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, 1998

                                       or

[ ] TRANSITION REPORTS 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
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 19,924,422 as of August 13, 1998.

                                                                    Page 1 of 16

<PAGE>

<TABLE>

                                            VIDAMED, INC.

                                                INDEX

PART I: FINANCIAL INFORMATION
<CAPTION>
                                                                                                 Page
<S>                                                                                               <C>
Item 1.      Condensed consolidated financial statements - unaudited

             Condensed consolidated balance sheets - June 30, 1998
                  and December 31, 1997                                                            3

             Condensed  consolidated  statements  of  operations  - three months
                  ended June 30, 1998 and 1997 and six months ended
                  June 30, 1998 and 1997                                                           4

             Condensed consolidated statements of cash flows - six months
                  ended June 30, 1998 and 1997                                                     5

             Notes to condensed consolidated financial statements                                  6

Item 2.      Management's discussion and analysis of financial condition
                 and results of operations                                                         8


PART II: OTHER INFORMATION

Item 1.      Legal Proceedings                                                                    13

Item 2.      Changes in Securities                                                                13

Item 3.      Defaults Upon Senior Securities                                                      13

Item 4.      Submission of Matters to a Vote of Security Holders                                  13

Item 5.      Other Information                                                                    14

Item 6.      Exhibits and Reports on Form 8-K                                                     14

             Signatures                                                                           15

                                                                                         Page 2 of 16
</TABLE>

<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                                           June 30, December 31,
                                                             1998        1997
                                                           --------    --------
                                                         (Unaudited)     (*)
Assets
Current Assets:
     Cash and cash equivalents                             $ 15,331    $  8,026
     Accounts receivable                                      2,951       3,644
     Inventories                                              1,763       1,512
     Other current assets                                     1,497         930
                                                           --------    --------
           Total current assets                              21,542      14,112

     Property and equipment, net                              2,623       2,647
     Other assets, net                                          201         206
                                                           --------    --------
           Total assets                                    $ 24,366    $ 16,965
                                                           ========    ========

Liabilities and stockholders' equity
Current liabilities:
     Notes payable, current portion                        $    388    $    480
     Accounts payable                                           714       1,536
     Accrued professional fees                                  381         559
     Accrued clinical trial costs                               378         372
     Accrued and other liabilities                            2,968       2,620
     Accrued interest payable                                   197         422
     Restructuring Accrual                                      431       1,000
     Current portion of long-term debt                           33          34
     Current portion of obligations under capital leases         24          82
     Deferred revenue, current portion                          339         611
                                                           --------    --------
           Total current liabilities                          5,853       7,716

     Other long-term liabilities                                  6          22
     Notes payable, long-term portion                           892        --

Stockholders' equity:
     Capital stock                                           95,439      77,573
     Accumulated deficit                                    (77,824)    (68,346)
                                                           --------    --------
           Total stockholders' equity                        17,615       9,227
                                                           --------    --------
           Total liabilities and stockholders' equity      $ 24,366    $ 16,965
                                                           ========    ========

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

                             See accompanying notes.

                                                                    Page 3 of 16
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<TABLE>


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

<CAPTION>

                                                                        Three Months Ended                     Six Months Ended
                                                                              June 30,                              June 30,
                                                                     --------------------------          --------------------------
                                                                       1998              1997              1998              1997 
                                                                     --------          --------          --------          --------
<S>                                                                  <C>               <C>               <C>               <C>     
Revenues:
     Product sales, net                                              $    861          $  2,103          $  2,236          $  5,355
     License fees and grant revenue                                        50                50               339
                                                                     --------          --------          --------          --------
                                                                                                                                100
     Net revenues                                                         911             2,153             2,575             5,455

Cost of Products Sold                                                     608             1,265             1,680             3,048
                                                                     --------          --------          --------          --------
Gross Profit                                                              303               888               895             2,407

