999.

Subcutaneous SANS. To ultimately facilitate in-home use and enhance patient
convenience, the Company is developing a second generation, subcutaneous SANS
that involves the permanent implant of a small, thumbtack-shaped receiver near
the patient's ankle, eliminating the need for the use of a needle with each
treatment. The patient may then visit a physician weekly to receive the
electrical stimulus or perform the treatment on himself or herself at home.
Because the permanent implant is simply a receiver for a magnetic

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pulse, it will not require batteries and the patient will not have to undergo
subsequent implants for battery replacement.

Subcutaneous SANS clinical status. The Company is currently conducting
preclinical animal studies of subcutaneous SANS and, depending upon the outcome
of these studies, expects to file an IDE for FDA approval to conduct pilot and
pivotal clinical trials in late 1998.

OTHER PRODUCTS

SpiraStent and FilaStent

SpiraStent and FilaStent are ureteral stents designed to facilitate urine
flow and the passage of kidney stone fragments generated by lithotripsy or other
procedures. Approximately 200,000 lithotripsy procedures are performed annually
in the U.S. for kidney stone removal. Currently available ureteral stents are
simple tubes with intermittent side holes along their length. To date, the
principal purpose of ureteral stents has been to dilate the ureter to allow
urine passage around the stone fragments. Stones typically do not pass through
the center lumen of the stent or through the side holes, but will move along the
outside wall of the stent. With conventional smooth walled stents, the natural
peristaltic motion of the ureter causes stone fragments to oscillate back and
forth along the outer wall of the stent, resulting in slow downward progression.
SpiraStent is differentiated by its extrusion screw-like shape, which is
designed to overcome the problem of slow movement by allowing stones to pass
down the channel of the screw as natural peristalsis and urine flow occur. The
ability of SpiraStent to provide improved expulsion of stone fragments has been
demonstrated in preclinical animal trials.

FilaStent is a smooth ureteral stent with an embedded high strength
filament within its wall designed to facilitate post-encrustation removal of the
device. In some cases, ureteral stents may be left in place for 30 days or
longer, particularly when used to provide a conduit for urine passage after
certain types of kidney and ureteral surgeries. As a result, stents may become
encrusted and brittle, resulting in breakage during removal. With conventional
stents, encrustation and breakage can lead to the need for surgical intervention
to remove the fractured stent. With FilaStent, in the event of encrustation and
fracture of the stent, the fragments would remain bonded to the filament and be
retrieved upon removal of the stent.

AcuTrainer

AcuTrainer is a hand-held, battery-operated device that facilitates
behavior modification by chiming or vibrating at increasing time intervals to
prompt urge UI patients to urinate. Patients with urge UI often attempt to keep
their bladder as empty as possible at all times to avoid accidental urination.
However, the more frequently they urinate, the more frequently they get the urge
to urinate. Bladder retraining, when used as a first-line treatment modality,
has been shown to non-invasively improve or correct the condition in many
patients. AcuTrainer circumvents the need for the patient to keep cumbersome
voiding diaries and provides the clinician with an effective tool for monitoring
several parameters pertaining to patient progress. After urinating, the patient
presses a button which resets the internal clock of the device. When a patient
has an incontinence or leak episode, they will press another button, registering
this event in the device memory. The physician can choose the initial time
interval, and the device automatically advances the patient to the next time
interval only after a specific success rate is achieved. The physician may
access AcuTrainer memory to determine patient compliance, frequency of
urination, nocturia (urinating during sleep) and urge UI episodes.

UroTherm

The Company is developing UroTherm, a device for warming irrigation fluids
used in surgical procedures to treat benign prostatic hyperplasia ("BPH"),
laparoscopic surgical procedures and other types of gynecological and urological
procedures. Approximately 200,000 BPH surgical procedures are performed annually
in the U.S.

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During a typical laparoscopic or BPH surgical procedure, urologists may use
up to 30 liters of irrigation solution such as saline, which is warmed to body
temperature. Studies indicate that warmed irrigation fluid for urological
applications reduces infections, speeds healing and shortens hospital stays. The
current practice of heating bags of fluid is to place them in an oven and
replenish them from time to time as they are used. This process is inconvenient
and inefficient. To address this problem, the Company is developing UroTherm, a
system which will heat the solution in-line, eliminating the need to
continuously heat and replenish bags. UroTherm will consist of a small heating
unit that can be mounted onto an IV pole. The hardware unit will provide an
actual irrigation fluid temperature readout and an advanced electronic
temperature control system. The unit will consist of a plastic cartridge that is
disposable and will be included as part of the TURP infusion set. As the
irrigation solution flows through the disposable unit, it is warmed to body
temperature. The Company has submitted a 510(k) clearance application to the FDA
for UroTherm.

Kidney Stone Grasper

The Company is developing a kidney stone grasping device for removing
multiple small and large kidney stones or stone fragments from the ureter or
bladder. Current kidney stone graspers are typically either wire baskets or
pincers. These devices have sharp cutting edges, which can be painful and
traumatic to the patient. In addition, they typically can only grasp one stone
at a time. The Company's kidney stone grasper is designed with a soft,
collapsible polymeric net that can be opened in the ureter. Multiple stone
fragments can be snared as the net collapses around them and can then be
withdrawn through the ureteral catheter, minimizing trauma to the patient. The
Company plans to submit a 510(k) clearance application for the kidney stone
grasper in late 1998.

Demineralized Bone Paste

The Company is developing an injectable demineralized bone paste for
treatment of VUR in infants and children. VUR is a condition caused by an
abnormal interface between the ureter and the bladder resulting in backflow or
"reflux" of urine from the bladder to the kidney when the child urinates. VUR
can cause chronic urinary tract infections and necrosis of the kidney. Severe
cases of VUR must be treated with invasive and expensive surgery. The Company's
demineralized bone paste, which has been shown in preclinical trials
encompassing two years of data to be biocompatible, nonimmunogenic, nonmigratory
and nonresorbable, is injected at the junction of the bladder and uretero in a
minimally invasive outpatient procedure to restore proper functioning of the
child's urinary system. In January 1998, the Company received IDE approval to
commence a pilot study for treatment of VUR. This study is scheduled to begin in
July of 1998 and is expected to be followed by a non-randomized pivotal trial.
The development of this product is being partially funded by Child Healthcare
Corporation of America. The Company also intends to explore the use of the
demineralized bone paste in other UI indications, including the treatment of
urethral hypermobility.

Urethral Pressure Catheter

Urethral or sphincter pressure is an important factor in diagnosing
intrinsic sphincter deficiency. Establishing whether a patient's stress UI is
caused by intrinsic sphincter deficiency or another category of stress UI is
important because the treatments are specific to the indicated type of UI.

The current methods of testing for stress UI caused by intrinsic sphincter
deficiency consist of a video urodynamic profile procedure that costs
approximately $1,000 or use of a balloon catheter such as a Foley catheter that
is inflated partially in the bladder and then pulled past the sphincter muscle
to measure sphincter resistance. The urodynamic profile method is expensive and
the latter method can be inaccurate due to inconsistencies associated with the
pressure transducers in the balloon.

The Company's urethral pressure catheter will consist of a catheter with a
custom-designed tip. The tip has the appearance of an inverted umbrella. The
umbrella is folded shut and advanced into the bladder "handle first." The
umbrella tip can be opened to various degrees, thereby tailoring the
circumference of the device. After the umbrella tip is opened, the catheter is
retracted through the urethra. Pull force as a function of umbrella opening
diameter and urethral distance are measured. A correlation between pull force
and

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intrinsic sphincter strength can be generated to obtain a diagnosis of intrinsic
sphincter deficiency. The Company's urethral pressure catheter is designed to
provide diagnostic accuracy comparable to urodynamic profiling at significantly
reduced cost. The Company expects to have completed development of a functional
prototype by late 1998.

SALES AND MARKETING

The Company is marketing UroVive, percutaneous SANS, SpiraStent, FilaStent
and AcuTrainer in Europe and other international markets and is recognizing
revenues from these efforts in the second quarter of 1998. The Company's current
distributors cover 14 European countries, South Korea, Australia and Japan. Each
distributor has non-exclusive rights in its designated territory. The Company
distributes its products internationally through distributors on a
country-by-country basis to access such distributors' established networks and
specialized expertise regarding the healthcare system, including reimbursement
practices, in their respective markets. In addition, the Company has established
clinical research relationships with leading international urologists. The
Company believes that its country-specific approach will accelerate sales
growth, provide comprehensive geographic market coverage and enable the Company
to access particular markets and customers.

The Company is also marketing SpiraStent and AcuTrainer in the U.S. and
intends to commence marketing of UroVive and SANS in the U.S. upon receipt of
PMA approval. The Company's U.S. direct sales and marketing staff currently
consists of six sales and marketing executives and two telemarketers. The
Company has retained U.S. marketing rights to its products and plans to continue
expanding its direct sales effort as regulatory approvals and clearances are
received. Industry sources estimate that there are approximately 8,000
urologists and 800 urogynecologists in the U.S. to which the Company could
market its products. The Company believes that this relatively small number of
physicians can initially be served by a sales force of fewer than 20 people. See
"Risk Factors -- Limited Marketing and Sales Capabilities."

MANUFACTURING

The Company is currently manufacturing AcuTrainer and is scaling up its
manufacturing facilities for the clinical and early commercial production of its
other products. The Company recently leased an additional 11,500 square foot
space adjacent to the Company's headquarters in order to meet its anticipated
supply requirements. Historically, the Company has relied on contract
manufacturers to produce development prototypes and products for clinical
trials. However, as products receive regulatory clearance, the Company intends
to manufacture its own products, beginning with the assembly or manufacture of
percutaneous SANS hardware and disposables, UroVive kits, SpiraStent and
FilaStent kits and the preparation of demineralized bone paste. The Company is
currently in the process of building out its facility which is expected to be
completed in July 1998. This facility will contain a class 10,000 clean room.
See "Risk Factors -- Limited Manufacturing Experience."

The Company purchases raw materials and components used in its products
from various suppliers. A contract supplier provides the Company with the
microballoons used in the UroVive system under a mutually exclusive supply
agreement executed in April 1995. The agreement expires in April 2000 subject to
an automatic two-year extension if the Company does not receive the FDA's
approval of the Company's PMA application for UroVive by April 1999, which
approval the Company does not expect to receive by such date. In addition to
UroVive balloons, certain materials and components are currently purchased by
the Company from single sources. To date, these materials have generally been
readily available and the Company has not experienced supply shortages. See
"Risk Factors -- Dependence Upon Key Suppliers."

The Company is also required to register as a medical device manufacturer
with the FDA and to list its products with the FDA. Furthermore, prior to
approval of a PMA application, the Company's facilities, procedures and
practices, and the facilities, procedures and practices of its third-party
manufacturers, will be subject to a preapproval inspection by the FDA. In
addition, if the Company wishes to significantly modify its manufacturing
processes or change the supplier of a critical component, additional approvals
will be required from the FDA before the change can be implemented. The Company
has not yet undergone an FDA QSR

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inspection of its facilities, but may undergo such an inspection before or after
submission of its initial PMA application. See "Risk Factors -- Government
Regulation."

RESEARCH AND DEVELOPMENT

The Company believes that its future success will depend in large part upon
its ability to enhance its existing products and to develop other new products.
Accordingly, the Company intends to continue to devote significant funds and
efforts to research and development. The Company currently employs 17
individuals on a full-time basis and five individuals on a part-time basis for
its research and development and manufacturing efforts, including five
individuals with advanced degrees.

To the extent that the Company's medical advisors develop new products
which the Company believes represent attractive opportunities, the Company will
seek to negotiate licenses to the technology related to such products.

For the years ended December 31, 1995, 1996 and 1997, the Company's
research and development expenses were $0.8 million, $1.9 million and $3.6
million, respectively.

PATENTS AND PROPRIETARY RIGHTS

Because of the substantial length of time and expense associated with
bringing new products through the development and regulatory approval processes
in order to reach the marketplace, the medical products industry places
considerable importance on obtaining patent and trade secret protection for new
technologies, products and processes. Accordingly, 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
that provide a competitive advantage and to protect as trade secrets other
confidential and proprietary information.

The Company has received, licensed or has obtained an option or right to
license 10 issued or allowed U.S. patents and has five pending U.S. patent
applications. The Company or its licensors have obtained or applied for
corresponding patents for certain of these U.S. patents and applications in a
limited number of foreign countries. These patent rights relate to UroVive,
SANS, AcuTrainer, SpiraStent, FilaStent, UroTherm, the kidney stone grasper,
demineralized bone paste and the urethral pressure catheter. The issued U.S.
patents have expiration dates ranging from 2009 to 2015.

Patents and patent applications related to the Company's products are
either held directly by the Company or licensed from others. Much of the
original technology for the Company's products other than FilaStent and UroTherm
is licensed from others. The Company has developed improvements to the licensed
technologies related to UroVive and has filed additional patent applications to
broaden the coverage of existing patents for such improvements. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."

The Company has licensed technologies relating to UroVive, SANS,
SpiraStent, AcuTrainer, the kidney stone grasper, demineralized bone paste and
the urethral pressure catheter. The Company holds an exclusive worldwide right
and license to the technologies underlying UroVive, subject to a royalty-free,
nonexclusive license granted to the U.S. government (for patents developed with
U. S. government funding) and a royalty-free, nonexclusive, irrevocable license
retained by the licensor to employ the licensed technologies and processes for
research purposes only. The Company has also obtained an exclusive license to
all U. S. and foreign patents and patent applications related to the technology
underlying SANS, as well as the right to issue sublicenses to third parties in
regard to SANS-related patents. The Company has also obtained similar licenses
related to technologies underlying SpiraStent and the kidney stone grasper from
the same licensor for SANS. All of such licenses for SANS, SpiraStent and the
kidney stone grasper are subject to the right of the licensor to use the
technologies for educational and research purposes. The Company also holds an
exclusive, worldwide license to and right to sublicense AcuTrainer as well as a
right of first refusal to any future intellectual property or patent rights held
by the AcuTrainer licensor. The Company also has exclusive, worldwide licenses
to and the right to grant sublicenses to demineralized bone paste (for
urological applications) and the urethral pressure catheter, subject to rights
held by the U. S. government and the licensors. All of the licenses generally
remain in effect for the term of the underlying patents, unless earlier

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terminated by the Company, upon the Company's breach or operation of law. For a
discussion of royalties payable under these licenses, see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" and the Company's financial statements and notes
thereto.

