<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q


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

     For the quarterly period ended June 30, 2000

                                      or

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

     For the transition period from _________________ to ________________


                        Commission File Number: 0-26082


                                 VIDAMED, INC.
            (exact name of registrant as specified in its charter)


          Delaware                                        77-0314454
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)


                             46107 Landing Parkway
                               Fremont, CA 94538
                   (Address of principal executive offices)

                                (510) 492-4900
             (Registrant's telephone number, including area code)


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

[X]  Yes       [ ]  No

The number of outstanding shares of the registrant's Common Stock, $.001 par
value, was 30,283,088 as of June 30, 2000.
<PAGE>

                                 VIDAMED, INC.

                                     INDEX

<TABLE>
<CAPTION>
PART I.   FINANCIAL INFORMATION
                                                                                           Page
<S>                                                                                        <C>
Item 1.   Condensed Consolidated Financial Statements - unaudited

          Condensed consolidated balance sheets - June 30, 2000
            and December 31, 1999                                                            3

          Condensed consolidated statements of operations - three months
            ended June 30, 2000 and 1999 and six months ended
            June 30, 2000 and 1999                                                           4

          Condensed consolidated statements of cash flows - six months
            ended June, 2000 and 1999                                                        5

          Notes to condensed consolidated financial statements                               6

Item 2.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations                                                        8

Item 3.   Quantitative and Qualitative Disclosure About Market Risk                         14


PART II.  OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders                               14

Item 5.   Other Information                                                                 15

Item 6.   Exhibits and Reports on Form 8-K                                                  15


          Signatures                                                                        15

          Financial Data Schedule                                                           16
</TABLE>

                                       2
<PAGE>

PART I:   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

                                 VidaMed, Inc.
                     Condensed Consolidated Balance Sheets
                                (In thousands)

<TABLE>
<CAPTION>
                                                                     June 30, 2000        December 31, 1999
                                                                  -------------------   ----------------------
                                                                        (Unaudited)              (*)
<S>                                                               <C>                   <C>
Assets
Current assets:
     Cash and cash equivalents                                             $   10,870               $    2,748
     Accounts receivable                                                        1,267                    1,443
     Inventories                                                                  405                      415
     Other current assets                                                         623                      531
                                                                  -------------------   ----------------------
          Total current assets                                             $   13,165               $    5,137

     Property and equipment, net                                                2,480                    2,017
     Other assets, net                                                            101                      166
                                                                  -------------------   ----------------------
          Total assets                                                     $   15,746               $    7,320
                                                                  ===================   ======================


Liabilities and stockholders' equity
Current liabilities:
     Accounts payable                                                      $    1,023               $      461
     Accrued liabilities                                                        2,269                    2,558
     Deferred revenue                                                             118                      272
     Notes payable, current portion                                             1,426                    1,394
                                                                  -------------------   ----------------------
          Total current liabilities                                        $    4,836               $    4,685

     Notes payable, long-term portion                                             516                    1,030

Stockholders' equity:
     Capital stock                                                            114,879                  101,725
     Accumulated deficit                                                     (104,485)                (100,120)
                                                                  -------------------   ----------------------
          Total stockholders' equity                                           10,394                    1,605
                                                                  -------------------   ----------------------
          Total liabilities and stockholder's equity                       $   15,746               $    7,320
                                                                  ===================   ======================
</TABLE>
*  The Balance Sheet at December 31, 1999 has been derived from the audited
   financial statements at that date but does not include all of the information
   and footnotes required by generally accepted accounting principles for
   complete financial statements.

                            See accompanying notes.