Operating Expenses:
     Research and development                                           1,200             1,456             2,334             3,354
     Selling, general and administrative                                3,297             3,865             7,904             7,223
                                                                     --------          --------          --------          --------
     Total operating expenses                                           4,497             5,321            10,238            10,577

     Loss from operations                                              (4,194)           (4,433)           (9,343)           (8,170)

Other income(expense), net                                                (46)             (102)             (135)             (109)
Net loss                                                             $ (4,240)         $ (4,535)         $ (9,478)         $ (8,279)
                                                                     ========          ========          ========          ========
Basic and diluted net loss per share                                 $  (0.24)         $  (0.38)         $  (0.58)         $  (0.72)
                                                                     ========          ========          ========          ========
Shares used in computing basic and diluted
     net loss per share                                                17,443            11,913            16,341            11,521
                                                                     ========          ========          ========          ========

                                                                                                                        Page 4 of 16

</TABLE>

<PAGE>
<TABLE>

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

<CAPTION>
                                                                                                              Six Months Ended
                                                                                                                  June 30,
                                                                                                         ---------------------------
                                                                                                           1998               1997
                                                                                                         ---------          --------
<S>                                                                                                      <C>               <C>      
Cash flows from operating activities:
     Net loss                                                                                            $ (9,478)         $ (8,279)
     Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                                      635               671

           Changes in assets and liabilities:
               Accounts receivable                                                                            693            (1,089)
               Inventory                                                                                     (251)             (330)
               Other current assets                                                                          (567)             (581)
               Other assets                                                                                     5               (29)
               Accounts payable                                                                              (822)              297
               Accrued professional fees                                                                     (178)               52
               Accrued clinical trial costs                                                                     6              (170)
               Accrued interest payable                                                                      (225)               75
               Accrued restructuring cost                                                                    (569)             --
               Accrued and other liabilities                                                                  348               941
               Deferred revenue                                                                              (272)              217
                                                                                                         --------          -------- 
Net cash used in operating activities                                                                     (10,675)           (8,225)
                                                                                                         --------          -------- 

Cash flows from investing activities:
     Expenditures for property and equipment                                                                 (611)             (758)
     Proceeds from maturities of short-term investments                                                      --               1,976
                                                                                                         --------          -------- 
        Net cash provided by (used in)  investing activities                                                 (611)            1,218
                                                                                                         --------          -------- 

Cash flows from financing activities:
     Principal payments under capital leases                                                                  (58)             (318)
     Principal payments of long-term debt                                                                     (16)              (32)
     Principal payments of notes payable                                                                     (700)             (518)
     Net proceeds from issuance of notes payable                                                            1,500              --
                                                                                                         --------          -------- 
     Net cash proceeds from issuance of common stock                                                       17,865            10,002
                                                                                                         --------          -------- 

Net cash provided by financing activities                                                                  18,591             9,134

Net increase (decrease) in cash and cash equivalents                                                        7,305             2,127
Cash and cash equivalents at the beginning
     of the period                                                                                          8,026             3,879
                                                                                                         --------          -------- 
Cash and cash equivalents at the end of the period                                                       $ 15,331          $  6,006
                                                                                                         ========          ========

Supplemental disclosure of cash flows information:
Cash paid for interest                                                                                   $    458          $    292
                                                                                                         ========          ========

<FN>

                                                       See accompanying notes.

</FN>
                                                                                                                        Page 5 of 16
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<PAGE>


                                  VIDAMED, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1998
                                   (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, 1998 and the statements of operations for the three
and six months ended June 30, 1998 and 1997,  and the  statements  of cash flows
for the six months ended June 30, 1998 and 1997,  are  unaudited but include all
adjustments  (consisting  of normal  recurring  adjustments)  which the  Company
considers  necessary for a fair  presentation of the financial  position at such
date and the operating  results and cash flows for those  periods.  Although the
Company believes that the disclosures in these financial statements are adequate
to make the information  presented not misleading,  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 thereto  included in the Company's annual report
on Form 10-K for the year ended  December 31, 1997 filed with the Securities and
Exchange Commission.