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 no be brought against the
Company in the future or that any such claims will not be successful. See "Risk
Factors -- Dependence on Patents and Proprietary Technology."

COMPETITION AND TECHNOLOGICAL CHANGE

The medical device industry, including in particular the UI product
industry, is highly competitive. The Company believes that primary competitive
factors include the level of physician and consumer awareness and acceptance of
available treatment methods, product efficacy, consistency of product quality
and delivery, price, technical capability and the training of health care
professionals and consumers in the use of available treatment methods. The
Company's ability to compete in this industry will also be affected by its
product development capabilities and innovation, its ability to obtain required
regulatory clearances, its ability to protect the proprietary technology
included in its products, its manufacturing and marketing capabilities and its
ability to attract and retain skilled employees.

C.R. Bard, Inc. sells the only urethral bulking agent currently sold
commercially in the U.S. and Medtronic, Inc. sells the only commercially
available implantable electronic nerve stimulation device for urge UI. Current
major competitors who compete in the urethral bulking agent market include C.R.
Bard, Inc., Uroplasty, Inc., Advanced UroScience, Inc., BioMatrix, Inc. and
Mentor Corporation. Current major competitors who compete in the stent market
include Boston Scientific Corporation, Circon Corporation and Cook Incorporated.

The Company's competitors may have greater experience in developing
products, conducting clinical trials, obtaining regulatory approvals, and
manufacturing and marketing products than the Company. Certain of these
competitors may obtain patent protection, approval or clearance by the FDA or
foreign countries or product commercialization earlier than the Company, any of
which could materially adversely affect the Company. Furthermore, if the Company
commences significant commercial sales of its products, it will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which it currently has limited experience. See "Risk
Factors -- Competition."

Other recently developed technologies or procedures are, or may in the
future be, the basis of competitive products. There can be no assurance that the
Company's current competitors or other parties will not succeed in developing
alternative technologies and products that are more effective, easier to use or
more economical than those which have or are being developed by the Company or
that would render the Company's technology and products obsolete and
non-competitive in these fields. In such event, the Company's business,
financial condition and results of operations could be materially adversely
affected.

GOVERNMENT REGULATION

United States

The Company's products and its research and development activities are
subject to stringent regulation by numerous governmental authorities,
principally the FDA and corresponding state and foreign regulatory agencies. The
Federal Food, Drug, and Cosmetic Act (the "FDC Act"), as amended, the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the preclinical and clinical testing,
design, manufacture, safety, efficacy, labeling, storage, record keeping,
advertising and promotion of medical devices.

In the U.S., medical devices are classified into three different classes,
class I, II and III, on the basis of controls deemed necessary to reasonably
ensure the safety and effectiveness of the device. Class I devices are subject
to general controls (e.g., labeling, premarket notification and adherence to
FDA's QSRs) and class II

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devices are subject to general and special controls (e.g., performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, class III devices are those which must receive premarket approval by
the FDA to ensure their safety and effectiveness (e.g., life-sustaining,
life-supporting and implantable devices, or new devices which have been found
not to be substantially equivalent to legally marketed devices).

Percutaneous SANS is a class II medical device that requires PMA approval
prior to marketing in the U.S. UroVive, subcutaneous SANS and demineralized bone
paste are class III devices that require PMA approval prior to marketing in the
U.S. SpiraStent, FilaStent, AcuTrainer, UroTherm, the kidney stone grasper and
the urethral pressure catheter are eligible for clearance under the 510(k)
premarket notification process.

Generally, before a new medical device can be marketed, marketing clearance
must be obtained through a 510(k) premarket notification or approval of a PMA
application. A 510(k) clearance will typically be granted by the FDA if it can
be established that the device is substantially equivalent to a "predicate
device," which is a legally marketed class I or II device or a class III device
for which the FDA has not called for PMAs. The FDA has been requiring an
increasingly rigorous demonstration of substantial equivalence and this may
include a requirement to submit human clinical trial data. It generally takes
four to twelve months from the date of a 510(k) submission to obtain clearance,
but it may take longer. The Company made its 510(k) submission for FilaStent in
March 1998 and for UroTherm in November 1996.

The FDA may determine that a medical device is not substantially equivalent
to a predicate device, or that additional information is needed before a
substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional information, could
prevent or delay the market introduction of new products that fall into this
category. For any devices that are cleared through the 510(k) process,
modifications or enhancements that could significantly affect the safety or
effectiveness, or that constitute a major change in the intended use of the
device, will require new 510(k) clearances.

A PMA application must be submitted if a proposed device is not
substantially equivalent to a legally marketed class I or class II device, or if
it is a preamendment class III device for which the FDA has called for PMAs. A
PMA application must be supported by valid scientific evidence to demonstrate
the safety and effectiveness of the device, typically including the results of
clinical trials, bench tests, and laboratory and animal studies. The PMA must
also contain a complete description of the device and its components, and a
detailed description of the methods, facilities and controls used to manufacture
the device. In addition, the submission must include the proposed labeling,
advertising, and any training materials. The PMA process can be expensive,
uncertain and lengthy, and a number of devices for which FDA approval has been
sought by other companies have never been approved for marketing. The Company
has not submitted a PMA application for UroVive, the SANS devices or
demineralized bone paste.

Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing.
Once the submission is accepted for filing, the FDA begins an in-depth review of
the PMA. The FDA review of a PMA application generally takes one to three years
from the date the PMA is accepted for filing, but may take significantly longer.
The review time is often significantly extended by the FDA asking for more
information or clarification of information already provided in the submission.
During the review period, an advisory committee, typically a panel of
clinicians, may be convened to review and evaluate the application and provide a
recommendation to the FDA as to whether the device should be approved. The FDA
accords substantial weight to the recommendation but is not bound by it. Toward
the end of the PMA review process, the FDA generally will conduct an inspection
of the manufacturer's facilities to ensure compliance with applicable QSRs,
which include elaborate testing, control documentation and other quality
assurance procedures. The Company has not yet undergone an FDA QSR inspection
and does not anticipate that it will undergo such an inspection until after
filing of its initial PMA application. Separate preapproval inspections are
required for each PMA application.

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If FDA evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter, which usually contains a number of conditions that must be
met in order to secure final approval of the PMA. When and if those conditions
have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA
approval letter, authorizing marketing of the device for certain indications. If
the FDA's evaluation of the PMA application or manufacturing facilities is not
favorable, the FDA will deny approval of the PMA application or issue a
"complete response" letter. The FDA may determine that additional clinical
trials are necessary, in which case the PMA may be delayed for one or more years
while additional clinical trials are conducted and submitted in an amendment to
the PMA. Modifications to a device that is the subject of an approved PMA, its
intended use or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.

If human clinical trials of a device are required, either for a 510(k)
submission or a PMA application, and the device presents a "significant risk,"
the sponsor of the trial (usually the manufacturer or the distributor of the
device) must file an investigational device exemption ("IDE") application prior
to commencing human clinical trials. The Company has received an IDE for
UroVive, percutaneous SANS and the demineralized bone paste and expects to file
an IDE application for subcutaneous SANS. The IDE application must be supported
by data, typically including the results of animal and laboratory testing. If
the IDE application is approved by the FDA and one or more appropriate
Institutional Review Boards ("IRBs"), human clinical trials may begin at a
specific number of investigational sites with a specific number of patients, as
approved by the FDA. If the device presents a "nonsignificant risk" to the
patient, a sponsor may begin the clinical trial after obtaining approval for the
study by two or more appropriate IRBs without the need for FDA approval.
Submission of an IDE does not give assurance that FDA will approve the IDE and,
if it is approved, there can be no assurance that FDA will determine that the
data derived from the studies support the safety and efficacy of the device or
warrant the continuation of clinical trials. Sponsors of clinical trials are
permitted to sell investigational devices distributed in the course of the study
provided such compensation does not exceed recovery of the costs of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.

If clearance or approval is obtained, any device manufactured or
distributed by the Company will be subject to pervasive and continuing
regulation by the FDA. The Company will be subject to routine inspection by the
FDA and other international regulatory authorities and will have to comply with
the host of regulatory requirements that usually apply to medical devices
marketed in the U.S., including labeling regulations, QSR requirements, the
Medical Device Reporting ("MDR") regulation (which requires a manufacturer to
report to the FDA certain types of adverse events involving its products), and
the FDA's general prohibitions against promoting products for unapproved or
"off-label" uses.

If the FDA believes that a company is not in compliance with law, it can
institute proceedings to detain or seize products, issue a recall, enjoin future
violations and assess civil and criminal penalties against the Company, its
officers and its employees. Failure to comply with the regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, regulations regarding the
manufacture and sale of the Company's products are subject to change. The
Company cannot predict the effect, if any, that such changes might have on its
business, financial condition and results of operations.

Among the requirements for product approval is the requirement that the
prospective manufacturer conform to the FDA's Quality Standard Regulation
("QSR") requirements, which incorporate the FDA's former GMP regulations. QSR
addresses the design and other applicable controls, methods, facilities and
quality assurance controls used in the manufacture, packaging, storing and
installation of products. In complying with the QSR regulations, manufacturers
must continue to expend time, money and effort in product, record keeping and
quality control to assure that the product meets applicable specifications and
other requirements. The FDA periodically inspects device and drug manufacturing
facilities in the U.S. in
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order to assure compliance with applicable QSR requirements. Failure of the
Company to comply with the QSR regulations or other FDA regulatory requirements
could have a material adverse effect on the Company's business, financial
condition and results of operations.

The President recently signed into law the Food and Drug Administration
Modernization Act of 1997. This legislation makes changes to the device
provisions of the FDA Act and other provisions in the Act affecting the
regulation of devices. Among other things, the changes will affect the 510(k)
and PMA processes, and also will affect device standards and data requirement
procedures relating to humanitarian and breakthrough devices, tracking and
postmarket surveillance, accredited third-party review, and the dissemination of
off-label information. The Company cannot predict how or when these changes will
be implemented or what effect the change will have on the regulation of the
Company's products.

International

In order for the Company and its distributors to market its products in
Europe and other foreign countries, the Company and/or its distributors must
obtain required regulatory approvals and comply with extensive regulations
governing safety, quality and manufacturing processes. These regulations vary
significantly from country to country and with respect to the nature of the
particular medical device. The time required to obtain approval to market the
Company's products may be longer or shorter than that required in the U.S., and
requirements for licensing may differ from FDA requirements.

In order to market the Company's products in the member countries of the
European Union, the Company will be required to comply with the Medical Devices
Directive ("MDD") and obtain CE mark certification. CE mark certification is an
international symbol of adherence to quality assurance standards and compliance
with applicable European medical device directives. Under the system established
by the MDD, all medical devices other than active implants and in-vitro
diagnostic products must qualify for CE marking by June 14, 1998. In August
1997, the Company was granted ISO 9001 certification for its Coralville, Iowa
facility. The ISO 9001 designation, and certain other certifications received by
UroSurge under the auspices of a notified body designated under the MDD, allows
UroSurge to self-certify its products for the CE mark, other than permanent
implantables such as the subcutaneous SANS, which will require a separate CE
mark application through a designated notified body.

In order to sell a medical device in Japan, a company must obtain
regulatory approval from the Japanese Ministry of Health ("MOH"). UroSurge is
currently negotiating a consulting agreement with a contract research
organization to begin the registration process for UroVive. AcuTrainer is
currently being sold in Japan and does not require registration with the MOH.

THIRD-PARTY REIMBURSEMENT

Reimbursement and health care payment systems in international markets vary
significantly by country. In connection with international product
introductions, the Company may be required to seek international reimbursement
approvals. If required, there can be no assurance that any such approvals will
be obtained in a timely manner, or at all, and failure to receive such
international reimbursement approvals could have an adverse effect on market
acceptance of the Company's products in the international markets in which such
approvals are sought.

In the U.S., health care providers, such as hospitals and physicians, that
purchase medical devices such as the Company's products, generally rely on
third-party payors, principally federal Medicare, state Medicaid and private
health insurance plans, to reimburse all or part of the cost of the treatment.
In the U.S., third-party reimbursement is generally available for surgical
procedures and minimally invasive treatments for UI but generally is unavailable
for patient management products such as diapers and pads.

In the U.S. and certain other countries, third-party reimbursement is
currently generally available for certain bulking agents for UI. The Medicare
reimbursement rate for commercially available injectable bulking agents is
currently approximately $300 per two and one-half milliliter syringe. The
Company believes that typically three to five syringes of such bulking agents
are used during an injection procedure. However, there is

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no uniform policy for such reimbursement and there is no assurance UroVive will
receive the same level of reimbursement, if any. In the U.S. and certain other
countries, third-party reimbursement is currently generally available for
SpiraStent, FilaStent and the kidney stone retriever as they represent
improvements on products that are currently being sold and reimbursed. In the
U.S., reimbursement has been available from certain private payors and from
Medicare for implantable nerve stimulation devices. Accordingly, the Company
believes that reimbursement may become available for the Company's SANS devices
following regulatory approval, subject to the Company's ability to demonstrate
the cost-effectiveness and clinical utility of such products to third-party
payors. The availability of third-party reimbursement for its products or
competitors' products and continuing efforts to reduce the costs of health care
by decreasing reimbursement rates may reduce the price received by the Company
for its products or the ability of the Company's products to gain market
acceptance.