                                       3
<PAGE>

                                 VidaMed, Inc.
                Condensed Consolidated Statement of Operations
               (In thousands except share and per share amounts)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended               Six Months Ended
                                                                            June 30,                        June 30,
                                                                      2000            1999            2000            1999
                                                               ----------------  --------------  -------------  --------------
<S>                                                            <C>               <C>             <C>            <C>

Revenues                                                            $     2,418     $     1,225    $     4,944     $     2,263
Cost of products sold                                                       891             646          1,659           1,480
                                                               ----------------  --------------  -------------  --------------
Gross profit (loss)                                                       1,527             579          3,285             783


Operating expenses:
     Research and development                                               822             742          1,604           1,555
     Selling, general and administrative                                  2,980           6,247          5,913           3,409
                                                               ----------------  --------------  -------------  --------------
          Total operating expenses                                        3,802           4,151          7,851           7,468

                                                               ----------------  --------------  -------------  --------------
Loss from operations                                                     (2,275)         (3,572)        (4,566)         (6,685)


Other income (expense), net                                                  48              87            201              44
                                                               ----------------  --------------  -------------  --------------
Net loss                                                            $    (2,227)    $    (3,485)   $    (4,365)    $    (6,641)
                                                               ================  ==============  =============  ==============
Basic and diluted net loss per share                                $     (0.07)    $     (0.17)   $     (0.15)    $     (0.33)
                                                               ================  ==============  =============  ==============
Shares used in computing basic and diluted
     net loss per share                                              30,198,000      20,546,000     29,567,000      20,430,000
                                                               ================  ==============  =============  ==============
</TABLE>
                            See accompanying notes.

                                       4
<PAGE>

                                 VidaMed, Inc.
                Condensed Consolidated Statement of Cash Flows
                                (In thousands)
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                               June 30,
                                                                         2000           1999
                                                                     -------------  -------------
<S>                                                                  <C>            <C>
Cash flows from operating activities:
     Net loss                                                            $  (4,365)     $  (6,641)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
       Depreciation and amortization                                           882            626
       Amortization of warrant interest                                         58              -
       Changes in current assets and liabilities:
          Accounts receivable                                                  176           (508)
          Inventory                                                             10            337
          Other current assets                                                 (34)           384
          Other assets                                                          65             29
          Accounts payable                                                     562            (17)
          Accrued liabilities                                                  (83)          (555)
          Deferred revenue                                                    (154)           (99)
                                                                     -------------  -------------
Net cash used in operating activities                                       (2,883)        (6,444)
                                                                     -------------  -------------

Cash flows from investing activities
     Expenditures for property and equipment                                (1,345)          (145)
                                                                     -------------  -------------
Net cash provided by (used in) investing activities                         (1,345)          (145)
                                                                     -------------  -------------

Cash flows from financing activities:
     Principal payments under capital leases                                     -            (22)
     Principal payments on notes payable                                      (482)           (55)
     Net cash proceeds from issuance of common stock                        12,832          1,693
                                                                     -------------  -------------
Net cash provided by financing activities                                   12,350          1,616
                                                                     -------------  -------------

Net increase (decrease) in cash and cash equivalents                         8,122         (4,973)
Cash and equivalents at the beginning of the period                          2,748          9,384
                                                                     -------------  -------------
Cash and equivalents at the end of the period                            $  10,870      $   4,411
                                                                     =============  =============

Supplemental disclosure of cash flows information:
Cash paid for interest                                                   $     227      $     124
                                                                     =============  =============
</TABLE>
                            See accompanying notes.

                                       5
<PAGE>

                                  VIDAMED, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2000
                                   (Unaudited)

1.       Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of
VidaMed, Inc. (the "Company" or "VidaMed") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. The
balance sheet as of June 30, 2000, the statements of operations for the three
months and six months ended June 30, 2000 and 1999, and the statements of cash
flows for the six months ended June 30, 2000 and 1999, are unaudited but include
all adjustments (consisting of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operating results and cash flows for those periods. Certain
information normally included in financial statements and related footnotes
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. The accompanying financial statements should be read in
conjunction with the financial statements and notes included in the Company's
annual report on Form 10-K for the year ended December 31, 1999, filed with the
Securities and Exchange Commission.

Results for any interim period shown in this report are not necessarily
indicative of results to be expected for any other interim period or for the
entire year.

