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 September 30, 1999

                                       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 22,873,211 as of November 11, 1999.


<PAGE>

<TABLE>

                                            VIDAMED, INC.

                                                INDEX

<CAPTION>

PART I. FINANCIAL INFORMATION

                                                                                                            Page
<S>          <C>                                                                                            <C>
Item 1.      Condensed Consolidated Financial Statements - unaudited

             Condensed consolidated balance sheets - September 30, 1999
                  and December 31, 1998                                                                      3

             Condensed consolidated statements of operations - three months
                  ended September 30, 1999 and 1998 and nine months ended September 30, 1999
                  and 1998.                                                                                  4

             Condensed consolidated statements of cash flows - nine months
                  ended September 30, 1999 and 1998                                                          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                                      13


PART II. OTHER INFORMATION

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

<TABLE>

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

<CAPTION>
                                                                    September 30,            December 31,
                                                                       1999                     1998
                                                                     --------                --------
                                                                    (Unaudited)                 (*)
<S>                                                                  <C>                     <C>
Assets
Current Assets:
     Cash and cash equivalents                                       $  1,370                $  9,384
     Accounts receivable                                                  808                     228
     Inventories                                                        1,061                   1,228
     Other current assets                                                 897                   1,179
                                                                     --------                --------
              Total current assets                                   $  4,136                $ 12,019


     Property and equipment, net                                        1,181                   1,797
     Other assets, net                                                    202                     316
                                                                     --------                --------
              Total assets                                           $  5,519                $ 14,132
                                                                     ========                ========


Liabilities and stockholders' equity Current liabilities:

     Notes payable, current portion                                  $  1,179                $    764
     Accounts payable                                                     224                     338
     Accrued professional fees                                            167                     317
     Accrued clinical trial fees                                          233                     431
     Accrued and other liabilities                                      2,624                   2,923
     Current portion of obligations under capital leases                 --                        22
     Deferred revenue                                                $     97                $    229
                                                                     --------                --------
              Total current liabilities                              $  4,524                $  5,024

     Notes payable, long-term portion                                   1,235                   1,785

Stockholders' equity (deficit):
     Capital stock                                                     97,390                  95,542
     Accumulated deficit                                              (97,630)                (88,219)
                                                                     --------                --------
              Total stockholders' equity (deficit)                       (240)                  7,323
                                                                     --------                --------
              Total liabilities and stockholder's equity (deficit)   $  5,519                $ 14,132
                                                                     ========                ========
<FN>

* The Balance  sheet at December 31, 1998 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.
</FN>


                                                                                          Page 3 of 16
</TABLE>
<PAGE>

<TABLE>

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

                                                                                Three Months Ended             Nine Months Ended
                                                                                   September 30,                 September 30,
                                                                              -----------------------       ------------------------
                                                                                1999           1998           1999           1998
                                                                              --------       --------       --------       --------
<S>                                                                           <C>            <C>            <C>            <C>
Revenue                                                                       $  1,487       $ (2,088)      $  3,749       $    487

Cost of products sold                                                              579            954          2,059          2,634
                                                                              --------       --------       --------       --------
Gross profit                                                                       908         (3,042)         1,690         (2,147)

Operating expenses:
    Research and development                                                       683          1,136          2,238          3,471
    Selling, general and administrative                                          2,934          2,802          8,847         10,705
                                                                              --------       --------       --------       --------
Total operating expenses                                                         3,617          3,938         11,085         14,176
                                                                              --------       --------       --------       --------
Operating loss                                                                  (2,709)        (6,980)        (9,395)       (16,323)
Other income (expense)                                                             (60)            80            (16)           (55)
                                                                              --------       --------       --------       --------
Net loss                                                                      $ (2,769)      $ (6,900)      $ (9,411)      $(16,378)
                                                                              ========       ========       ========       ========
Basic and Diluted Net loss per share                                          $  (0.13)      $  (0.35)      $  (0.46)      $  (0.93)
                                                                              ========       ========       ========       ========
Shares used in computing Basic and Diluted net loss per share                   20,653         19,925         20,505         17,536
                                                                              ========       ========       ========       ========

<FN>

                                                    See accompanying notes.

</FN>

                                                                                                                        Page 4 of 16
</TABLE>


<PAGE>

<TABLE>

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

                                                                                                            Nine Months Ended
                                                                                                                September 30
                                                                                                        ----------------------------
                                                                                                          1999               1998
                                                                                                        --------           --------
<S>                                                                                                     <C>                <C>
Cash flows from operating activities:
     Net loss                                                                                           $ (9,411)          $(16,378)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
              Depreciation and amortization                                                                  939                976
              Changes in assets and liabilities:
                 Accounts receivable                                                                        (580)             3,183
                 Inventory                                                                                   167                164
                 Other current assets                                                                        282               (955)
                 Other assets                                                                                114                 92
                 Accounts payable                                                                           (114)              (784)
                 Accrued professional fees                                                                  (150)              (198)
                 Accrued clinical trial costs                                                               (198)               231
                 Accrued and other liabilities                                                              (299)              (966)
                 Deferred revenue                                                                           (132)              (329)
                                                                                                        --------           --------
Net cash used in operating activities                                                                     (9,382)           (14,964)
                                                                                                        --------           --------
Cash flows from investing activities:
     Expenditures for property and equipment                                                                (323)              (679)
                                                                                                        --------           --------
       Net cash used in investing activities                                                                (323)              (679)
                                                                                                        --------           --------