Reimbursement for the Company's products and procedures employing such
products in the U.S. will be dependent on the Company's ability to obtain FDA
clearances and approvals to market products in the U.S. and on the Company's
ability to demonstrate the clinical utility and cost-effectiveness of its
products through clinical trials, peer reviewed articles in medical journals and
long-term follow-up data regarding the efficacy of its products. The Company
intends to work with managed care organizations to explore the possibility of
reimbursement for the use of its products in the U.S. Any such reimbursement is
likely to be variable among third-party payors. See "Risk Factors -- Uncertainty
Relating to Third-Party Reimbursement."

EMPLOYEES

As of March 31, 1998, the Company employed 34 persons. Of these employees,
22 are in research and development and manufacturing, nine are in sales and
marketing and three are in finance and administration and other business
functions. None of the Company's current employees is represented by a labor
union or is the subject of a collective bargaining agreement. The Company
believes that it maintains good relations with its employees.

PRODUCT LIABILITY

Although the Company has not been the subject of any product liability
litigation to date, the medical products industry is subject to substantial
litigation, and the Company, as a manufacturer of a medical products to be used
in the body, faces an inherent business risk of exposure to product liability
claims in the event that the use of its products is alleged to have resulted in
adverse effects to a patient. The Company currently has product liability
insurance with certain coverage limitations. 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 clinical trials or
the commercialization of its products. There can be no assurance that liability
claims will not exceed coverage limits. Such insurance is expensive and in the
future may not be available on acceptable terms, if at all. Furthermore, the
Company does not expect to be able to obtain insurance covering its costs and
losses as a result of any recall of its products due to alleged defects, whether
such recall is instituted by the Company or required by a regulatory agency. A
product liability claim, recall or other claim with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the business, financial condition and results of operations of the
Company. See "Risk Factors -- Product Liability Risk; Limited Insurance
Coverage."

FACILITIES

The Company's principal operations are conducted in Coralville, Iowa, in an
approximately 10,000 square foot facility. This facility serves as the site for
the Company's corporate headquarters. In addition, the Company occupies an
approximately 11,500 square foot manufacturing facility next to its corporate
headquarters. The Company is in the process of building out its manufacturing
facility and expects to be completed by July 1998. Both facilities are occupied
under a triple-net lease which expires in 2000. The Company has the option of
renewing the lease on both buildings for an additional five-year period. The

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Company believes that these facilities are sufficient to meet the Company's
requirements through at least the next several years.

LEGAL PROCEEDINGS

The Company is not currently a party to any material pending legal
proceedings.

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MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The executive officers, key employees and directors of the Company and
their ages as of March 31, 1998 are as follows:

NAME AGE POSITION

David H. Maupin................ 54 President, Chief Executive Officer and Director
Michael J. Magliochetti,
Ph.D. ....................... 34 Senior Vice President and Chief Technical Officer
Donald R. Beussink............. 43 Vice President of Sales and Marketing
Randal L. Owens................ 53 Vice President of Finance and Chief Financial Officer
Steven J. Preiss............... 42 Vice President of Clinical and Regulatory Affairs
Dick P. Allen(1)............... 53 Director
William E. Engbers(2).......... 55 Director
Robert E. Curry, Ph.D.(2)...... 51 Director
Joseph F. Lovett(1)............ 49 Director

- ------------------------------
(1) Member of the Audit Committee.

(2) Member of the Compensation Committee.

DAVID H. MAUPIN has been President, Chief Executive Officer and a Director
since joining UroSurge in February 1994. Before joining UroSurge, Mr. Maupin
served as President and Chief Executive Officer of Menlo Care, Inc., a medical
device company, from June 1989 to February 1994. Prior to joining Menlo Care,
Inc., Mr. Maupin was President of Gambro, Inc., a Swedish dialysis company,
where he was responsible for all operations in the Western Hemisphere. Mr.
Maupin holds an M.A. and an M.B.A. from the University of Chicago and a B.A.
from Harvard College.

MICHAEL J. MAGLIOCHETTI, PH.D. has been Senior Vice President and Chief
Technical Officer of the Company since February 1997. From 1994 to February
1997, Dr. Magliochetti was Vice President of Research and Development and Chief
Technical Officer of the Company. From 1992 to 1994, Dr. Magliochetti was
Director of Advanced Development for the Haemonetics Corporation, a medical
device company. Prior to joining Haemonetics, Dr. Magliochetti held various
positions with Delta Suprenant Corporation, a polymer products company, serving
most recently as Director of New Product Development. Dr. Magliochetti is
currently an adjunct professor in the Department of Biomedical Engineering at
the University of Iowa and the Chairman of the Industry Development Committee
for the National Foundation for Bladder Research. Dr. Magliochetti holds a Ph.D.
in Chemical Engineering from the University of Massachusetts at Amherst, an
M.B.A. from Northeastern University and a B.S. in Chemical Engineering from
Northeastern University.

DONALD R. BEUSSINK has been Vice President of Sales and Marketing of the
Company since May 1997. From August 1995 to May 1997, Mr. Beussink was
responsible for U.S., Canadian and Latin American Sales at Meadox Medicals, a
subsidiary of Boston Scientific. Prior to joining Meadox Medicals, Mr. Beussink
spent fifteen years in various positions, most recently as Director of Sales and
Senior Marketing Manager, at Mallinckrodt Medical and Mallinckrodt Veterinary.
Mr. Beussink holds an M.B.A. from Lindenwood College.

RANDAL L. OWENS has been Vice President of Finance and Chief Financial
Officer of the Company since February 1998. Prior to joining the Company, Mr.
Owens was the president of Owens & Associates, an international management
consulting firm from 1994 to 1998. From 1974 to 1993, Mr. Owens served in
numerous financial management positions at NCR Corporation, a computer systems
manufacturing and marketing company, including Chief Financial Officer of the
Pacific Group. Mr. Owens holds a B.S.E. from the University of Pennsylvania,
Wharton School of Business and an M.B.A. from the University of Michigan.

STEVEN J. PREISS has been Vice President of Clinical and Regulatory Affairs
of the Company since April 1997. Mr. Preiss was president of CPROS, a regulatory
consulting firm, from May 1996 to April 1997. From August 1992 to May 1996, Mr.
Preiss held various positions at Bio-Pharm Clinical Services, a clinical

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research organization, including Vice President of Clinical Programs and Data
Management. Prior to joining Bio-Pharm Clinical Services, Mr. Preiss was
Clinical Programs Director at Ioptex Research, Inc., a medical device company.
Mr. Preiss holds a B.S. in Chemistry from St. Lawrence University.

DICK P. ALLEN joined the Company's Board of Directors in July 1994. Mr.
Allen has been President of DIMA Ventures, Inc., a private investment firm since
1987. Mr. Allen was a Founder and Vice-President of Caremark, Inc., a home
infusion therapy company acquired by Baxter International in 1987. He also
serves on the Board of Directors of MicroTherapeutics, Inc., a publicly traded
company. Mr. Allen holds an M.B.A. from Stanford University Graduate School of
Business and a B.S. from Yale University.

WILLIAM E. ENGBERS joined the Company's Board of Directors in September
1995. Since 1996, Mr. Engbers has been a Director of Venture Capital for
Allstate Insurance Company. From 1989 to 1996 Mr. Engbers was Venture Group
Manager for Allstate Insurance Co. He also serves on the Board of Directors of
La Jolla Pharmaceutical Company and DM Management, each of which is publicly
traded.

ROBERT E. CURRY, PH.D. joined the Company's Board of Directors in September
1995. Since 1991, Dr. Curry has been a General Partner and Vice President of the
Sprout Group, a venture capital management firm and affiliate of DLJ, one of the
underwriters in this offering. Dr. Curry also serves on the Boards of Directors
of AutoCyte, Inc., Biocircuits Corp., Diatide, Inc., Nanogen, Inc., and Photon
Technology International, Inc. and several private companies. He holds an M.S.
and Ph.D. in Chemistry from Purdue University and received his B.S. from the
University of Illinois.

JOSEPH F. LOVETT joined the Company's Board of Directors in August 1993.
Since 1988, Mr. Lovett has been a General Partner of Medical Science Partners
venture fund. From 1985 to 1988, Mr. Lovett was Executive Vice President of
Damon Biotech, a biotechnology company. Mr. Lovett holds an M.B.A. from
California State Polytechnic Institute and received his B.A. from the University
of Vermont.

MEDICAL ADVISORS

The Company has assembled a Medical Advisory Board comprised of six
individuals who are prominent in the field of urology research. Members of the
Medical Advisory Board review the Company's research and development activities
and are available for consultation with the Company's management and staff
relating to their respective areas of expertise. Several of the members of the
Medical Advisory Board meet more frequently, on an individual basis, with the
Company's management and staff to discuss the Company's ongoing research and
development projects.

The names and background of the current members of the Medical Advisory
Board are set forth below:

ANTHONY M. ATALA, M.D. has been a member of the Department of Urology at
Children's Hospital and Medical Center, an affiliate of Harvard Medical School,
since 1990. Dr. Atala is currently the Director of the Tissue Engineering
Program, is in charge of the Bladder Reconstruction Cohort and heads the
Laboratory for Cellular Therapeutics in the Department of Urology. Dr. Atala is
an Assistant Professor of Surgery (Urology) at Harvard Medical School. Dr. Atala
is a member of the Board of Directors, the Medical Advisory Board and Chairman
of the Research Scholar Program for the National Kidney Foundation of
Massachusetts and Rhode Island. He is also Chairman of the Board of Directors
for the National Bladder Foundation.

MICHAEL MARBERGER, M.D., PH.D. has been Professor and Chairman of the
Department of Urology of the Klinik Fur Urologie of the University of Vienna in
Vienna, Austria since 1990.

W. SCOTT MCDOUGAL, M.D. has been the Chief of Urology at Massachusetts
General Hospital (Harvard Medical School) since 1991.

MARTIN RESNICK, M.D. has been a Professor and Chairman of the Department of
Urology of Case Western University of Cleveland, Ohio since 1981. Dr. Resnick is
also affiliated with Metropolitan Hospital, the V.A. Hospital of Cleveland and
Henry Ford Hospital.

THOMAS STAMEY, M.D. has been a Professor at Stanford University since 1961.
From 1961 to 1994, Dr. Stamey was the Chairman of the Department of Urology of
Stanford University.

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RICHARD WILLIAMS, M.D. has been the Chairman of the Department of Urology
of the University of Iowa Hospitals and Clinics since 1984. Dr. Williams also
holds the Rubin H. Flock Endowed Chair in Urology.

BOARD COMPOSITION

The Company currently has five directors. In accordance with the terms of
the Company's Restated Certificate of Incorporation, effective upon the closing
of this offering, the terms of office of the Board of Directors will be divided
into three classes: Class I, whose term will expire at the annual meeting of
stockholders to be held at the annual meeting of stockholders to be held in
1999; Class II, whose term will expire at the annual meeting of stockholders to
be held in 2000; and Class III, whose term will expire at the annual meeting of
stockholders to be held in 2001. The Class I directors are Robert E. Curry,
Ph.D. and Joseph F. Lovett, the Class II director is David H. Maupin and the
Class III directors are Dick P. Allen and William E. Engbers.

At each annual meeting of stockholders after the initial classification,
the successors to directors whose term will then expire will be elected to serve
from the time of election and qualification until the third annual meeting
following election. In addition, the Company's Bylaws provide that the
authorized number of directors may be changed only by resolution of the Board of
Directors. Any additional directorships resulting from an increase in the number
of directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the directors. This
classification of the Board of Directors may have the effect of delaying or
preventing changes in control or management of the Company.

Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than its
nonemployee directors, devote such time to the affairs of the Company as is
necessary to discharge their duties. There are no family relationships among any
of the directors, officers or key employees of the Company.

BOARD COMMITTEES

The Audit Committee of the Board of Directors (consisting of Dick P. Allen
and Joseph F. Lovett) reviews the internal accounting procedures of the Company
and consults with and reviews the services provided by the Company's independent
accountants. The Compensation Committee of the Board of Directors (consisting of
Robert E. Curry, Ph.D. and William E. Engbers) reviews and recommends to the
Board the compensation and benefits of all executive officers of the Company and
establishes and reviews general policies relating to compensation and benefits
of employees of the Company. The Board does not have a nominating committee or
any committee currently performing the functions of a nominating committee.

DIRECTOR COMPENSATION

The Company does not pay its directors for attending meetings of the Board
of Directors or for serving on Committees of the Board of Directors. Directors
are reimbursed for their out-of-pocket expenses incurred in attending meetings.
From time to time, certain directors of the Company have received grants of
options to purchase shares of the Company's Common Stock pursuant to the 1994
Stock Option Plan. After the closing of this offering, directors of the Company
will be eligible to receive grants of options to purchase Common Stock pursuant
to the 1998 Stock Option Plan. See "-- Incentive Stock Plans" and "Certain
Transactions."

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth certain
information for the year ended December 31, 1997 regarding the compensation of
the Company's Chief Executive Officer and the other executive officers of the
Company whose salary and bonus for such fiscal year were in excess of $100,000
(the "Named Executive Officers").

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SUMMARY COMPENSATION TABLE

LONG-TERM
COMPENSATION
1997 ANNUAL ------------
COMPENSATION SECURITIES ALL OTHER
--------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) ($)

David H. Maupin................................. 203,963 -- 50,000 --
President and Chief Executive Officer
Michael J. Magliochetti, Ph.D................... 176,947 -- 50,000 15,000(1)
Senior Vice President and Chief Technical
Officer
Donald R. Beussink.............................. 74,360 -- 75,000 30,263(2)
Vice President, Sales and Marketing
Steven J. Preiss................................ 75,000 -- 55,000 82,974(3)
Vice President, Clinical and Regulatory
Affairs

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(1) Dr. Magliochetti received a $60,000 Housing Assistance Loan on October 3,
1994, which was forgiven in 1995, 1996 and 1997 in the amount of $15,000 per
year plus accrued interest.

(2) Mr. Beussink was hired by the Company in June 1997 and received $30,263 for
relocation expenses.

(3) Mr. Preiss was hired by the Company in April 1997. Mr. Preiss received
$36,074 for relocation expenses, and a $46,900 loan to assist with housing
costs, which has been repaid in full as of March 31, 1998.