2.       Net Loss Per Share

Basic net loss per share is computed using the weighted-average number of shares
of common stock issued and outstanding during the periods presented. Diluted net
loss per share is computed based on the weighted average number of shares of our
common stock and common equivalent shares (stock options and warrants to
purchase common stock) if dilutive. Because the Company has incurred losses from
operations in each of the periods presented, there is no difference between
basic and diluted net loss per share amounts. As of June 30, 2000, we had
30,283,088 issued and outstanding shares of common stock, with an additional
4,276,877 options outstanding under employee and director stock option plans,
and an additional 3,752,514 warrants outstanding to purchase common stock. The
options and warrants will be included in the calculation of net loss per share
at such time as their effect is no longer anti-dilutive, as calculated using the
treasury stock method.

3.       Inventories

Inventories are stated at the lower of cost (determined using the first-in,
first-out method) or market value. Inventories consist of the following (in
thousands):

                                       June 30,         December 31,
                                        2000                1999
                                       --------         ------------
          Raw materials                $    203         $        147
          Work in process                    21                   39
          Finished goods                    181                  229
                                       --------         ------------
                                       $    405         $        415
                                       ========         ============

                                       6
<PAGE>

4.       Notes Payable

In January 2000, we renewed our debt facility arrangement with Transamerica and
in consideration of this renewal we issued a warrant to Transamerica to acquire
an additional 77,320 shares of common stock for a purchase price of $1.94 per
share. The warrant has a term of five years. Using a Black Scholes model, the
fair value of the warrant was estimated to be $115,980 and is being amortized to
interest expense over the life of the debt facility.

5.       Reporting Comprehensive Income (Loss)

We follow the Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement 130). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components. Statement
130 requires unrealized gains or losses on our available-for-sale securities and
foreign currency translation adjustments, to be included in other comprehensive
income (loss). During the six months ended June 30, 2000 and 1999, the total
comprehensive loss was not materially different from the net loss.

6.       Common Stock

The increase in capital stock for the six months ended June 30, 2000, is due to
the issuance of 7,321,477 additional shares. In January, we sold 5,300,000
shares of common stock to Medtronic and 1,160,000 to existing shareholders. The
purchase price per share of common stock was $1.73, which represented a premium
to the average closing price for the five days preceding the sale. The
investors, including Medtronic, received warrants to purchase 1,938,000 shares
of common stock at an exercise price of $1.80 per share. The warrants have a
term of five years. In February 2000, we sold 106,648 shares of common stock to
MC Medical, Inc. at a per share price of $2.81, which was the average purchase
price five days preceding the sale. During the six months ended June 30, 2000,
we issued 78,272 shares of common stock on the exercise of outstanding warrants,
an additional 33,713 shares of common stock to existing shareholders, 42,334
shares of common stock in employment-related settlements and 600,510 shares of
common stock under employee stock option and purchase plans.

                                       7
<PAGE>

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

The following is a discussion and analysis of VidaMed's consolidated financial
condition and results of operations for the three months and six months ended
June 30, 2000 and 1999. We also discuss certain factors that may affect our
prospective financial condition and results of operations. This section should
be read in conjunction with our condensed consolidated financial statements and
related notes in Item 1 of this report and our annual report on Form 10-K for
the year ended December 31, 1999, which has been filed with the Securities and
Exchange Commission and is available from VidaMed at no charge.

"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995

This report contains, in addition to historical information, forward-looking
statements that are based on current expectations and beliefs, but involve a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated in the forward-looking statements. Some of the
factors that could cause actual results to differ are discussed below in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in the "Risk Factors" discussion that follows. You should also
refer to the risk factors described in our annual report on Form 10-K for the
year ended December 31, 1999, which has been filed with the Securities and
Exchange Commission and is available from VidaMed at no charge. The
forward-looking statements included in this report are made only as of the date
hereof, and we undertake no obligation to publicly revise or update them to
reflect subsequent events or circumstances.