Results for any interim period are not necessarily indicative of results for any
other interim period or for the entire year.

2.       Net loss per share

Basic and  diluted  net loss per share is computed  using the  weighted  average
number of shares of common  stock  outstanding  during  the  periods  presented.
Common equivalent shares from options,  warrants and convertible  securities are
excluded from the  computation,  as their effect is  anti-dilutive.  In February
1997,  the  Financial  Accounting  Standards  Board  issued  Statement  No. 128,
"Earnings per Share" (Statement 128).  Statement 128 replaced the calculation of
primary  and fully  diluted  earnings  (loss) per share  with basic and  diluted
earnings  (loss) per share.  Unlike  primary  earnings  (loss) per share,  basic
earnings (loss) per share exclude any dilutive effects of options,  warrants and
convertible  securities.  Diluted  earnings (loss) per share are very similar to
the previously named fully diluted earnings (loss) per share. All loss per share
amounts for all periods have been presented, and where appropriate,  restated to
conform to the Statement 128  requirements.  As 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.

3.       Inventories

Inventories  are  stated at the lower of cost  (determined  using the  first-in,
first-out method) or market value. Inventories at June 30, 1998 and December 31,
1997 consist of the following (in thousands):

                                                                    Page 6 of 16

<PAGE>

                                                    June 30,        December 31,
                                                      1998             1997
                                                     ------           ------
                    Raw materials                    $  384           $  261
                    Work in process                     213               90
                    Finished goods                    1,166            1,161
                                                     ------           ------
                                                     $1,763           $1,512
                                                     ======           ======
                                                     
4.       Notes Payable

In January 1998,  the Company  entered into a financing  agreement  with Silicon
Valley Bank, for a $1,500,000  42-month term loan. As of June 30, 1998, no funds
remained available for borrowing under this loan.


5.        Restructuring Accrual

In September 1997, VidaMed announced a restructuring  program designed to reduce
costs  and  improve  operating   efficiencies  by  closing  the  company's  U.K.
manufacturing facility.
The charge in the third quarter of 1997 was $2.1 million.

The  elements  of the  total  charge  as of June  30,  1998 are as  follows  (in
thousands):


                                                     Representing
                                      ------------------------------------------
                                                                 Cash Outlays
                                       Total       Asset     -------------------
                                      Charges   Write-down  Completed     Future
                                      ------      ------      ------      ------
Fixed assets                          $  390      $  390      $ --        $ --
Facility shut down                     1,305        --         1,279          26
Grant                                    405        --           --          405
                                      ------      ------      ------      ------
Total Special Charges                 $2,100      $  390      $1,279      $  431
                                      ------      ------      ------      ------


6.       Reporting Comprehensive Income (Loss)

As of January 1, 1998,  the Company  adopted  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 the
Company's   available-for-sale   securities  and  foreign  currency  translation
adjustments,  which prior to adoption were reported in shareholders'  equity, to
be  included  in other  comprehensive  income  


                                                                    Page 7 of 16

<PAGE>

(loss).  During the three and six months ended June 30, 1998 and 1997, the total
comprehensive loss was not materially different from the net loss.

7.        Common Stock

In May 1998,  the Company  completed a private  placement  of common  stock with
certain investors.  In this transaction,  the Company issued 4,340,000 shares of
common stock at a purchase price of $4.00 per share resulting in net proceeds of
$16,743,000  to the Company.  In  connection  with this  financing,  the Company
issued warrants to purchase an aggregate of 1,085,000  shares of common stock at
an exercise price of $5.00 per share for no additional consideration.




                                                                    Page 8 of 16





<PAGE>

ITEM 2.
                      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 for the three and six months ended June 30, 1998 and 1997,  should be
read in conjunction with the  Management's  Discussion and Analysis of Financial
Condition and Results of Operations  included in the Company's  Annual Report on
Form 10-K for the year ended December 31, 1997.