Option Grants in Last Fiscal Year. The following table sets forth each
grant of stock options made during the fiscal year ended December 31, 1997 to
each of the Named Executive Officers:

OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997

INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE PRICE APPRECIATION
UNDERLYING GRANTED TO OF BASE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL 1997(%)(1) ($/SH) DATE 5%($) 10%($)

David H. Maupin............... 50,000 15.9 0.20 02/04/02 2,763 6,105
Michael J. Magliochetti,
Ph.D........................ 25,000 8.0 0.20 02/04/02 1,381 3,053
25,000 8.0 0.50 12/05/02 3,454 7,631
Donald R. Beussink............ 75,000 23.9 0.50 06/17/02 10,361 22,894
Steven J. Preiss.............. 35,000 11.2 0.20 04/01/02 1,934 4,274
20,000 6.4 0.50 12/05/02 2,763 6,105

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(1) In 1997, the Company granted employees options to purchase an aggregate of
313,500 shares of Common Stock.

(2) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), shown are the gains or "option spreads" that would exist for
the respective options granted. These gains are based on the assumed rates
of annual compound stock price appreciation of 5% and 10% from the date the
option was granted over the full option term. These assumed annual compound
rates of stock price appreciation are mandated by the rules of the
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.

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Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. No
options were exercised by the Named Executive Officers in 1997. The following
table sets forth for each of the Named Executive Officers the number and value
of securities underlying unexercised options held at December 31, 1997:

AGGREGATE OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1997 AND
OPTION VALUES AT DECEMBER 31, 1997

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997(#)(1) DECEMBER 31, 1997($)(2)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE

David H. Maupin................................ 38,750 88,750
Michael J. Magliochetti, Ph.D.................. 104,167 95,833
Donald R. Beussink............................. -- 75,000
Steven J. Preiss............................... -- 55,000

- ------------------------------
(1) Based upon an assumed fair market value of $ per share as of the date
of this Prospectus less the exercise price per share.

(2) Based upon an assumed initial public offering price of $ less the
exercise price per share.

INCENTIVE STOCK PLANS

1994 Stock Plan. The Company's 1994 Stock Plan, as amended and restated
(the "1994 Plan") provides for the granting to employees of incentive stock
options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code"), and for the granting to employees and
consultants of nonstatutory stock options and stock purchase rights ("SPRs").
The 1994 Plan, as amended and restated, was approved by the Board of Directors
in April 1998 and is expected to be approved by the stockholders in May 1998.
Unless terminated sooner, the 1994 Plan will terminate automatically in July
2004. A total of 1,610,000 shares of Common Stock are currently reserved for
issuance pursuant to the 1994 Plan. The 1994 Plan may be administered by the
Board of Directors or a committee of the Board (the "Administrator"), which
Administrator shall, in the case of options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, consist of two or more "outside directors" within the meaning of Section
162(m) of the Code. The Administrator has the power to determine the terms of
the options or SPRs granted, including, but not limited to, the exercise price,
the number of shares subject to each option or SPR, the exercisability thereof,
and the form of consideration payable upon such exercise. In addition, the Board
has the authority to amend, suspend or terminate the 1994 Plan, provided that no
such action may affect any share of Common Stock previously issued and sold or
any option previously granted under the 1994 Plan. Options and SPRs granted
under the 1994 Plan are not generally transferable by the optionee, other then
by will or the laws of descent and distribution, and each option and SPR is
exercisable during the lifetime of the optionee only by such optionee. Options
granted under the 1994 Plan must generally be exercised within three months of
the end of optionee's status as an employee or consultant of the Company, or
within twelve months after such optionee's termination by death or disability,
but in no event later than the expiration of the option's ten year term. In the
case of SPRs, unless the Administrator determines otherwise, the restricted
stock purchase agreement shall grant the Company a repurchase option exercisable
upon the voluntary or involuntary termination of the purchaser's employment with
the Company for any reason (including death or disability). The purchase price
for shares repurchased pursuant to the restricted stock purchase agreement shall
be the original price paid by the purchaser and may be paid by cancellation of
any indebtedness of the purchaser to the Company. The repurchase option shall
lapse at a rate determined by the Administrator. The exercise price of all
incentive stock options granted under the 1994 Plan must be at least equal to
the fair market value of the Common Stock on the date of grant, unless adjusted
by the Administrator to the fair market value on the date of such adjustment if
the fair market value of the Company's Common Stock shall have declined since
the date the option was granted. The exercise price of nonstatutory stock
options and SPRs granted under the 1994 Plan is determined by the Administrator,
but with respect to nonstatutory stock options intended to qualify as
"performance-based compensation" within the meaning of

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Section 162(m) of the Code, the exercise price must at least be equal to the
fair market value of the Common Stock on the date of grant, unless adjusted by
the Administrator to the fair market value on the date of such adjustment if the
fair market value of the Company's Common Stock shall have declined since the
date the option was granted. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock or any parent or subsidiary, the exercise price of any
incentive stock option granted must equal at least 110% of the fair market value
on the grant date and the term of such incentive stock option must not exceed
five years. The term of all other options granted under the 1994 Plan may not
exceed ten years. The 1994 Plan provides that in the event of a merger of the
Company with or into another corporation, a sale of substantially all of the
Company's assets or a like transaction involving the Company, options may be
granted with a per share exercise price of less than fair market value on the
date of the grant and each option shall be assumed or an equivalent option
substituted by the successor corporation. If the outstanding options are not
assumed or substituted as described in the preceding sentence, the Administrator
shall provide for the optionee to have the right to exercise the option or SPR
as to all of the optioned stock, including shares as to which it would not
otherwise be exercisable. If the administrator makes an option or SPR
exercisable in full in the event of a merger or sale of assets, the
administrator shall notify the optionee that the option or SPR shall be fully
exercisable for a period of fifteen days from the date of such notice, and the
option or SPR will terminate upon the expiration of such period.

1998 Director Option Plan. Non-employee directors are entitled to
participate in the 1998 Director Option Plan (the "Director Plan"). The Director
Plan was adopted by the Board of Directors in April 1998 and is expected
approved by the stockholders in May 1998, but it will not become effective until
its approval which shall be required within 12 months of the Board's adoption of
the Director Plan. The Director Plan has a term of ten years, unless terminated
sooner by the Board. A total of 300,000 shares of Common Stock have been
reserved for issuance under the Director Plan. The Director Plan provides for
the automatic grant of 9,000 shares of Common Stock (the "First Option") to each
non-employee director on the effective date of this offering. After the First
Option is granted to the non-employee director, he or she shall automatically be
granted an option to purchase 9,000 shares (a "Subsequent Option") each year on
the date of the annual stockholder's meeting of the Company, if on such date he
or she shall have served on the Board for at least six months. Each First Option
and each Subsequent Option shall have a term of 10 years and the shares subject
to the option shall vest in equal monthly increments over the one year period
immediately following the date of grant. The exercise price of the First Option
shall be the initial price to public of the shares offered in this Offering. The
exercise price of each Subsequent Option shall be 100% of the fair market value
per share of the Common Stock, generally determined with reference to the
closing price of the Common Stock as reported on the Nasdaq National Market on
the date of grant. In the event of a merger of the Company or the sale of
substantially all of the assets of the Company, each option shall become fully
vested and exercisable for a period of thirty days from the date the Board
notifies the optionee of the option's full exercisability, after which period
the option shall terminate. Options granted under the Director Plan must be
exercised within three months of the end of the optionee's tenure as a director
of the Company, or within twelve months after such director's termination by
death or disability, but in no event later than the expiration of the option's
ten year term. No option granted under the Director Plan is transferable by the
optionee other than by will or the laws of descent and distribution, and each
option is exercisable, during the lifetime of the optionee, only by such
optionee.

1998 Employee Stock Purchase Plan. The Company's 1998 Employee Stock
Purchase Plan (the "Purchase Plan") was approved by the Board of Directors in
April 1998 and is expected to be approved by the stockholders in May 1998. The
Company has reserved a total of 300,000 shares of Common Stock for issuance
thereunder. No shares have been issued under the Purchase Plan to date. The
Purchase Plan, which is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code"), will be administered by the Board
of Directors of the Company or by a committee appointed by the Board of
Directors. Under the Purchase Plan, the Company will withhold a specified
percentage (not to exceed 15%) of each salary payment to participating employees
over certain offering periods. Any employee who is currently employed for at
least 30 hours per week will be eligible to participate in the Purchase Plan.
Unless the Board of Directors or its committee determines otherwise, each
offering period will run for 24 months and will be divided into four consecutive
purchase periods of approximately six months. The first offering period will
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49

commence on the effective date of this Prospectus and will end on December 31,
1999. The first purchase period will commence on the effective date of this
Prospectus and will end on December 31, 1998. New 24 month offering periods will
commence every January 1 and July 1 thereafter. In the event of a change in
control of the Company, including a merger of the Company with or into another
corporation, or the sale of all or substantially all of the assets of the
Company, the offering and purchase periods then in progress will be shortened
unless the rights to purchase stock are assumed by the successor or acquiring
company. The price at which Common Stock will be purchased under the Purchase
Plan is equal to 85% of the fair market value of the Common Stock on the first
day of the applicable offering period or the last day of the applicable purchase
period, whichever is lower. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically on termination of employment with the Company. The maximum number
of shares that a participant may purchase on the last day of any offering period
is determined by dividing the payroll deductions accumulated during the purchase
period by the purchase price. However, no person may purchase shares under the
Purchase Plan to the extent such person would own and/or hold outstanding
options to purchase 5% or more of the total combined value or voting power of
all classes of the capital stock of the Company or of any of its subsidiaries,
or to the extent that such person's rights to purchase stock under all employee
stock purchase plans would accrue at a rate that exceeds $25,000 worth of stock
for any calendar year. The Board of Directors may amend the Purchase Plan at any
time. The Purchase Plan will terminate in April 2008, unless terminated earlier
in accordance with the provisions of the Purchase Plan.

CHANGE OF CONTROL ARRANGEMENTS

David H. Maupin and Michael J. Magliochetti, PhD. have been granted options
to purchase Common Stock pursuant to option agreements that provide for
acceleration of vesting of certain options so that such options shall
immediately become fully exercisable in the event of certain changes of control.

LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION

The Company's Certificate of Incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
(i) any breach of their duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) any transaction from which the
director derived an improper personal benefit. Such limitation of liability does
not apply to liabilities arising under the federal securities laws and does not
affect the availability of equitable remedies such as injunctive relief or
rescission.

The Company's Bylaws provide that the Company shall indemnify its directors
and executive officers and may indemnify its other officers and employees and
other agents to the fullest extent permitted by law. The Company believes that
indemnification under its Bylaws covers at least negligence and gross negligence
on the part of indemnified parties. The Company's Bylaws also permit it to
secure insurance on behalf of any officer, director, employee or other agent for
any liability arising out of his or her actions in such capacity, regardless of
whether the Bylaws would permit indemnification.

The Company will, prior to the completion of this offering, enter into
agreements to indemnify its directors and executive officers, in addition to
indemnification provided for in the Company's Bylaws. These agreements, among
other things, indemnify the Company's directors and executive officers for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by any such person in any action or proceeding, including any
action by or in the right of the Company arising out of such person's services
as a director or executive officer of the Company, any subsidiary of the Company
or any other company or enterprise to which the person provides services at the
request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and executive officers.

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50

CERTAIN TRANSACTIONS

In September and October 1995, the Company issued shares of Series B
Preferred Stock to certain entities affiliated with directors of the Company and
certain 5% stockholders of the Company at a purchase price of $2.00 per share.
In June 1997, the Company issued shares of Series C Preferred Stock to certain
entities affiliated with directors of the Company and certain 5% stockholders of
the Company at a purchase price of $5.00 per share. The number of shares of
Common Stock issuable upon conversion of such shares of Series B Preferred Stock
and Series C Preferred Stock issued to each such entity is set forth below.

NUMBER OF SHARES OF
COMMON STOCK
----------------------------------
SERIES B SERIES C
--------------- ---------------
NAME OF INVESTOR PREFERRED STOCK PREFERRED STOCK

ENTITIES AFFILIATED WITH DIRECTORS
Entities affiliated with Medical Science Partners II,
L.P....................................................... 507,025 --
Entities affiliated with DIMA Ventures, Inc................. 8,775 9,000
Entities affiliated with Allstate Insurance Company......... 310,000 164,000
Entities affiliated with Sprout Capital VII, L.P............ 1,250,000 278,000
OTHER 5% STOCKHOLDERS
Medtronic, Inc.............................................. 200,000 118,000

Pursuant to an Investor Rights Agreement, the holders of the Company's
Preferred Stock agreed to vote their shares of Preferred Stock to fix the number
of directors at five. Pursuant to this agreement, the board was to consist of
one director designated by the holders of the Company's Series A Preferred
Stock, to be designated by Medical Science Partners, L.P.; one director
designated by the holders of the Company's Series B Preferred Stock, to be
designated by Sprout Capital VII, L.P.; the duly elected, qualified and acting
President of the Company; and two directors designated jointly by the President
of the Company and all holders of the Company's Preferred Stock. Directors
Robert E. Curry, Ph.D. and David H. Maupin have served as members of the board
pursuant to this voting arrangement, which terminates upon completion of this
offering.

The Company entered into an agreement in March 1994 with David H. Maupin
containing antidilution provisions which allowed Mr. Maupin to purchase
additional shares of Common Stock at fair market value based upon a certain
formula. In November 1995, the Company issued 42,500 shares of Common Stock at
$0.20 per share under the agreement.

The Company expects to enter into a financing arrangement with certain of
its principal stockholders during April 1998. Under this arrangement, such
stockholders would provide the Company with a line of credit of up to $5.0
million in the event that the Company requires any additional funding prior to
receiving the net proceeds of this offering. In exchange for this line, the
Company has agreed to issue warrants to the stockholders to purchase an
aggregate of 50,000 shares of Common Stock at the initial public offering price
per share. The remaining terms of this credit facility are currently being
negotiated by the Company and such stockholders. To date, the Company has not
borrowed any amounts under this arrangement.