Overview

Since its founding in 1992, VidaMed has been engaged in the design, development
and marketing of urological systems, which are primarily focused on the
treatment of the enlarged prostate or benign prostatic hyperplasia, commonly
known as BPH. International sales of the patented TUNA system commenced in late
1993, and commercial sales began in the United States in late 1996, after we
received FDA clearance. In 1997, we began marketing and selling the TUNA system
to office-based urology practices in the U.S., assuming that after receiving FDA
clearance, third-party reimbursement, including Medicare, would be approved for
those locations.

In mid-1998, Medicare announced that approval of any new office-based or
ambulatory surgery center procedures would be delayed until at least mid-2000
due to Y2K compliance issues. As a result, Medicare reimbursement for the TUNA
procedure was made available only for procedures performed in hospital-based
settings, on a reasonable cost basis, and required individual state-by-state
approval.

Starting in late 1998 and throughout 1999, we focused our sales and marketing
efforts on obtaining the required individual state Medicare reimbursement
approvals and implementing a new U.S. hospital-based "fee-per-use" sales and
marketing model. Under this model, an entire TUNA system is placed in a hospital
at no charge to the hospital. Revenue is generated by selling a single-use
component needed for each TUNA procedure performed. Once the procedure is
performed the single-use component is discarded and a new component must be
purchased for the next procedure.

As of June 30, 2000, 47 states have approved hospital-based reasonable cost
basis Medicare reimbursement coverage for the TUNA procedure. Under the
reasonable cost basis method of reimbursement, we charge the hospital a
fee-per-use charge of approximately $2,600 for each TUNA procedure performed,
and combined with other direct and indirect overhead costs the hospital incurs
in

                                       8
<PAGE>

conducting the TUNA procedure, the hospital is reimbursed by Medicare for these
reasonable costs. In addition to the hospital, the urologist that performs the
TUNA procedure is reimbursed by Medicare approximately $600 per procedure.

Effective August 1, 2000, the United States Health Care Finance Administration
(commonly referred to as HCFA), which administers Medicare, will replace the
reasonable cost basis of reimbursement for outpatient hospital-based procedures,
like the TUNA, with a new fixed rate or "prospective payment system". Under this
new method of reimbursement, a hospital will receive a fixed reimbursement of
approximately $1,875 for each TUNA procedure performed in its facility, although
this rate can be higher or lower depending on a wage index factor for each
hospital. The urologist performing the Tuna procedure will continue to be
reimbursed approximately $600 per procedure. With this change in reimbursement,
we will continue to market and sell the TUNA procedure to hospitals on a
fee-per-use basis, but our current fee-per-use pricing will need to be reduced.

On July 17, 2000, HCFA published new Medicare payment rates and a schedule for
implementing minimally invasive heat therapies for the treatment of benign
prostatic hyperplasia (commonly known as BPH) in the urologist's office.
Coverage for the TUNA procedure is included in the ruling, which is published in
the Federal Register and proposed to become effective January 1, 2001, subject
to a 60-day comment period. The proposed reimbursement rate (inclusive of the
physician's fee) for the TUNA procedure in the urologist's office is estimated
to be $2,315 in 2001 and $2,866 beginning January 1, 2002.

With the recent changes and proposed changes in the rate and site of care for
which Medicare will reimburse the TUNA procedure, our business is in a period of
transition. Our business strategy will be to continue to support our
hospital-based business while making the preparations necessary to service and
accelerate our volume of business in the urologists' office. In both settings,
we will continue to focus our marketing and sales efforts on patient awareness
and physician advocacy of the TUNA procedure.

Results of Operations

Net revenue for the three months ended June 30, 2000 was $2,418,000. This
represents an increase of $1,193,000, or 97%, from $1,225,000, in the three
months ended June 30, 1999. The increase was due primarily to increasing
acceptance of our fee-per-use program. Net revenue for the six months ended June
30, 2000 increased 118% to $4,944,000, from $2,263,000 in the same period of
1999. The increase in revenues during the six months ended June 30, 2000
compared to the same period of 1999 was due to our expanded sales and marketing
organization and the continued acceptance of our fee-per-use program.