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations   contains   forward-looking   statements  which  involve  risks  and
uncertainties.  The Company's actual results may differ significantly from those
anticipated by the forward-looking  statements.  Factors that might cause such a
difference  include,  but are not limited to, those  discussed  below and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.

Overview

Since its  inception  in July 1992,  VidaMed  has been  engaged  in the  design,
development, clinical testing and manufacture of the VidaMed TUNA System for the
treatment of symptoms  associated with benign prostatic  hyperplasia  (BPH). The
Company  commenced  international  sales of the VidaMed TUNA System in late 1993
and United  States  sales in October  1996.  As of June 30, 1998 there have been
over 350 RF generators sold and over 10,000 TUNA procedures performed worldwide.

VidaMed anticipates that a substantial amount of its revenues from product sales
in the future will be from sales in the United States.  The Company received FDA
clearance to market this system for the  treatment of symptoms  associated  with
BPH in the United States on October 8, 1996. The Company applied to the American
Medical Association for a CPT code covering the TUNA Procedure.  CPT code number
53852 relating to the TUNA Procedure has been published in the Federal  Register
and is part of the Medicare  Physician Fee Schedule for calendar  1998.  VidaMed
sells its  products  in the U.S.  to  individual  and group  urology  practices,
surgery  centers  and  hospitals.  The Company  markets the VidaMed  TUNA System
through a network  of four  VidaMed  sales  managers,  supported  by both  sales
representatives  and independent  dealers in the U.S. A network of distributors,
supported by VidaMed  staff,  cover other  countries  in Europe,  Asia and South
America.

VidaMed does not  anticipate  reaching  profitability  in the near  future.  The
Company expects its operating  losses to continue through at least the next four
quarters  as it  continues  to expend  substantial  resources  in  expansion  of
marketing and sales activities, funding clinical trials in support of regulatory
and reimbursement approvals, and research and development.  The Company's future
profitability will be dependent upon, among other factors,  market acceptance of
the VidaMed TUNA Procedure and  availability  of third-party  reimbursement  for
procedures performed with the TUNA System.

Although the Company has received FDA clearance of its 510(k)  notification  for
the TUNA System for treatment of symptoms  associated with BPH and has commenced
marketing  of the TUNA System in the United  States,  there can be no  assurance
that the TUNA System will be deemed  clinically or cost effective

                                                                    Page 9 of 16

<PAGE>

by many  health care  providers  and  payors,  will be deemed  superior to other
current and emerging methods for treating BPH or will achieve significant market
acceptance in the United States. Furthermore, determinations of reimbursement of
the VidaMed TUNA Procedure by private and governmental health payors are made by
such  payors  and  their  medical  directors  independent  of the FDA  approval.
Accordingly,  there  can  be no  assurance  that  the  TUNA  Procedure  will  be
reimbursed  at adequate  levels in the United  States  under  either  private or
governmental healthcare payment systems.  Availability of Medicare reimbursement
for the TUNA  Procedure  may be dependent on the  publication  of clinical  data
relating to the cost-effectiveness and duration of the TUNA therapy.  Inadequate
reimbursement for TUNA procedures could have an adverse effect on the ability of
the TUNA System to achieve market  acceptance.  Failure of the TUNA Procedure to
achieve  market  acceptance in the United  States would have a material  adverse
effect on  business,  financial  condition  and  results  of  operations  of the
Company.

The  Company  does not have a backlog of orders for its  products  in  countries
where the VidaMed TUNA System is sold and  anticipates  that it will continue to
manufacture and ship orders after their receipt.  Accordingly,  the Company does
not anticipate that it will develop a significant backlog in the future.