The Company has from time to time granted options and other compensation to
its directors and executive officers.

All future transactions, including any loans from the Company to its
officers, directors, principal stockholders or affiliates, will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or, if required by law, a
majority of disinterested stockholders, and will be on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.

This offering is being made pursuant to Rule 2720 of the Conduct Rules of
the NASD because certain associates of DLJ own in excess of 10% of the Common
Stock of the Company prior to this offering. Rule 2720 provides that, among
other things, when an NASD member participates in the underwriting of equity
securities of a company in which there exists a conflict of interest, the price
at which such equity securities are to be distributed to the public can be no
higher than that recommended by a qualified independent underwriter ("QIU")
meeting certain standards. CIBC Oppenheimer Corp. will assume the
responsibilities of acting as the QIU in connection with this offering.
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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 and as adjusted to
reflect the sale by the Company of the Common Stock offered hereby, by (i) each
director of the Company, (ii) each Named Executive Officer, (iii) each person
known to the Company to be the beneficial owner of more than 5% of the Company's
Common Stock and (iv) all directors and executive officers of the Company as a
group. Except as otherwise indicated, based on information furnished by the
beneficial owners of the Common Stock listed below, the Company believes that
such owners have sole investment and voting power with respect to such shares,
subject to community property laws, where applicable.

PERCENTAGE OF
VOTING STOCK
NUMBER OF BENEFICIALLY OWNED
SHARES --------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING

Entities affiliated with Medical Science Partners II,
L.P.(2)................................................... 1,331,519 19.4%
20 Williams Street, Suite 250
Wellesley, MA 02181
Entities affiliated with Sprout Capital VII, L.P.(3)........ 1,528,000 22.0
3000 Sand Hill Road
Building 4, Suite 270
Menlo Park, CA 94025
Entities affiliated with Allstate Insurance Company(4)...... 974,000 14.0
3075 Sanders Road, Suite G5D
Northbrook, IL 60062-2721
Medtronic, Inc.............................................. 648,000 9.3
7000 Central Avenue, N.E
Minneapolis, MN 55432
Premier Medical Partner Fund................................ 400,000 5.8
12730 High Bluff Drive
Suite 300
San Diego, CA 92130-2099
Dick P. Allen(5)............................................ 58,525 *
Donald R. Beussink(6)....................................... 18,750 *
Robert E. Curry, Ph.D.(7)................................... 1,540,000 22.1
William E. Engbers(8)....................................... 986,000 14.2
Joseph F. Lovett(9)......................................... 1,343,519 19.3
David H. Maupin(10)......................................... 392,448 5.6
Michael J. Magliochetti, Ph.D.(11).......................... 127,603 1.8
Steven J. Preiss(12)........................................ 9,479 *
All directors and executive officers as a group(9 persons)
(13)...................................................... 4,476,324 61.7

- ------------------------------
* Less than 1%

(1) Beneficial ownership is determined in accordance with the rules of
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Percentage of beneficial ownership is based on
6,956,037 shares of Common Stock outstanding as of March 31, 1998 and
shares of Common Stock outstanding after completion of this
offering. Shares of Common Stock subject to options or warrants currently
exercisable or exercisable within 60 days after March 31, 1998 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing the
percentage of any other person.

(2) Includes 897,430 shares held by Medical Science Partners II, L.P., 330,000
shares held by Medical Science Partners, L.P., 98,583 shares held by
Medical Science II Co-Investment, L.P.("MSP II"), 2,753 shares held by
Eagle Constellation Fund Ltd. ("Eagle"), and 2,753 shares held by UEMCO XI
Limited Partnership ("UEMCO"). MSP II, Eagle and UEMCO are limited partners
of Medical

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Science Partners II, L.P. Excludes 12,000 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998 held by Joseph F. Lovett.
See Note 9.

(3) Includes 1,410,582 shares held by Sprout Capital VII, L.P. and 117,418
shares held by DLJ Capital Corporation. Excludes 12,000 shares issuable
upon exercise of stock options exercisable within 60 days of March 31, 1998
held by Robert E. Curry, Ph.D. See Note 7. Sprout Capital VII, L.P. and DLJ
Capital Corporation are affiliates of DLJ, one of the Underwriters in this
offering.

(4) Includes 602,840 shares held by Allstate Insurance Company, 283,500 shares
held by Allstate Life Insurance Company, 40,500 shares held by Continental
Trust Company, as Trustee for the Allstate Retirement Plan, 32,400 shares
held by Continental Trust Company, as Trustee for the Agents Pension Plan,
8,200 shares held by CTC Illinois Trust Company, as Trustee for the
Allstate Retirement Plan, and 6,560 shares held by CTC Illinois Trust
Company, as Trustee for the Agents Pension Plan. Excludes 12,000 shares
issuable upon exercise of stock options exercisable within 60 days of March
31, 1998 held by William E. Engbers. See Note 8.

(5) Includes 13,500 shares held by DIMA Ventures Inc., 1,500 shares held by the
Brett Richard Allen Trust DTD 10/12/81, 1,500 shares held by the Jennifer
Lee Allen Trust DTD 10/12/81, and 1,275 shares held in the Allen Investment
Partnership. Also includes 40,750 shares issuable upon exercise of stock
options exercisable within 60 days of March 31, 1998. Mr. Allen is a
director of the Company and President of DIMA Ventures, Inc. Mr. Allen
disclaims beneficial ownership of the shares held by Allen Investment
Partnership except to the extent of his proportionate partnership interest
therein.

(6) Includes 18,750 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.

(7) Includes 1,410,582 shares held by Sprout Capital VII, L.P. and 117,418
shares held by DLJ Capital Corporation. Dr. Curry is a director of the
Company and a general partner of Sprout Capital VII, L.P. Dr. Curry
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein. Sprout
Capital is an affiliate of DLJ, one of the underwriters in this offering.
Also includes 12,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.

(8) Includes 602,840 shares held by Allstate Insurance Company, 283,500 shares
held by Allstate Life Insurance Company, 40,500 shares held by Continental
Trust Company, as Trustee for the Allstate Retirement Plan, 32,400 shares
held by Continental Trust Company, as Trustee for the Agents Pension Plan,
8,200 shares held by CTC Illinois Trust Company, as Trustee for the
Allstate Retirement Plan, and 6,560 shares held by CTC Illinois Trust
Company, as Trustee for the Agents Pension Plan. Mr. Engbers is a director
of the Company and a Director of Venture Capital at Allstate Insurance
Company. Mr. Engbers disclaims beneficial ownership of the shares held by
such entities except to the extent of his proportionate interest therein.
Also includes 12,000 shares issuable upon exercise of stock options
exercisable within 60 days of March 31, 1998.

(9) Includes 897,430 shares held by Medical Science Partners II, L.P., 330,000
shares held by Medical Science Partners, L.P., 98,583 shares held by MSP
II, 2,753 shares held by Eagle and 2,753 shares held by UEMCO. MSP II,
Eagle, and UEMCO are limited partners of Medical Science Partners II, L.P.
Mr. Lovett is a director of the Company and a general partner of Medical
Science Partners II, L.P., and Medical Science Partners, L.P.. Mr. Lovett
disclaims beneficial ownership of the shares held by such entities except
to the extent of his proportionate partnership interest therein. Also
includes 12,000 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.

(10) Includes 62,448 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.

(11) Includes 127,603 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.

(12) Includes 9,479 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.

(13) Includes 295,030 shares issuable upon exercise of stock options exercisable
within 60 days of March 31, 1998.

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53

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon completion of this offering, the total number of shares of all classes
of stock which the Company has authority to issue will be 50,000,000 shares of
Common Stock, par value $0.01 per share and 5,000,000 shares of Preferred Stock,
par value $0.01 per share. As of March 31, 1998, 1,121,633 shares of Common
Stock were issued and outstanding and held by 12 stockholders and 5,834,404
shares of Preferred Stock were issued and outstanding and held by 46
stockholders. All outstanding shares of Preferred Stock will be converted into
shares of Common Stock upon completion of this offering.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any outstanding
Preferred Stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation or
dissolution of the Company, holders of Common Stock would be entitled to share
in the Company's assets remaining after the payment of liabilities and the
satisfaction of any liquidation preference granted the holders of any
outstanding shares of Preferred Stock. Holders of Common Stock have no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in this offering, when issued and paid for, will be, fully paid
and nonassessable. The rights, preferences and privileges of the holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate in the future.

PREFERRED STOCK

The Board of Directors is authorized, subject to any limitations prescribed
by law, without stockholder approval, from time to time to provide in the
issuance of one or more series of Preferred Stock, each of such series to have
such rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors. Issuances of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of the outstanding voting stock of the Company.

REGISTRATION RIGHTS OF CERTAIN HOLDERS

The holders of approximately 5,834,404 shares of Common Stock (assuming the
conversion of all outstanding shares of Preferred Stock into Common Stock upon
completion of this offering) (the "Registrable Securities") or their transferees
are entitled to certain rights with respect to the registration of such shares
under the Securities Act. These rights are provided under the terms of an
agreement between the Company and the holders of Registrable Securities. The
holders of at least 35% of the Registrable Securities may require, on two
occasions, that the Company use its best efforts to register the Registrable
Securities for public resale, provided, among other limitations, that the
proposed aggregate selling price to the public is at least $2 million. If the
Company registers any of its Common Stock either for its own account or for the
account of other security holders, the holders of Registrable Securities are
entitled to include their shares of Common Stock in the registration, subject to
the ability of the underwriters to limit the number of shares included in the
offering. The holders of at least 15% of the Registrable Securities may also
require the Company, on four occasions, but not more than once during any
12-month period, to register all or a portion of their Registrable Securities on
Form S-3 when use of such form becomes available to the Company, provided, among
other limitations, that the proposed aggregate selling price (net of any
underwriters' discounts or commissions) is at least $250,000. The Company will
not be required to effect any registration, other than a registration on
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54

Form S-3 or any successor form relating to secondary offerings within six months
after the effective date of any other Registration Statement of the Company. All
registration expenses must be borne by the Company and all selling expenses
relating to Registrable Securities must be borne by the holders of the
securities being registered. The holders of Registrable Securities have waived
their right to have shares of Common Stock registered under the Securities Act
as part of this offering and for a period of 180 days after the date of this
Prospectus.

CERTAIN CHARTER AND BYLAWS PROVISIONS AND DELAWARE ANTI-TAKEOVER STATUE

Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws may have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from attempting to acquire, control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for shares of the Company's Common Stock.
Certain of these provisions allow the Company to issue Preferred Stock without
any vote or further action by the stockholders, eliminate the right of
stockholders to act by written consent without a meeting and eliminate
cumulative voting in the election of directors. These provisions may make it
more difficult for stockholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Company is subject to Section 203 of the Delaware General
Corporation Law which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder, unless: (i) prior to such date, the Board of Directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder; the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned by persons who are directors and also officers
and by employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or (iii) on or subsequent to such date,
the business combination is approved by the Board of Directors and authorized at
an annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of at least 66 2/3% of the outstanding voting stock which is
not owned by the interested stockholder.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A. Its telephone number is (800) 468-9716.

53
55

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. Sales
of substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse, or the availability of such shares for sale, could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.

Upon the completion of this offering, the Company will have
shares of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option. Of these shares, the shares sold in this
offering will be freely tradable without restriction under the Securities Act,
unless held by "affiliates" of the Company, as that term is defined in Rule 144
under the Securities Act. As a result of lock-up agreements between certain
stockholders and the Underwriters, the remaining 6,956,037 shares will not
become available for sale in the public market until 180 days after the date of
this Prospectus subject in some cases to the volume and other restrictions of
Rule 144 and Rule 701 of the Securities Act. Shares of Common Stock outstanding
upon completion of this offering and held by existing stockholders will be
"restricted securities" as that term is defined in Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144, 144(k) or 701 promulgated under the 1933 Act, which rules are
summarized below. Sales of the Restricted Shares in the public market, or the
availability of such shares for sale, could adversely affect the market price of
the Common Stock.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell in "broker's transactions" or to market makers, within
any three-month period, a number of shares that does not exceed the greater of
(i) one percent of the number of shares of Common Stock then outstanding
(approximately shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of this offering are
entitled to sell such shares 90 days after the closing of this offering in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144.

Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed, subject to certain exceptions, not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable for
Common Stock or (ii) enter into any swap or other arrangement that transfers all
or substantially all or a portion of the economic consequences associated with
the ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of the Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its stockholders has agreed
not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without DLJ's prior written
consent.

Approximately 90 days after the date of this Prospectus, the Company
intends to file a Registration Statement on Form S-8 covering shares issuable
under the Company's 1994 Stock Plan (including shares subject to then
outstanding options under such plans), 1998 Director Option Plan and 1998
Employee Stock Purchase Plan, thus permitting the resale of such shares in the
public market without restriction under the Securities Act after expiration of
the applicable lock-up agreements.

54
56

UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below,
(the "Underwriters"), who are represented by DLJ and CIBC Oppenheimer Corp.
(collectively, the "Representatives"), have severally agreed to purchase from
the Company the respective number of shares of Common Stock set forth opposite
their names below.

NUMBER OF
UNDERWRITERS SHARES

Donaldson, Lufkin & Jenrette Securities Corporation.........
CIBC Oppenheimer Corp.......................................

---------
Total.............................................
=========

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal matters
and to certain other conditions. The Underwriters are obligated to purchase and
accept delivery of all the shares of Common Stock offered hereby (other than
those shares covered by the over-allotment option described below) if any are
purchased.

The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, to certain other
dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representative at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of additional shares of Common Stock
at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.

Each of the Company, its executive officers and directors and certain of
the stockholders of the Company has agreed, subject to certain exceptions, not
to (i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its stockholders has

55
57

agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock without DLJ's prior written
consent. The Company and each of its executive officers, directors and certain
stockholders of the Company have also waived any right of first refusal that
they may have with respect to the Common Stock issued pursuant to this offering.