Cost of product sold for the three months ended June 30, 2000 was $891,000, an
increase of 38% or $245,000 from $646,000 for the three months ended June 30,
1999. The increase was due to higher product sales and increased TUNA generator
amortization costs resulting from the placement of more generators in hospitals.
For the six months ended June 30, 2000, cost of product sold was $1,659,000, an
increase of 12% from $1,480,000 in the first six months of 1999. This increase
was due to higher product sales.

Gross margin expressed as a percentage of sales for the three months ended June
30, 2000 was 63%, up from 47% for the three months ended June 30,1999. Gross
margin expressed as a percentage of sales for the six months ended June 30, 2000
was 66%, up from 35% for the same period in 1999. These improvements in gross
margin percentage of sales were due primarily to the increased volume of our
fee-per-use program.

                                       9
<PAGE>

Research and development (R&D) expenses during the three and six months ended
June 30, 2000 included expenditures for regulatory compliance and clinical
trials. Clinical trial costs consisted largely of payments to clinical
investigators, product for clinical trials, and costs associated with initiating
and monitoring clinical trials. R&D expenses increased 11% to $822,000 in the
three months ended June 30, 2000 from $742,000 in the three months ended June
30, 1999. The increase was primarily due to product line enhancements on our
ProVu generation of products. For the six months ended June 30, 2000, R&D
expenses increased 3% to $1,604,000 from $1,555,000 in the first six months of
1999. R&D expenses decreased as a percentage of sales in the three and six
months ended June 30, 2000 compared to the corresponding periods in 1999.

Selling, general and administrative (SG&A) expenses decreased 13% to $2,980,000
in the three months ended June 30, 2000 from $3,409,000 in the three months
ended June 30, 1999. The decrease was primarily due to CEO transition costs
incurred during the same period in 1999. For the six months ended June 30, 2000,
SG&A expenses increased $334,000, or 6%, from $5,913,000 in 1999 to $6,247,000
in 2000. This increase was primarily due to an increase in sales and marketing
personnel and related payroll and other expenses.

Other income (expense) for the three months ended June 30, 2000 decreased to
$48,000 compared to $87,000 for the same period in the prior year. While
interest income increased as a result of a higher average outstanding balance of
cash and investments, a charge to interest expense for the value of warrants
issued in connection with the renewal of our revolving line of credit resulted
in a net reduction in other income (expense). For the six months ended June 30,
2000, other income was $201,000 compared to $44,000 for the six months ended
June 30, 1999. Other income is primarily composed of interest income and
expense. The increase in interest income was primarily attributable to a higher
average outstanding balance of cash and investments resulting from the sale of
our common stock to investors in January and February 2000. Our cash balances
available for investment were $10.9 million and $4.4 million at June 30, 2000
and 1999, respectively.

History of Operating Losses

We have incurred significant operating losses since our inception in 1992 and,
as of June 30, 2000, had an accumulated deficit of approximately $104.4 million.
We expect to continue to incur operating losses through the end of the year 2000
as we expend funds on sales and marketing activities, clinical trials in support
of reimbursement approvals and research and development. Our future
profitability depends on numerous factors, including:

     o our success in achieving market acceptance of the TUNA procedure;

     o our success in obtaining and maintaining necessary regulatory clearances;

     o the extent to which Medicare and other healthcare payors approve
       reimbursement of the costs of TUNA procedures performed in hospitals,
       urologists' offices and ambulatory surgery centers;

     o our success in expanding our sales and marketing efforts to sell the TUNA
       procedure into the urologist office; and

     o the amount of reimbursement provided and the effects of the proposed in-
       office reimbursement rates and prospective payment system on our future
       revenues.

                                       10
<PAGE>

Liquidity and Capital Resources

For the six months ended June 30, 2000, our cash and cash equivalents increased
by $8.2 million to $10.9 million, compared to $2.7 million at December 31, 1999.
The increase was due primarily to $11.2 million received from the private
placement of our common stock and warrants during the first quarter of 2000,
offset by operating expenses incurred in the normal course of business. During
the six months ended June 30, 2000, we used $2.9 million in operating
activities, primarily as a result of our net loss. We purchased $1.3 million of
property and equipment in investing activities. We are financing our 2000
operating and investing activities primarily from $12.9 million received from
the issuance of common stock, less $0.5 million used to reduce debt.