Results of Operations

Net revenues for the three  months ended June 30, 1998 were $0.9  million,  down
$1.2  million or 58% from $2.2  million in the three months ended June 30, 1997.
Product sales in the second  quarter of 1998  decreased 59% to $0.9 million from
$2.1 in the same  period in 1997.  For the first six months of 1998 net  revenue
decreased 53% to $2.6 million from $5.5 million  during the same period in 1997.
Product  sales for the first six months of 1998  decreased  58% to $2.2  million
from $5.4 million during the same period in 1997. Revenues for the three and six
months ended June 30, 1998 and 1997 include license fees for distribution rights
in Japan.  The decrease in net revenues and product  sales  between the 1998 and
1997 periods is the result of slowing  sales while the Company  awaits  Medicare
Part A and Part B  reimbursement  approval at the state levels.  VidaMed has now
gained approval of the  professional  component  (Medicare Part B) in 13 states,
including  Colorado,  Massachusetts  and Ohio.  Other  states  with  significant
Medicare populations are moving foward with regard to Medicare reimbursement. In
order for the Company to achieve significant  increases in sales volume, it will
likely  be  necessary  for the  Company  to  obtain  Medicare  Part A and Part B
reimbursement  approvals  in all 50  states,  or at  least  in all  states  with
significant  population centers,  particularly since sales agreements with major
healthcare providers are often on a national, or system-wide, basis. The Company
has  several  initiatives  underway to  facilitate  the  Medicare  reimbursement
approval  process,  including working in cooperation with state Medicare Medical
Directors.  In addition,  current Medicare  reimbursement for the TUNA handpiece
extends  only  to  procedures   performed  in  a  hospital  outpatient  setting.
Ambulatory  Surgical Center  reimbursement  is moving forward and guidelines are
currently in the comment period.  Notwithstanding the foregoing, there can be no
assurance  that the  Company  will  receive  additional  Medicare  reimbursement
approvals  in major states in a timely  manner,  and the failure to receive such
approvals  would  have a  material  adverse  effect on the  business,  financial
condition and results of operations of the Company.

                                                                   Page 10 of 16

<PAGE>

Another factor  contributing to sales for the six months of 1997 was significant
accumulated  demand  resulting  from  the  late-1996  receipt  of Food  and Drug
Administration  510(k)  clearance  for the VidaMed  TUNA System and a sale of 39
TUNA Systems to Tenet Health Care System.

Cost of product sold for the three months ended June 30, 1998 was $0.6  million,
a decrease of 52% or $0.7  million  from $1.3 million for the three months ended
June 30,  1997.  For the six months  ended June 30,  1998 cost of product  sales
decreased 45% to $1.7 million from $3.0 million in the same period in 1997.  The
decrease is due to lower product sales and absorption of overhead fixed costs in
the first six months of 1998.

Research and  development (R & D) expenses  decreased 18% to $1.2 million in the
three  months  ended June 30, 1998 from $1.5  million in the three  months ended
June 30, 1997. For the six months ended June 30, 1998, R & D expenses  decreased
30% to $2.3  million  from  $3.4  million  in the  same  period  for  1997.  The
difference is primarily due to the investment in the first six months of 1997 in
development  efforts on the VidaMed TUNA System (VTS) RF generator  and VTS hand
piece.  Additionally,  R & D includes the United  States  patient  enrollment to
support  the  clinical  trials  completed  in 1995.  The costs  associated  with
follow-up  visits for these  clinical  trials  will  continue  through  1998 and
beyond.

Selling,  general  and  administrative  (SG&A)  expenses  decreased  15% to $3.3
million in the three  months  ended June 30, 1998 from $3.9 in the three  months
ended June 30,  1997.  For the six  months  ended  June 30,  1998 SG&A  expenses
increased 9% to $7.9  million from $7.2 million in the same period in 1997.  The
increase in 1998 from 1997 was primarily due to an increase to the allowance for
doubtful  accounts of  $894,000,  as a result of the length of time  involved in
obtaining Medicare  reimbursement levels for each state, and the transition to a
new CEO. Spending in SG&A in both periods included start-up and launch costs for
new  products  and as well as costs  associated  with the  continued  efforts to
support domestic and  international  sales and secure global  reimbursement  for
TUNA. In  particular,  the periods ended June 30, 1998 included an investment in
additional  headcount  to enhance  the  existing  sales and field  reimbursement
force.  The periods ended June 30, 1997 included a co-op  advertising  agreement
with Tenet HealthSystem.