Prior to this offering, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering include the history of and the prospects for the industry in which the
Company competes, the past and present operations of the Company, the historical
results of operation of the Company, the prospects for future earnings of the
Company, the recent market prices of securities of generally comparable
companies and the general condition of the securities markets at the time of the
offering.

Other than in the U.S., no action has been taken by the Company or the
Underwriters that would permit a public offering of the shares of Common Stock
offered hereby in any jurisdiction where action for that purpose is required.
The shares of Common Stock offered hereby may not be offered or sold, directly
or indirectly, nor may this Prospectus or any other offering material or
advertisement in connection with the offer and sale of any such shares of Common
Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the Common Stock and the distribution of this
Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Stock offered hereby in any
jurisdiction in which such an offer or a solicitation in unlawful.

In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members and selected
dealers if they repurchase previously distributed Common Stock in syndicate
covering transactions, in stabilizing transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.

This offering is being made pursuant to Rule 2720 of the Conduct Rules of
the NASD because certain associates of DLJ own in excess of 10% of the Common
Stock of the Company prior to this offering. Rule 2720 provides that, among
other things, when an NASD member participated in the underwriting of equity
securities of a company in which there exists a conflict of interest, the price
at which such equity securities are to be distributed to the public can be no
higher than that recommended by a qualified independent underwriter meeting
certain standards. CIBC Oppenheimer Corp. will assume responsibilities of acting
as the QIU in connection with this offering.

VALIDITY OF COMMON STOCK

The validity of the Common Stock offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California and for the Underwriters by Sullivan & Cromwell, Los Angeles,
California. Mario M. Rosati and Christopher D. Mitchell, members of Wilson
Sonsini Goodrich & Rosati, are the Secretary and Assistant Secretary of the
Company. Members of and investment partnerships affiliated with Wilson Sonsini
Goodrich & Rosati beneficially own 3,350 shares of the Company's Common Stock.

56
58

EXPERTS

The audited financial statements included in this Prospectus and the
Registration Statement have been audited by McGladrey & Pullen, LLP, independent
accountants, as set forth in their report thereon appearing elsewhere herein,
and are included in reliance upon such report and upon the authority of such
firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1,
including amendments thereto, under the Securities Act with respect to the
securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the securities offered hereby, reference is made to such Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any contract or other
document referred to are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. The Registration Statement, including the
exhibits and schedules thereto, may be inspected without charge at the principal
office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of all or any part thereof may be obtained from such office upon the
payment of prescribed fees. Such information is also available electronically by
means of the Commission's web site on the Internet at http://www.sec.gov.

57
59

UROSURGE, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE

INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS
Balance sheets............................................ F-3
Statements of operations.................................. F-4
Statements of stockholders' equity........................ F-5
Statements of cash flows.................................. F-6
Notes to financial statements............................. F-7

F-1
60

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
UroSurge, Inc.
Coralville, Iowa

We have audited the accompanying balance sheets of UroSurge, Inc., a
development stage company, as of December 31, 1996 and 1997, and the related
statements of operations, stockholders' equity, and cash flows for the years
ended December 31, 1995, 1996 and 1997 and the period from August 6, 1993, date
of incorporation, to December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Urosurge, Inc., as of
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the years ended December 31, 1995, 1996 and 1997 and the period from August
6, 1993, date of incorporation, to December 31, 1997 in conformity with
generally accepted accounting principles.

MCGLADREY & PULLEN, LLP

Iowa City, Iowa
April 6, 1998

F-2
61

UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

DECEMBER 31, 1996 AND 1997

1996 1997

ASSETS
Current Assets
Cash and cash equivalents................................. $2,113,202 $ 136,990
Short-term investments.................................... -- 3,129,396
Trade and other receivables............................... 18,663 140,495
Inventories............................................... 50,385 930,204
Prepaid expenses.......................................... 47,556 149,589
---------- -----------
Total current assets............................... 2,229,806 4,486,674
---------- -----------
Leasehold Improvements and Equipment (Note 3)
Leasehold improvements.................................... 257,130 353,764
Furniture and office equipment............................ 189,944 369,731
Production equipment...................................... 63,370 285,125
---------- -----------
510,444 1,008,620
Less accumulated depreciation............................. 96,956 203,237
---------- -----------
413,488 805,383
---------- -----------
Intangibles, primarily licenses, less accumulated
amortization 1996 $57,444; 1997 $93,996 (Note 2).......... 247,251 233,762
---------- -----------
$2,890,545 $ 5,525,819
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt (Note 3)............. $ 34,415 $ 64,963
Accounts payable.......................................... 375,001 816,263
Accrued expenses.......................................... 1,424 10,465
License fees payable (Note 2)............................. 132,400 50,000
---------- -----------
Total current liabilities.......................... 543,240 941,691
---------- -----------
Long-Term Debt (Note 3)..................................... 92,870 109,728
---------- -----------
Commitments and Contingencies (Notes 2, 4, 6, and 8)
Stockholders' Equity (Note 4)
Preferred stock, $.01 par value; participating;
convertible; authorized 7,220,000 shares; to be issued
in Series:
Series A, issued 1,685,000 shares, liquidation
preference $1,685,000.................................. 16,850 16,850
Series B, issued 2,675,000 shares, liquidation
preference $5,350,000.................................. 26,750 26,750
Series C, issued 1,474,404 shares, liquidation
preference $7,372,020.................................. -- 14,744
Common stock, $.01 par value; authorized 15,000,000
shares; issued 1996 1,097,591 shares; 1997 1,121,633
shares.................................................. 10,976 11,216
Additional paid-in capital................................ 6,961,661 15,155,720
Deferred compensation (Note 5)............................ -- (738,444)
(Deficit) accumulated during the development stage........ (4,761,802) (10,012,436)
---------- -----------
2,254,435 4,474,400
---------- -----------
$2,890,545 $ 5,525,819
========== ===========

See Notes to Financial Statements.
F-3
62

UROSURGE, INC
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND PERIOD FROM
AUGUST 6, 1993, DATE OF INCORPORATION, TO DECEMBER 31, 1997

CUMULATIVE
TOTALS SINCE
1995 1996 1997 INCORPORATION

Net revenues........................... $ -- $ 20,166 $ 11,707 $ 31,873
----------- ----------- ----------- ------------
Operating expenses:
Cost of revenues..................... -- 12,649 5,432 18,081
Research and development............. 848,301 1,940,795 3,594,613 6,621,921
Marketing and sales.................. 2,200 270,823 391,877 664,900
General and administrative........... 466,207 771,047 1,479,722 3,266,223
----------- ----------- ----------- ------------
Total operating expenses..... 1,316,708 2,995,314 5,471,644 10,571,125
----------- ----------- ----------- ------------
Loss from operations......... (1,316,708) (2,975,148) (5,459,937) (10,539,252)
Financial income (expense):
Interest income...................... 85,003 184,099 187,010 492,980
Interest expense..................... (2,454) (6,386) (9,023) (17,863)
----------- ----------- ----------- ------------
Loss before income taxes..... (1,234,159) (2,797,435) (5,281,950) (10,064,135)
Income tax credits (Note 7)............ -- 20,383 31,316 51,699
----------- ----------- ----------- ------------
Net loss..................... $(1,234,159) (2,777,052) (5,250,634) (10,012,436)
=========== =========== =========== ============
Basic and diluted loss per share....... $ (1.23) $ (2.58) $ (4.72)
=========== =========== ===========
Weighted average shares outstanding.... 999,510 1,076,987 1,111,267
=========== =========== ===========
Pro forma basic and diluted loss per
share................................ $ (.84)
===========
Shares used in computing pro forma
basic and diluted loss per share..... 6,281,282
===========

See Notes to Financial Statements.
F-4
63

UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND PERIOD FROM AUGUST 6, 1993,
DATE OF INCORPORATION, TO DECEMBER 31, 1997

SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------- ------------------- ------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT

Balance, August 6, 1993, date of
incorporation.............................. -- $ -- -- $ -- -- $ -- -- $ --
Issuance of common stock to founders:
March 9, 1994 ($.01 per share)........... -- -- -- -- -- -- 660,000 6,600
October 3, 1994 ($.01 per share)......... -- -- -- -- -- -- 330,000 3,300
Issuance of preferred stock:
March 11, 1994 ($1.00 per share)......... 1,675,000 16,750 -- -- -- -- -- --
November 2, 1994 ($1.00 per share)....... 10,000 100 -- -- -- -- -- --
Stock issuance costs..................... -- -- -- -- -- -- -- --
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1994.................. 1,685,000 16,850 -- -- -- -- 990,000 9,900
Issuance of preferred stock:
September 29, 1995 ($2.00 per share) -- -- 2,550,000 25,500 -- -- -- --
October 24, 1995 ($2.00 per share) -- -- 125,000 1,250 -- -- -- --
Stock issuance costs..................... -- -- -- -- -- -- -- --
Collection of stock subscription
receivable............................... -- -- -- -- -- -- -- --
Issuance of common stock under license
agreement on November 7, 1995............ -- -- -- -- -- -- 63,112 631
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1995.................. 1,685,000 16,850 2,675,000 26,750 -- -- 1,053,112 10,531
Issuance of common stock ($.20 per share)
on June 14, 1996 (Note 4)................ -- -- -- -- -- -- 42,500 425
Exercise of stock options (Note 5)......... -- -- -- -- -- -- 1,979 20
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1996.................. 1,685,000 16,850 2,675,000 26,750 -- -- 1,097,591 10,976
Exercise of stock options (Note 5)......... -- -- -- -- -- -- 24,042 240
Issuance of preferred stock:
June 13, 1997 ($5.00 per share)' -- -- -- -- 1,464,404 14,644 -- --
August 12, 1997 ($5.00 per share) -- -- -- -- 10,000 100 -- --
Stock issuance costs..................... -- -- -- -- -- -- -- --
Deferred compensation related to grant of
stock options (Note 5)................... -- -- -- -- -- -- -- --
Amortization of deferred compensation...... -- -- -- -- -- -- -- --
Net (loss)................................. -- -- -- -- -- -- -- --
--------- ------- --------- ------- --------- ------- --------- -------
Balance, December 31, 1997.................. 1,685,000 $16,850 2,675,000 $26,750 1,474,404 $14,744 1,121,633 $11,216
========= ======= ========= ======= ========= ======= ========= =======

(DEFICIT)
ACCUMULATED
ADDITIONAL DEFERRED DURING THE STOCK
PAID-IN COMPENSATION DEVELOPMENT SUBSCRIPTION
CAPITAL (NOTE 5) STAGE RECEIVABLE TOTAL

Balance, August 6, 1993, date of
incorporation.............................. $ -- $ -- $ -- $ -- $ --
Issuance of common stock to founders:
March 9, 1994 ($.01 per share)........... -- -- -- -- 6,600
October 3, 1994 ($.01 per share)......... -- -- -- (3,300) --
Issuance of preferred stock:
March 11, 1994 ($1.00 per share)......... 1,658,250 -- -- -- 1,675,000
November 2, 1994 ($1.00 per share)....... 9,900 -- -- -- 10,000
Stock issuance costs..................... (14,838) -- -- -- (14,838)
Net (loss)................................. -- -- (750,591) -- (750,591)
----------- --------- ------------ ------- -----------
Balance, December 31, 1994.................. 1,653,312 -- (750,591) (3,300) 926,171
Issuance of preferred stock:
September 29, 1995 ($2.00 per share) 5,074,500 -- -- -- 5,100,000
October 24, 1995 ($2.00 per share) 248,750 -- -- -- 250,000
Stock issuance costs..................... (23,154) -- -- -- (23,154)
Collection of stock subscription
receivable............................... -- -- -- 3,300 3,300
Issuance of common stock under license
agreement on November 7, 1995............ -- -- -- -- 631
Net (loss)................................. -- -- (1,234,159) -- (1,234,159)
----------- --------- ------------ ------- -----------
Balance, December 31, 1995.................. 6,953,408 -- (1,984,750) -- 5,022,789
Issuance of common stock ($.20 per share)
on June 14, 1996 (Note 4)................ 8,075 -- -- -- 8,500
Exercise of stock options (Note 5)......... 178 -- -- -- 198
Net (loss)................................. -- -- (2,777,052) -- (2,777,052)
----------- --------- ------------ ------- -----------
Balance, December 31, 1996.................. 6,961,661 -- (4,761,802) -- 2,254,435
Exercise of stock options (Note 5)......... 2,164 -- -- -- 2,404
Issuance of preferred stock:
June 13, 1997 ($5.00 per share)' 7,307,376 -- -- -- 7,322,020
August 12, 1997 ($5.00 per share) 49,900 -- -- -- 50,000
Stock issuance costs..................... (25,866) -- -- -- (25,866)
Deferred compensation related to grant of
stock options (Note 5)................... 860,485 (860,485) -- -- --
Amortization of deferred compensation...... -- 122,041 -- -- 122,041
Net (loss)................................. -- -- (5,250,634) -- (5,250,634)
----------- --------- ------------ ------- -----------
Balance, December 31, 1997.................. $15,155,720 $(738,444) $(10,012,436) $ -- $ 4,474,400
=========== ========= ============ ======= ===========

See Notes to Financial Statements.