Cash flows from financing activities
     Principle payments under capital leases
                                                                                                             (22)              (101)
     Principle payments of notes payable                                                                    (135)              (770)
     Net proceeds from issuance of notes payable                                                            --                1,500
     Net proceeds from issuance of common stock                                                            1,848             17,970
                                                                                                        --------           --------

Net cash from financing activities                                                                         1,691             18,599
                                                                                                        --------           --------

Net (decrease) increase in cash and cash equivalents                                                      (8,014)             2,956
Cash and cash equivalents at the beginning of the period                                                   9,384              8,026
                                                                                                        --------           --------

Cash and cash equivalents at the end of the period                                                      $  1,370           $ 10,982
                                                                                                        --------           --------

Supplemental disclosure of cash flows information:
Cash paid for interest                                                                                  $    226           $    739
                                                                                                        --------           --------
<FN>
                                                    See accompanying notes
</FN>
                                                                                                                        Page 5 of 16
</TABLE>

<PAGE>


                                  VIDAMED, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1999
                                   (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 September 30, 1999 and the  statements of operations for the
three and nine months ended  September 30, 1999 and 1998,  and the statements of
cash flows for the nine months ended  September 30, 1999 and 1998, 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.  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,  as amended,  for the year ended
December 31, 1998 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

The  Company  calculates  net loss per share in  accordance  with  Statement  of
Financial  Accounting  Standards No. 128,  "Earnings  per Share."  Statement 128
requires  the  presentation  of basic  earnings  (loss)  per share  and  diluted
earnings (loss) per share, if more dilutive,  for all periods  presented.  Basic
and diluted net loss per share is computed using the weighted-average  number of
shares of common stock outstanding during the periods presented. Securities that
could  share in the  earnings of the  Company,  such as  options,  warrants  and
convertible  securities,  are excluded from the computation,  as their effect is
anti-dilutive. 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.  Currently we have 3,435,762  options  outstanding under employee
and director plans. The options will be included in the calculation at such time
as the affect 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  at  September  30,  1999 and
December 31, 1998 consist of the following (in thousands):

                                                September 30,    December 31,
                                                    1999             1998
                                                   ------           ------
                       Raw materials               $  102           $  404
                       Work in process               --                261
                       Finished goods                 959              563
                                                   ------           ------
                                                   $1,061           $1,228
                                                   ======           ======

The reduction in raw  materials  and work in process since  December 31, 1998 is
due the transition to our manufacturing outsource partner, Zeis Humphery,  being
completed.

                                                                    Page 6 of 16
<PAGE>

4. Notes Payable

During 1998,  the Company  finalized a  commitment  for $5.5 million in new debt
financing with Transamerica Business Credit Corporation. The facility is secured
by the Company's  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.

On August 30, 1999,  we filed a form 10K/A,  which  included an updated  opinion
from our  Independent  Auditors,  Ernst & Young LLP,  regarding a going  concern
uncertainty.  Due to the going concern  uncertainty,  our loan with Transamerica
was  considered  in  default.  On October  26,  1999,  we received a waiver from
Transamerica,  and are no longer considered in default.  Transamerica received a
$10,000  fee and was  issued a warrant  to  acquire  up to 20,000  shares of our
common stock for a purchase price of $0.89 per share.  The warrant has a term of
five years and carries piggy-back registration rights.

As of September 30, 1999, the Company borrowed  approximately  $330,0000 against
the revolving accounts receivable-based line at a rate of 9.75% per year. It was
eligible to borrow  approximately  $511,000  against this line on September  30,
1999, and borrowed the remaining available balance of approximately  $181,000 in
October 1999.

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
recorded in cost of products sold.

The  elements of the total  charge as of  September  30, 1999 are as follows (in
thousands):

                                                       Representing
                                      ------------------------------------------
                                                                Cash Outlays
                                                              ------------------
                                       Total       Asset
                                      Charges    Write-down  Completed    Future
                                      ------      ------      ------      ------
Fixed assets                          $  390      $  390      $ --        $ --
Facility shut down                     1,305        --         1,305        --
Grant repayment                          405        --           222         183
                                      ------      ------      ------      ------
Total Special Charges                 $2,100      $  390      $1,527      $  183
                                      ------      ------      ------      ------

The grant repayment is due to be paid by December 31, 1999.

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,  to be included in other  comprehensive  income (loss).  During the
three and nine months ended September 30, 1999 and 1998, the total comprehensive
loss was not materially different from the net loss.