While management believes that the proceeds of the equity financing in the first
quarter, plus revenues from the fee-per-use program will be sufficient to fund
operations at current levels through the end of fiscal 2000, additional
financing may be required to fund operations at current levels in 2001. If
required, management will pursue, and believes it can obtain, financing to fund
operations at current levels in 2001. Additional financing, however, may not be
available, or if available, may not be available on favorable terms.

If additional financing is unavailable, management believes that it would be
able to fund operations into fiscal 2001 by scaling back research and
development, clinical trials, expansion into the office-based market and other
areas of discretionary spending. Reductions in those areas could have a material
adverse effect on our long-term opportunities to develop new and competitive
products, obtain necessary governmental approvals of those products and develop
additional markets for our products.

We have a line of credit with Transamerica Technology Finance, a division of
Transamerica Corporation. The facility is secured by our assets and consists of
a revolving accounts receivable-based credit line of up to $3 million and a $2.5
million equipment term loan. The term loan was funded in full as of December 31,
1998, at an interest rate of 12% per year. Repayment of that loan is amortized
over a three-year period, with the first monthly payment having been made in
December 1998 and continuing monthly thereafter. We may be able to obtain
additional debt financing from Transamerica, but we cannot give any assurance
that we will be able to do so or that the terms of the financing would be
favorable. Collaborative arrangements, if necessary to raise additional funds,
may require us to relinquish rights to certain of our technologies or products.
Our failure to raise capital when needed could have a material adverse effect on
our business, financial condition and results of operation.

As of June 30, 2000, we had borrowed approximately $520,0000 against the
Transamerica revolving accounts receivable-based line at a rate of 10.5% per
year.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133),
which is required to be adopted in the first quarter of the year ending December
31, 2001. Management does not anticipate that the adoption of Statement 133 will
have a significant effect on our results of operations or our financial
position.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No.101 (SAB 101). SAB 101 summarizes certain areas of the views of the
SEC staff in applying generally accepted accounting principles to revenue
recognition in financial statements. We believe that our current revenue
recognition principles comply with SAB 101.

                                       11
<PAGE>

Risk Factors

Our business, results of operations and financial condition are subject to the
following risk factors in addition to those described above under "Results of
Operations" and "Liquidity and Capital Resources" and in our annual report on
Form 10-K for the year ended December 31, 1999.

Our Future Revenues Are Subject to Uncertainties Regarding Healthcare
Reimbursement and Reform

The continuing efforts of government and insurance companies, health maintenance
organizations and other payors of healthcare costs to contain or reduce costs of
health care may affect our future revenues and profitability. In the United
States, given recent federal and state government initiatives directed at
lowering the total cost of health care, the U.S. Congress and state legislatures
will likely continue to focus on healthcare reform including the reform of
Medicare and Medicaid systems, and on the cost of medical products and services.
Our ability to commercialize the TUNA procedure successfully will depend in part
on the extent to which the users of our products obtain appropriate
reimbursement for the cost of the TUNA procedure. Third-party payors are
increasingly challenging the prices charged for medical products and services.
Also, legislative proposals to reform health care or reduce government insurance
programs, coupled with the trend toward managed health care in the United States
and the concurrent growth of organizations such as HMOs, which organizations
could control or significantly influence the purchase of healthcare services and
products, may all result in lower prices for or rejection of our products.