F-5
64

UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997 AND PERIOD FROM
AUGUST 6, 1993, DATE OF INCORPORATION, TO DECEMBER 31, 1997

CUMULATIVE
TOTALS SINCE
1995 1996 1997 INCORPORATION

Cash Flows from Operating Activities
Net (loss)........................... $(1,234,159) $(2,777,052) $(5,250,634) $(10,012,436)
Adjustments to reconcile net (loss)
to net cash (used in) operating
activities:
Depreciation...................... 33,570 64,462 106,281 204,879
Amortization of intangibles....... 17,271 32,824 38,489 99,260
Amortization of deferred
compensation.................... -- -- 122,041 122,041
Accretion of discount on
short-term investments.......... (35,561) (58,876) (31,650) (126,087)
Changes in certain working capital
items:
Trade and other receivables..... 3,329 7,323 (121,832) (140,495)
Inventories..................... -- (50,385) (879,819) (930,204)
Prepaid expenses................ (93,325) 57,769 (102,033) (149,589)
Accounts payable and accrued
expenses..................... 108,530 211,176 450,303 826,727
----------- ----------- ----------- ------------
Net cash (used in) operating
activities................. (1,200,345) (2,512,759) (5,668,854) (10,105,904)
----------- ----------- ----------- ------------
Cash Flows from Investing Activities
Purchase of short-term investments... (3,505,417) -- (6,097,746) (10,930,444)
Proceeds from maturities of
short-term investments............ 1,147,218 3,000,000 3,000,000 7,927,135
Payments for license agreements...... (50,000) (90,933) (107,400) (273,333)
Purchase of leasehold improvements
and equipment..................... (322,858) (134,297) (450,728) (911,588)
Other................................ -- (4,617) -- (9,689)
----------- ----------- ----------- ------------
Net cash provided by (used
in) investing activities... (2,731,057) 2,770,153 (3,655,874) (4,197,919)
----------- ----------- ----------- ------------
Cash Flows from Financing Activities
Proceeds from long-term debt......... 120,000 -- 40,000 160,000
Payments on long-term debt........... (11,111) (32,829) (40,042) (83,982)
Proceeds from issuance of capital
stock, net of issuance costs...... 5,330,777 8,698 7,348,558 14,364,795
----------- ----------- ----------- ------------
Net cash provided by (used
in) financing activities... 5,439,666 (24,131) 7,348,516 14,440,813
----------- ----------- ----------- ------------
Increase (decrease) in cash
and cash equivalents....... $ 1,508,264 $ 233,263 $(1,976,212) $ 136,990
Cash and cash equivalents:
Beginning............................ 371,675 1,879,939 2,113,202 --
----------- ----------- ----------- ------------
Ending............................... $ 1,879,939 $ 2,113,202 $ 136,990 $ 136,990
=========== =========== =========== ============
Supplemental disclosures:
Noncash financing for equipment...... $ 26,996 $ 24,230 $ 47,448 $ 51,226
Noncash financing for licenses....... -- 173,333 25,000 173,333

See Notes to Financial Statements.
F-6
65

UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of business: The Company has acquired various licenses that allow
it to develop, manufacture and market devices for the diagnosis, treatment and
management of urinary incontinence and other genito-urinary conditions.

Risk and uncertainties: The Company is in the development stage. It needs
to obtain regulatory approval from the Food and Drug Administration ("FDA")
prior to selling many of its products within the United States, and foreign
regulatory approval must be obtained to sell many of its products
internationally. There can be no assurance that the Company's products will
receive regulatory approvals and a substantial amount of time may pass before
significant revenue is realized. In addition, the primary component of one of
the Company's products is purchased from a single supplier under an agreement
that expires in 2000, subject to an automatic two-year extension.

Accounting estimates: The preparation of the 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 revenue and expenses during
the reporting period. Actual results could differ from those estimates.

A summary of the Company's significant accounting policies follows:

Cash and cash equivalents: For purposes of reporting cash flows, the
Company considers all cash accounts which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments with a
maturity of three months or less, to be cash equivalents.

Short-term investments: Short-term investments include certificates of
deposit of $2,000,000 and held to maturity U.S. Government securities of
$1,129,396 which the Company has the positive intent and ability to hold to
maturity and are stated at amortized cost. The fair value of U.S. Government
securities, which matured in early 1998, approximates their carrying value.

Inventories: Inventories are stated at the lower of cost (first-in,
first-out method) or market. The inventories consist primarily of purchased
materials available for sale and to be used in research and development
activities.

Leasehold improvements and equipment: Leasehold improvements and equipment
are stated at cost. Depreciation of furniture and equipment is computed
primarily by accelerated methods over estimated useful lives of five to seven
years. Leasehold improvements are amortized by the straight-line method over the
terms of the leases, plus optional renewals.

Licenses: License acquisition costs are amortized by the straight-line
method over their estimated economic life which varies between five and fifteen
years. These licenses are periodically reviewed for impairment based upon an
assessment of future operations to ensure that they are appropriately valued.

Revenue recognition: Sales of medical devices are recognized as the
products are shipped.

Research and development: Research and development costs are charged to
expense as incurred.

Deferred income taxes: Deferred income taxes are provided under the
liability method whereby deferred tax assets are recognized for deductible
temporary differences and net operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely

F-7
66
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

than not that some or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.

Stock options issued to employees and directors: Compensation expense for
stock issued through a stock option plan is accounted for using the intrinsic
value based method of accounting prescribed by APB Opinion 25, Accounting for
Stock Issued to Employees. Under this method, compensation is measured as the
difference, if any, between the fair value of the stock at the date of award
less the amount required to be paid for the stock. The difference, if any, is
charged to expense over the periods of service.

The estimated fair value used for the stock options granted was determined
on a periodic basis by the Company's Board of Directors.

Stock options issued to nonemployees: The Company uses the Black-Scholes
model to determine the fair value of stock options issued to nonemployees. The
fair value of options granted is amortized and expensed over the period of
service.

Loss per share: The FASB has issued SFAS No. 128, "Earnings Per Share,"
which supersedes APB Opinion No. 15. SFAS No. 128 requires the presentation of
basic and diluted earnings (loss) per share by all entities that have common
stock or potential common stock, such as options, warrants and convertible
securities outstanding. Basic per share amounts are computed by dividing net
income (loss) (the numerator) by the weighted-average number of common shares
outstanding (the denominator). Diluted per share amounts assume the conversion,
exercise or issuance of all potential common stock unless the effect is to
reduce the loss or increase the income per common share from continuing
operations. The dilutive effect of stock options is reflected by application of
the treasury stock method and the dilutive effect of convertible preferred stock
is reflected by application of the if-converted method. For each of the periods
basic and diluted loss per share were the same since there was no dilutive
effect from stock options or convertible preferred stock. There are no issuances
of stock options that are considered "nominal issuances" under the Securities
and Exchange Commission's Staff Accounting Bulletin No. 98.

Pro forma basic and diluted loss per share for the year ended December 31,
1997 is computed using the weighted average number of outstanding shares of
common stock determined above and the assumed conversion of Series A, B and C
convertible preferred stock into common stock (as of their date of original
issuance), which will occur upon the completion of the initial public offering,
as contemplated herein.

Fair value of financial instruments: The fair value of all the financial
instruments approximates their carrying value since all are liquid or have short
maturities.

Recent accounting pronouncements: In June 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. Comprehensive income is defined as
the change in equity of a business enterprise during a period, resulting from
transactions and other events and circumstances from nonowner sources. The
impact of adopting SFAS No. 130, which is effective for the Company in 1998, has
not been determined.

In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of
an Enterprise and Related Information." SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-producing
segments of the entity for which such information is available and is utilized
by the chief operating decision maker. Specific information to be reported for
individual segments includes profit or loss, certain revenue and expense items
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements would be provided. SFAS No. 131 is
effective for the Company in 1998. The Company operates in one business segment.

F-8
67
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2. LICENSES

The Company has acquired seven licenses that allow it to develop,
manufacture and market a number of products. The licenses require the payment of
royalties which vary up to 6% of the revenues related to the products.

One license requires additional fees totaling $75,000 contingently payable
if the Company is able to meet specified regulatory milestones and receives FDA
clearance for the licensed product. This license also requires additional
license fees of $900,000 over five years upon receiving FDA approval.

Royalty expense totaled $0, $637, $1,067 and $1,704 for the years ended
December 31, 1995, 1996 and 1997 and the period from August 6, 1993, date of
incorporation, to December 31, 1997.

NOTE 3. PLEDGED ASSETS AND RELATED DEBT

The Company has various notes payable, collateralized by equipment and
leasehold improvements, totaling $174,690 as of December 31, 1997. These notes
are due in various monthly and annual installments through June 2002.

NOTE 4. STOCKHOLDERS' EQUITY

The Company has issued three series of convertible preferred stock under
investment agreements as follows: 1,685,000 shares of Series A convertible
preferred stock, ($.01 par value) ("Series A") for $1.00 per share under an
Investment Agreement dated March 11, 1994, 2,675,000 shares of Series B
convertible preferred stock, ($.01 par value) ("Series B") for $2.00 per share
under an Investment Agreement dated September 29, 1995 and 1,474,404 shares of
Series C convertible preferred stock, ( $.01 par value) ("Series C") for $5.00
per share under an Investment Agreement dated June 13, 1997.

Dividends: In each fiscal year of the Company, the holders of Series A,
Series B and Series C (collectively, the "Preferred") shall be entitled to
receive, when and if declared by the Board of Directors, dividends in preference
to the holders of Common Stock ("Common") in an amount per share at least equal
to the product of (i) the per share amount, if any, of the cash dividend
declared, paid or set aside for the Common during such fiscal year, multiplied
by (ii) the number of whole shares of Common into which each such share of
Preferred is then convertible. Dividends on the Preferred shall not be
cumulative.

Liquidation preference: In the event of any liquidation, dissolution or
winding up of the Company, the holders of Series A, Series B and Series C shall
be entitled to receive in preference to the holders of Common amounts equal to
$1.00, $2.00 and $5.00 per share, respectively, plus declared and unpaid
dividends. Thereafter the holders of Common shall receive the remaining assets
of the Company. A consolidation or merger or sale of all or substantially all of
the assets of the Company shall be deemed to be a liquidation, dissolution or
winding up for purposes of the liquidation preference.

Voting rights: Pursuant to an Investor Rights Agreement, the holders of
the Company's Preferred Stock agreed to vote their shares of Preferred Stock to
fix the number of directors at five. Pursuant to this agreement, the board was
to consist of one director designated by the holders of the Company's Series A
Preferred Stock, to be designated by Medical Science Partners, L.P.; one
director designated by the holders of the Company's Series B Preferred Stock, to
be designated by Sprout Capital VII, L.P.; the duly elected, qualified and
acting President of the Company and two directors designated jointly by the
President of the Company; and all holders of the Company's Preferred Stock.
Directors Robert E. Curry, Ph.D. and David H. Maupin have served as members of
the board pursuant to this voting arrangement, which terminates upon completion
of the initial public offering.

F-9
68
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Protective provisions: So long as there shall be issued and outstanding at
least 67% of the total number of shares of Preferred ever issued, the Company
shall not, without first obtaining the affirmative vote of not less then 67% of
the then outstanding shares of Preferred (i) merge or consolidate into or with
any other corporation or sell all or substantially all of the Company's assets;
(ii) voluntarily or involuntarily liquidate, dissolve or wind up the Company or
its business; (iii) amend, repeal or add any provision to the Company's
Certificate of Incorporation if such action would alter or change any of the
preferences, rights, privileges or powers of, or the restrictions provided for
the benefit of, the Preferred, or increase or decrease the total number of
authorized shares of Preferred; (iv) authorize or issue any new or existing
class or series of capital stock (or any securities convertible into or
exercisable for any shares of capital stock) having any preference or priority
as to amounts distributable upon liquidation superior to or on parity with the
Preferred; (v) reclassify any Common into shares having any preference or
priority as to amounts distributable upon liquidation superior to or on parity
with the Preferred; or (vi) pay or declare any dividend or distribution on any
shares of its capital stock, or redeem, retire, repurchase or acquire any shares
of its capital stock (except for shares repurchased in accordance with
restricted stock purchase agreements with employees, consultants or directors
previously approved by the Board of Directors.)

Conversion: Each share of Preferred may be converted at the holder's
option at any time into one share of Common, subject to adjustment as provided
below.

Automatic conversion: The Preferred will be automatically converted into
Common at its then applicable conversion rate upon the earlier of (i) the
closing of an underwritten public offering of more than $15,000,000 of Company
stock for not less than $7.50 per share (a "Qualified Public Offering"), or (ii)
the date on which there are issued and outstanding a number of shares of
Preferred equal to less than 33% of the total number of shares of Preferred ever
issued by the Company.

Conversion price adjustments: The conversion price of the Series A, Series
B and Series C shall be subject to adjustment (i) proportionately for stock
splits, stock dividends, recapitalization, reclassifications, reorganizations,
etc. and (ii) on a broad-based weighted-average basis if the Company issues
additional shares of Common or Common equivalents (other than a total of
1,010,000 shares of Common under board approved stock option/stock purchase
plans and certain other customary exclusions) at a purchase price less than the
applicable conversion price. The conversion prices of the Series A, Series B and
Series C shall initially be $1.00, $2.00 and $5.00, respectively. The holders of
67% of each of the outstanding Series A, Series B and Series C may elect to
waive any price-based antidilution adjustment to the conversion price of their
stock.

Right of first refusal: In the event that the Company issues equity
securities or securities convertible or exercisable for equity securities (other
than up to 1,010,000 shares of Common issued pursuant to board approved stock
option/stock purchase plans and certain other customary exclusions), each of the
holders of Preferred shall be given the right to purchase a percentage of such
securities, on the same basis as the other investors, equal to the percentage
ownership of the Company (on a fully diluted basis) it holds prior to such
issuance, with an additional right of overallotment. A holder of Preferred may
apportion such holder's rights among itself and such general partners, officers
and other affiliates in such proportions as it deems appropriate. These rights
shall terminate upon the closing of the Company's first Qualified Public
Offering.

NOTE 5. EMPLOYEE BENEFIT PLANS

The Company has a defined contribution 401(k) plan covering all employees
fulfilling minimum age and service requirements. Employee contributions to the
plan are optional. The plan does not provide for a contribution by the employer.

The Company has a Stock Option Plan for certain officers, directors,
employees and consultants whereby 1,010,000 shares of Common have been reserved
for issuance. Options for 763,500 shares of Common have

F-10
69
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

been granted as of December 31, 1997 to certain officers, directors, employees
and consultants at prices equal to the estimated fair value of the stock at the
date of the grant and are exercisable and vest in a range from immediately to
over a four-year period. The options expire five years from the date of the
grants.