Other  expense for the three months ended June 30, 1998 was $46,000  compared to
other expense of $102,000 for the comparable  period in 1997. For the six months
ended June 30, 1998 other expense was $135,000 compared to $109,000 for the same
period in 1997.  These changes were primarily a function of the balance of cash,
cash  equivalents and debt, the interest earned or incurred,  respectively,  and
fluctuations in the relative balances.

Liquidity and Capital Resources

VidaMed has financed  its  operations  primarily  through the public and private
sale of equity securities and, to a lesser extent, through borrowings, equipment
lease financing,  product sales, distribution rights fees, government grants and
other product sales.

At June 30, 1998 the  Company's  cash and cash  equivalents  were $15.3  million
compared to $8.0 at December  31,  1997.  The  increase  is due  primarily  to a
private  placement  of 4.3 million  shares of common  stock in May 1998 (the net
proceeds  from which  were  approximately  $16.7  million)  offset by  operating

                                                                   Page 11 of 16

<PAGE>

expenses.  The cash used in operations  was used  primarily in the marketing and
sale of the VidaMed TUNA System,  research and development  activities including
clinical  trials,  increased  SG&A  expenses  to support  increased  operations,
working capital (due in part to delays in receivable collections due to Medicare
reimbursement) and payments related to the U.K. transition.

In January 1998,  the Company  entered into a financing  agreement  with Silicon
Valley Bank,  for a $1,500,000  42-month  term loan with  principal and interest
payable  monthly.  In addition,  the Company  established  a $3,000,000  working
capital line with this bank.  The Company is currently  in  compliance  with all
bank  covenants.  The note payable to the bank was  reflected  on the  Company's
balance  sheet as a current  liability at the end of the quarter ended March 31,
1998 as a result of the Company not being in compliance  with its debt covenants
at that date. As the Company is now in compliance with the bank  covenants,  the
long-term portion of this debt has been reclassified as a long-term liability in
the balance sheet.

In April 1995, the Company  obtained a $3,000,000  secured credit  facility.  To
date, the Company has borrowed $3,000,000 under this facility and has completely
repaid the  principal  amount due. As of June 30, 1998,  $150,000  remains to be
paid relating to lump sum interest due in July, 1998.

VidaMed  believes that the equity  financing,  combined with its current capital
resources  and cash  generated  from the sale of products will be enough to meet
the Company's  operating and capital  requirements  for the next twelve  months.
There can be no  assurance  that  additional  financing,  if  required,  will be
available  on  satisfactory  terms or at all. If financing  were not  available,
management  would need to reevaluate and revise current  operating plans as well
as reduce capital  spending in general.  VidaMed's  future liquidity and capital
requirements  will  depend on  numerous  other  factors,  including  progress of
clinical trials, actions related to regulatory and reimbursement matters and the
extent to which the TUNA system gains market acceptance.

Restructuring Accrual

In September 1997, VidaMed announced a restructuring  program designed to reduce
costs  and  improve  operating   efficiencies  by  closing  the  Company's  U.K.
manufacturing  facility.  The Company expects to incur approximately $431,000 in
cash  outlays  over the next  twenty-four  months.  See also  Note 5 of notes to
condensed consolidated financial statements.

Impact of Year 2000

The Company's  essential  system software is currently  functioning  properly to
handle  the  transition  into the Year  2000.  The  Company  does not  depend on
in-house  custom  systems and as a policy  purchase off the shelf  software from
reputable  vendors who have tested their software for Year 2000 compliance.  The
Company  believes  the Year 2000  issue  will not pose  significant  operational
problems for its  computer  systems.  There can be no  assurance  that this will
completely eliminate problems resulting from the Year 2000 issue. The Company is
evaluating  significant  suppliers and large customers  systems to determine the
extent to which the Company's  interface with these systems is vulnerable to the
Year 2000 issue. The Year 2000 issue is being considered for all future software
purchases.