For example, effective August 1, 2000, the United States Health Care Finance
Administration (commonly referred to as HCFA), which administers Medicare, will
replace the reasonable cost basis of reimbursement for outpatient hospital-based
procedures, like the TUNA, with a new fixed rate or "prospective payment
system". Under this new method of reimbursement, a hospital will receive a fixed
reimbursement of approximately $1,875 for each TUNA procedure performed in its
facility, although this rate can be higher or lower depending on a wage index
factor for each hospital. The urologist performing the Tuna procedure will
continue to be reimbursed approximately $600 per procedure. In addition, on July
17, 2000, HCFA published new Medicare payment rates and a schedule for
implementing minimally invasive heat therapies for the treatment of BPH in the
urologist's office. Coverage for the TUNA procedure is included in the ruling,
which is published in the Federal Register and proposed to become effective
January 1, 2001, subject to a 60-day comment period. The proposed reimbursement
rate (inclusive of the physician's fee) for the TUNA procedure in the
urologist's office is estimated to be $2,315 in 2001 and $2,866 beginning
January 1, 2002. These cost containment measures that healthcare payors and
providers are instituting and the effect of future health care reform could
cause reductions in the amount of reimbursement available to users of our
products and could materially adversely affect our ability to operate
profitably.

The TUNA Procedure is a New Therapy and May Not Be Accepted by Physicians,
Patients and Healthcare Payors Which Would Severely Harm our Business

Physicians will not recommend the TUNA procedure unless they conclude, based on
clinical data and other factors, that it is an effective alternative to other
methods of enlarged prostate treatment, including more established methods. In
particular, physicians may elect not to recommend the TUNA procedure until the
long term duration of the relief provided by the procedure has been established.
Clinical data for assessing the durability of relief provided by the TUNA
therapy in the United States does not extend

                                       12
<PAGE>

beyond five years Some physicians may consider five years of clinical data to be
sufficient evidence of durability and others may not. As time passes since the
first TUNA procedures were performed, and as more procedures are performed, the
clinical data will continue to be developed. We are in the process of conducting
multi-year patient follow-up studies to assess the durability of the relief
provided by the TUNA procedure. We cannot assure you that these studies will
support the durability of the relief provided by the TUNA procedure.

Even if the clinical efficacy of the TUNA procedure is established, physicians
may elect not to recommend the procedure unless acceptable reimbursement from
healthcare payors is available. Healthcare payor acceptance of the TUNA
procedure will require evidence of its cost effectiveness compared with other
therapies for an enlarged prostate, which will depend in large part on the
duration of the relief provided by the TUNA procedure.

Patient acceptance of the procedure will depend in part on physician
recommendations and on other factors, including the degree of invasiveness and
the rate and severity of complications associated with the procedure compared
with other therapies. Patient acceptance of the TUNA procedure will also depend
on the ability of physicians to educate these patients on their treatment
choices.

Our Success is Dependent on the Sale of Our Only Product, the TUNA System

All of our revenues are derived from sales of our Tuna system. The VidaMed TUNA
system consists of a radio frequency generator, a reusable handle, a disposable
cartridge and an optical telescope. If a material problem develops with any one
or more of those components, our revenues would suffer because we rely on our
TUNA system for all of our revenue and have no other products. Possible problems
include, but are not necessarily limited to, malfunctions, failure to comply
with or changes in governmental regulations, product recalls, product
obsolescence, injunctions resulting from litigation, inability to protect our
intellectual property, invalidity of our patents or shortages of one or more of
the components of the system. Additionally, any factors adversely affecting the
pricing of, demand for or market acceptance of our TUNA system, such as
competition or technological change, would significantly harm our business.

We Rely on Contract Manufacturers for the Majority of Our Manufacturing Needs

We outsource the manufacture of the disposable cartridge and most of the other
components of the TUNA system, and we rely on contract manufacturers to supply
our components in sufficient quantities, in compliance with regulatory
requirements and at an acceptable cost. We purchase components through purchase
orders rather than long-term supply agreements. Manufacturers often encounter
difficulties in scaling up production of new products, including problems
involving production yields, product recalls, quality control and assurance,
component supply and lack of qualified personnel. If any of our manufacturers
experience production problems, we may not be able to locate an alternate
manufacturer promptly. The disruption or termination of the supply of components
for our TUNA system could cause a significant increase in the costs of these
components or an inability to meet demand for our products. Furthermore, if we
are required to change the manufacturer of a key component of our TUNA system,
we may be required to verify that the new manufacturer maintains facilities and
procedures that comply with quality standards and other applicable regulations
and guidelines. The delays associated with verification and other delays in
production could adversely affect the success of our fee-per-use program and our
future revenues.