For certain options granted, the Company recognizes as compensation expense
the excess of the deemed value for accounting purposes of the Common stock
issuable upon exercise of such options over the aggregate exercise price of such
options. In connection with these grants, $860,485 of deferred compensation has
been recorded. This compensation expense is being amortized over the vesting
period of each option. Compensation expense under the Plan totaled $122,041 for
the year ended December 31, 1997.

A summary of the status of the Company's Stock Option Plan is as follows:

WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE

Outstanding at date of inception............................ -- $ --
Granted................................................... 177,000 0.10
-------
Outstanding at December 31, 1994............................ 177,000 0.10
Granted................................................... 43,500 0.10
Granted................................................... 137,000 0.20
-------
Outstanding at December 31, 1995............................ 357,500 0.14
Granted................................................... 33,500 0.20
Exercised on September 20, 1996........................... (1,979) 0.10
Forfeited................................................. (3,021) 0.10
-------
Outstanding at December 31, 1996............................ 386,000 0.15
Granted................................................... 174,000 0.20
Granted................................................... 198,500 0.50
Exercised:
April 26, 1997............................................ (10,000) 0.10
May 31, 1997.............................................. (625) 0.10
June 10, 1997............................................. (10,000) 0.10
October 3, 1997........................................... (2,667) 0.10
October 3, 1997........................................... (750) 0.20
-------
Outstanding at December 31, 1997............................ 734,458 0.26
=======

Other pertinent information related to the options outstanding at December
31, 1997 is as follows:

WEIGHTED
AVERAGE
REMAINING
OPTIONS CONTRACTUAL OPTIONS
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE

$0.10.................................. 192,208 1.6 157,008
0.20.................................. 343,750 3.6 114,791
0.50.................................. 198,500 4.7 3,333
------- -------
734,458 275,132
======= =======

F-11
70
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Upon merger or sale of the Company, an additional 171,460 shares would
become fully exercisable. As of December 31, 1997, options to purchase 246,500
shares of Common were available for future grants.

The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." Had the Company elected to measure compensation based on the
grant date fair value of awards granted (the method described in FASB Statement
No. 123), reported net loss and loss per share would have been changed to the
pro forma amounts indicated below:

YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997

Pro forma net loss.................... $(1,234,345) $(2,779,311) $(5,318,835)
Pro forma basic and diluted loss per
share............................... $ (1.23) $ (2.58) $ (4.79)

The pro forma amounts shown above are estimated using the following
assumptions for grants in 1995, 1996 and 1997: no dividends, no price
volatility, risk-free interest rate of 5.84%, 6.27% and 5.71% and expected life
of options of four years.

Subsequent to December 31, 1998, the Company reserved an additional 600,000
shares for future issuance under the plan discussed above, adopted a 1998
director stock option plan and a 1998 employee stock purchase plan. (see Note 9)

NOTE 6. LEASE COMMITMENTS

The Company leases its office building under a lease agreement that expires
June 30, 2000 with one five-year option to renew, whereby it pays monthly
rentals of $7,003 plus property taxes, special assessments, insurance and
maintenance costs. The Company signed a lease in December 1997 for an adjoining
building to be used for manufacturing. This lease commences on January 1, 1998
and requires monthly rentals of $8,050 plus property taxes, special assessments,
insurance and maintenance costs. The lease term is 29 months with one five year
option to renew. The Company plans to exercise both renewal options.

Estimated future minimum lease payments under operating leases are as
follows:

YEAR ENDING DECEMBER 31:

1998............................................ $180,634
1999............................................ 180,634
2000............................................ 82,268
--------
$443,536
========

The rent expense for the years ended December 31, 1995, 1996, 1997 and the
period from August 6, 1993, date of incorporation, to December 31, 1997 was
$54,414, $91,597, $91,597 and $239,153, respectively.

F-12
71
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7. INCOME TAXES

The composition of the income taxes (credits) are as follows:

AUGUST 6,
1993,
DATE OF
INCORPORATION,
YEAR ENDED DECEMBER 31, TO
-------------------------------- DECEMBER 31,
1995 1996 1997 1997

Current............................. $ -- $(20,383) $(31,316) $(51,699)
Deferred............................ -- -- -- --
-------- -------- -------- --------
-- $(20,383) $(31,316) $(51,699)
======== ======== ======== ========

The effective income tax rate is different than the statutory federal tax
rate as follows:

AUGUST 6,
1993,
DATE OF
INCORPORATION,
YEAR ENDED DECEMBER 31, TO
----------------------------------- DECEMBER 31,
1995 1996 1997 1997

Income taxes (credits) at federal rate of
34%........................................ $(419,600) $(944,200) $(1,754,400) $(3,373,400)
State income taxes (credits) net of federal
benefit.................................... (74,000) (141,500) (279,500) (540,000)
Federal research and development tax
credits.................................... (27,300) (75,600) (229,400) (332,300)
State research and development tax credits... -- (20,383) (31,316) (51,699)
Nondeductible expenses....................... 900 2,400 5,500 9,600
Valuation allowance.......................... 520,000 1,158,900 2,257,800 4,236,100
--------- --------- ----------- -----------
$ -- $ (20,383) $ (31,316) $ (51,699)
========= ========= =========== ===========

Net deferred income taxes consist of the following components as of
December 31, 1996 and 1997:

1996 1997

Net operating loss carryforwards............................ $ 1,818,200 $ 3,836,500
Research and development credits 102,900 332,300
Other temporary differences................................. 57,200 67,300
Less valuation allowance.................................... (1,978,300) (4,236,100)
----------- -----------
Net deferred income taxes.......................... $ -- $ --
=========== ===========

A valuation allowance totaling $4,236,100 as of December 31, 1997 was
established since it is uncertain if the Company will receive future income tax
benefit from loss carryovers. The amount of the carryforward is approximately
$9,591,000 of which $630,000 expires in 2009, $1,178,000 expires in 2010,
$2,690,000 expires in 2011 and $5,093,000 expires in 2012.

The above loss carryforwards are subject to certain annual limitations
resulting from issuances of equity securities and may be further limited by
additional issuances. Such events could limit the eventual tax utilization of
these carryforwards.

NOTE 8. COMMITMENTS AND CONTINGENCIES

The Company has clinical service agreements with various research
institutions and medical centers who conduct clinical studies on behalf of the
Company and bill the Company as services are performed.
F-13
72
UROSURGE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. SUBSEQUENT EVENTS

In April 1998 the Board of Directors authorized management of the Company
to file a registration statement with the Securities and Exchange Commission
permitting the Company to issue its common stock in an initial public offering.
The Company plans to use the proceeds to fund ongoing and future clinical
trials, research and development, marketing and sales activities, expansion of
manufacturing capabilities and for working capital and general corporate
purposes.

In April 1998 the Company's Board of Directors approved a Restated
Certificate of Incorporation which eliminates the previous class of preferred
stock, authorizes a class of undesignated preferred stock and changes the number
of common shares authorized to 50,000,000 shares. The Restated Articles are to
be filed following the effectiveness of the initial public offering.

In April 1998 the Company's Board of Directors approved a 1998 Director
Option Plan and has reserved 300,000 shares of common stock for issuance under
the plan. Nonemployee directors will annually be granted a nonstatutory option
to purchase 9,000 shares of common stock at the fair value on the date of the
grant, with the option vesting over four years.

In April 1998 the Company's Board of Directors approved a 1998 Employee
Stock Purchase Plan and has reserved 300,000 shares for issuance under the plan.
The Company will withhold up to 15% of salary for participating employees, who
may acquire common stock at 85% of fair value of the common stock on the dates
specified in the plan.

F-14
73

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------

TABLE OF CONTENTS

PAGE

Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 15
Dividend Policy....................... 15
Capitalization........................ 16
Dilution.............................. 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 22
Management............................ 42
Certain Transactions.................. 49
Principal Stockholders................ 50
Description of Capital Stock.......... 52
Shares Eligible for Future Sale....... 54
Underwriting.......................... 55
Validity of Common Stock.............. 56
Experts............................... 57
Additional Information................ 57
Index to Financial Statements......... F-1

------------------

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================

LOGO

UROSURGE, INC.

COMMON STOCK
------------------------

PROSPECTUS
------------------------

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

CIBC OPPENHEIMER
, 1998

======================================================
74

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee.

SEC registration fee........................................ $ 11,942
NASD filing fee............................................. 4,548
Nasdaq National Market listing fee.......................... 44,000
Printing and engraving costs................................ 150,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 150,000
Blue Sky fees and expenses.................................. 12,000
Transfer Agent and Registrar fees........................... 7,000
Miscellaneous expenses...................................... 170,510
--------
Total............................................. $800,000
========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in the terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). The Registrant's Restated
Certificate of Incorporation (Exhibit 3.1 hereto) and the Registrant's Bylaws
(Exhibit 3.3 hereto) provides for indemnification of the Registrant's directors,
officers, employees and other agents to the extent and under the circumstances
permitted by the Delaware General Corporation Law. The Registrant also intends
to enter into agreements with its directors and executive officers that will
require the Registrant among other things to indemnify them against certain
liabilities that may arise by reason of their status or service as directors to
the fullest extent not prohibited by Delaware law.

The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Registrant, its directors and
officers, and by the Registrant of the Underwriters, for certain liabilities,
including liabilities arising under the Act, and affords certain rights of
contribution with respect thereto.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Since March 31, 1995, the Registrant has issued and sold the following
unregistered securities:

(a) Since March 31, 1995, the Registrant has granted stock options to
employees, consultants and directors under its stock option plans covering
an aggregate of 782,500 shares of the Registrant's Common Stock, at
exercise prices ranging from $0.10 to $2.00 per share. Since March 31,
1995, the Registrant has issued 794,500 shares of Common Stock to
employees, consultants and directors upon exercise of stock options.

(b) In September and October 1995, Registrant sold 2,675,000 shares of
Series B Preferred Stock to 18 private investors at a purchase price of
$2.00 per share.

(c) In June 1997, Registrant sold 1,474,404 shares of Series C
Preferred Stock to 36 private investors at a purchase price of $5.00 per
share.

The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public
II-1
75

offering or transactions pursuant to compensatory benefit plans and contracts
relating to compensation as provided under such Rule 701. The recipients of
securities in each such transaction represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant, to information
about the Registrant.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
----------- -----------

1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant as
currently in effect.
3.2 Form of Restated Certificate of Incorporation to be in
effect upon completion of offering.
3.3 Bylaws of the Registrant, as currently in effect.
3.4 Bylaws of the Registrant, as proposed to be amended in
connection with this offering.
4.1* Specimen Common Stock Certificate.
5.1* Opinion of Wilson, Sonsini, Goodrich & Rosati, Professional
Corporation.
10.1 Form of Amended and Restated 1994 Stock Plan.
10.2 Form of 1998 Employee Stock Purchase Plan.
10.3 Form of 1998 Director Option Plan.
10.4 Three-Party Agreement dated October 31, 1994 by and between
University of Iowa Research Park Corporation, Myriad
Developers, L.C. and the Registrant.
10.5 Lease Agreement dated December 12, 1997 between Myriad
Developers, L.C. and the Registrant.
10.6** Development and Supply Agreement dated April 19, 1995 by and
between the Registrant and a contract supplier.
10.7** License Agreement dated October 14, 1993, as amended and
assigned to the Registrant on February 23, 1994, with
Children's Medical Center Corporation.
10.8** Exclusive License Agreement dated June 30, 1996 between The
Regents of the University of California and the Registrant
for Electrode Acupuncture System.
10.9 Iowa Department of Economic Development CEBA Loan Agreement
dated August 21, 1997 by and between the Iowa Department of
Economic Development and the Registrant.
10.10 Amendment No. 1 to Iowa Department of Economic Development
CEBA Loan Agreement dated September 22, 1994.
10.11 Restated Investors Rights Agreement dated June 13, 1997.
10.12 Form of Indemnification Agreement.
10.13* Form of Note and Warrant Agreement.
11.1 Calculation of earnings per share.
23.1 Consent of McGladrey & Pullen, LLP, Independent Auditors.
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1).

II-2
76

EXHIBIT
NUMBER DESCRIPTION
----------- -----------

24.1 Power of Attorney (included in II-4).
27.1 Financial Data Schedule.

- ---------------
* To be filed by amendment.

** Confidential treatment has been requested for certain portions of this
exhibit.

(b) FINANCIAL STATEMENT SCHEDULES

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing as specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-3
77

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Coralville, State of
Iowa, on the 9th day of April, 1998.

UROSURGE, INC.

By: /s/ DAVID H. MAUPIN

------------------------------------
David H. Maupin,
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David H. Maupin and Randal L. Owens and
each of them, his attorneys-in-fact, each with the power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto in all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that such attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

SIGNATURE TITLE DATE

/s/ DAVID H. MAUPIN President, Chief Executive April 9, 1998
- ----------------------------------------------------- Officer and Director
David H. Maupin (Principal Executive
Officer)

/s/ RANDAL L. OWENS Vice President of Finance April 9, 1998
- ----------------------------------------------------- and Chief Financial Officer
Randal L. Owens (Principal Financial and
Accounting Officer)

/s/ DICK P. ALLEN Director April 9, 1998
- -----------------------------------------------------
Dick P. Allen

/s/ WILLIAM E. ENGBERS Director April 9, 1998
- -----------------------------------------------------
William E. Engbers

/s/ ROBERT E. CURRY, PHD. Director April 9, 1998
- -----------------------------------------------------
Robert E. Curry, PhD.

/s/ JOSEPH F. LOVETT Director April 9, 1998
- -----------------------------------------------------
Joseph F. Lovett

II-4
78

EXHIBIT INDEX

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
----------- ------------------------------------------------------------ ------------

- ---------------
* To be filed by amendment.

** Confidential treatment has been requested for certain portions of this
exhibit.