                                                                   Page 12 of 16

<PAGE>


                                  VIDAMED, INC.

PART II: OTHER INFORMATION

Item 1.           Legal Proceedings

On May 20, 1997 VidaMed,  Inc. filed a complaint  against Prosurg,  Inc., in the
United  States  District  Court for the  Northern  District of  California.  The
complaint  alleges  that  Prosurg  Inc. is  infringing  and  inducing  others to
infringe three VidaMed  Patents,  U.S.  Patent Nos.  5,526,240,  5,531,676,  and
5,531,677. On March 20, 1998, at the request of the parties, the Court dismissed
without  prejudice  all  claims  relating  to U.S.  patent  Nos.  5,531,676  and
5,531,677.  Accordingly,  the only claims  remaining in the litigation are those
relating to U.S Patent No. 5,526,240.  VidaMed seeks both damages and injunctive
relief  from the Court.  A factual  discovery  cut-off was set for June 1, 1998,
however that date has been extended to August 20, 1998 for VidaMed only to allow
the Company to obtain discovery from Prosurg and other third parties.  The Court
tentatively has set January 11, 1999 as a trial date.

Item 2.           Changes in Securities

                  None

Item 3.           Defaults upon Senior Securities

                  None

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

The  Company  held its  annual  meeting  of  stockholders  on May 7,  1998.  The
following items of business were acted upon.

The election of all directors  was  conducted  and the  following  nominees were
elected:  David J.  Illingworth,  Franklin D. Brown,  Stuart D. Edwards,  Robert
Erra,  Wayne I. Roe,  John V.  Scibelli and Michael H.  Spindler.  The vote with
respect to each nominee was as follows:

                                                   Votes                 Votes
               Name                                 For                 Withheld
               --------------------              ----------             -------
               David J. Illingworth              11,122,108             215,726
               Franklin D. Brown                 11,124,508             213,326
               Stuart D. Edwards                 11,089,299             248,535
               Robert Erra                       11,124,608             213,226
               Wayne I. Roe                      11,134,108             203,726
               John V. Scibelli                  11,130,508             207,326
               Michael H. Spindler               11,125,708             212,126

                                                                   Page 13 of 16
<PAGE>
                                                                    
The Company's  Employee Stock Purchase Plan was amended and the number of shares
of Common Stock reserved for issuance under the plan was increased by 200,000 to
400,000 with 4,090,261 votes in favor and 462,373 votes against.

The  Company's  Stock Plan was amended and the number of shares of Common  Stock
reserved  for  issuance  under the plan was  increased by 1,200,000 to 4,300,000
with 2,914,486 votes in favor and 1,597,156 votes against.

Ernst & Young LLP was  ratified as the  independent  auditors of the Company for
the fiscal year ending  December  31,  1998 with  11,178,310  votes in favor and
75,518 votes against.

Item 5.           Other Information

                  None

Item 6.           Exhibits and Reports on Form 8-K

                           a) Exhibits

                                    (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, 1998.

                                                                   Page 14 of 16
<PAGE>


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.

                                               VIDAMED, INC.

Date:     August 13, 1998                      By:  /s/   David J. Illingworth
       -----------------------------                ----------------------------
                                                    David J. Ilingworth
                                                    Chairman, President, Chief
                                                    Executive Officer

Date:     August 13, 1998                      By:  /s/   Richard D. Brounstein
       -----------------------------                ----------------------------
                                                    Richard D. Brounstein
                                                    VP Finance, Chief Financial
                                                    Officer (Principal Financial
                                                    and Accounting Officer)


                                                                   Page 15 of 16