                                       13
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to interest rate risk on the investments of our excess cash. The
primary objective of our investment activities is to preserve principal while at
the same time maximize yields without significantly increasing risk. To achieve
this objective, we invest in highly liquid and high quality debt securities. To
minimize the exposure due to adverse shifts in interest rates, we invest in
short-term securities with maturities of less than one year. Due to the nature
of our short-term investments, we have concluded that we do not have a material
market risk exposure.

PART II: OTHER INFORMATION

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

VidaMed, Inc. held its annual meeting on June 1, 2000. Our stockholders voted on
the following:

1.  Election of Directors. The election of directors was conducted and the
following nominees were elected, with the following vote count:
<TABLE>
<CAPTION>
                                                 Votes            Votes
         Name                                     For            Withheld
         ----------------------------     --------------------   --------
         <S>                              <C>                    <C>
         Randy D. Lindholm                     22,171,569        140,279
         Robert Erra                           22,167,969        143,879
         Elizabeth Davila                      22,171,019        140,829
         Paulita LaPlante                      22,167,119        144,729
         Kurt Wheeler                          22,173,619        138,229
         Michael D. Ellwein                    22,173,269        138,579
</TABLE>
2. Ratification of Independent Auditors. The stockholders ratified Ernst &
Young LLP as our independent auditors for the fiscal year ending December 31,
2000. There were 22,241,214 votes for and 44,446 against ratification, with
26,188 abstentions.

3. Amendment to 1992 Stock Plan. The stockholders approved an amendment to our
1992 Stock Plan to increase the number of shares of common stock reserved for
future issuance under the plan by 1,900,000 shares to a new total of 6,200,000.
There were 10,750,694 votes for, and 1,690,802 votes against the amendment, with
113,754 abstentions and 9,756,598 shares not voted.

4. Amendment to 1995 Director Option Plan. The stockholders approved an
amendment to our 1995 Director Option Plan to increase the number of shares of
common stock reserved for future issuance under the plan by 100,000 to a new
total of 300,000. There were 10,851,979 votes for, and 1,580,877 votes against
the amendment, with 122,394 abstentions and 9,756,598 shares not voted

                                       14
<PAGE>

ITEM 5. OTHER INFORMATION

Management Changes

On June 28, 2000, Diane M. Anderson, former Director of Global Sales Programs
and International Marketing with Marconi Medical Systems, was appointed Vice
President of Sales and Marketing. Prior to Marconi, she held progressively
responsible selling and sales management positions with General Electric Medical
Systems (NYSE: GE).

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits

            10.26  Amended and Restated 1992 Stock Plan
            10.27  Amended and Restated 1995 Director Option Plan
            27.1   Financial Data Schedule

        (b) Reports on Form 8-K.

            No reports on Form 8-K were filed during the quarter ended
            June 30, 2000.

                                  SIGNATURES

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



                                     VIDAMED, INC.

Date:     August 7, 2000             By:  /s/   Randy D. Lindholm
       ------------------------           --------------------------
                                          Randy D. Lindholm
                                          President, Chief Executive Officer

Date:     August 7, 2000             By:  /s/   John F. Howe
       -------------------------          ---------------------
                                          John F. Howe
                                          VP Finance, Chief Financial Officer
                                          (Principal Financial and
                                          Accounting Officer)

                                       15
<PAGE>

                                  EXHIBIT INDEX

Exhibit Number                          Description
--------------                          -----------

10.26             Amended and restated 1992 Stock Plan, as amended effective
                  June 1, 2000

10.27             Amended and restated 1995 Director Option Plan, as amended
                  effective June 1, 2000

27.1              Financial Data Schedule