7. Common Stock

The increase in capital  stock for the nine months ended  September 30, 1999, is
due to the issuance of 734,047  additional  shares.  We sold  368,596  shares of
common stock to the principals of Telo Electronics, a vendor of the company.  On
December 17, 1998, the Company  entered into an agreement to sell 368,596 shares
of its common stock to the  principals of Telo  Electronics.  The purchase price
per share of the common  stock was  $2.713,  the

                                                                    Page 7 of 16
<PAGE>


average  closing  price of the common stock for the five trading days  preceding
December 17, 1998. The common stock was paid for with promissory notes delivered
on  December  17,  1998.  The  transaction  closed  in  February  1999  when the
promissory  notes plus interest were paid. The Company  received net proceeds of
$1,000,000 from that transaction. Additionally, we have issued 270,548 shares in
employment-related  settlements  and  94,903  under  employee  stock  option and
purchase plans.

8. Retention Agreements

In October 1998,  the Company  entered into  retention  agreements  with certain
executive officers. Under those agreements,  the Company was obligated to pay up
to  $810,000  on April 1, 1999,  if those  officers  remained  with the  Company
through April 1, 1999. All officers covered by the retention agreements remained
with the Company through April 1, 1999, and the Company paid $810,000  according
to the terms of the agreements.

9. Subsequent Events

On October 27, 1999,  the Company  received  $4.3 million net proceeds  from the
private  sale of 2.2  million  shares of common  stock at $2.00  per  share.  In
connection  with  the  sale  of  those  shares,   the  purchasers  were  granted
registration  rights  requiring the Company to register  those shares for resale
within 90 days of October 27, 1999. If the shares are not  registered for resale
by then,  the Company will be obligated to issue to the  purchasers  warrants to
acquire up to 550,000 shares of common stock at an exercise price of $2.4068 per
share. The warrants, if issued, will be for a term of three years.

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 nine months ended
September 30, 1999 and 1998. We also discuss certain factors that may affect our
prospective  financial condition and results of operations.  This section should
be read in conjunction with the Condensed  Consolidated Financial Statements and
related Notes in Item 1 of this report and the  Company's  Annual Report on Form
10-K,  as amended,  for the year ended  December 31, 1998,  which has been filed
with the Securities and Exchange Commission and is available from the Company at
no charge.

Cautionary Statement Regarding Forward-Looking Statements

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  contains,  in addition to  historical  information,  forward-looking
statements that are based on VidaMed's current expectations, beliefs, intentions
or future  strategies.  The  forward-looking  statements  concern,  among  other
things,  the  availability  of cash resources to fund  continued  operations and
market  acceptance  of  and  the  likelihood  of  additional  Medicare  coverage
approvals  for the TUNA  Procedure.  We base all  forward-looking  statements on
information  available to us on the date of this report.  We do not undertake to
update any such  forward-looking  statements to reflect  events that arise after
the date of this  report.  Actual  results  could differ  materially  from those
suggested in the  forward-looking  statements  because of the factors  described
under  "Liquidity  and Capital  Resources" and "Risk Factors" in this report and
other factors  described in our Annual Report on Form 10-K, as amended,  for the
year ended December 31, 1998.


Overview

We design,  develop,  and market  urological  systems  that are used for urinary
tract disorders.  Our products  primarily treat the enlarged  prostate or Benign
Prostatic  Hyperplasia ("BPH"), a noncancerous  condition of the prostrate gland
affecting  urination.  VidaMed's  primary  product,  the  patented  VidaMed TUNA
System,  is a reasonably  priced  alternative  therapy that  minimizes  surgical
invasion,  side  effects and  complications  for this  condition.  In the United
States,  we  sell  our  products   primarily  through  direct  sales  personnel.
Internationally,  we primarily sell to distributors who resell to physicians and
hospitals.

                                                                    Page 8 of 16
<PAGE>

At the beginning of fiscal 1999, we began  restructuring our United States sales
and marketing model to align with current hospital-based  Medicare reimbursement
coverage. Under the prior model, we focused on selling the TUNA system generator
and related  equipment to hospitals,  physician  groups and ambulatory  surgical
centers (ASC). Under the new sales model, an entire TUNA System is placed with a
hospital  at no  charge,  and a per  use  fee  is  charged  for  each  procedure
performed.

We received FDA clearance to market the TUNA System in 1996.  In 1998,  Medicare
reimbursement  coverage became available for procedures using our equipment that
are  performed  in  hospitals.  As of October 1, 1999,  41 states  provide  such
reimbursement  coverage.  To achieve  significant  increases  in sales,  we must
actively  promote  the  fee-per-use  program and secure  Medicare  reimbursement
coverage at least in all states with large  populations  of men over 50 years of
age, which is our target patient population. The Company has several initiatives
underway to facilitate the Medicare  reimbursement  coverage process,  including
working in cooperation  with state Medicare  Medical  Directors.  We can give no
assurance   however   that  the  Company  will   receive   additional   Medicare
reimbursement  coverage in major  states in a timely  manner or at all,  and the
failure to receive such  coverage  would have a material  adverse  effect on our
business, financial condition and results of operations.

Medicare  coverage for supplies and devices in the  office-based and ASC markets
was delayed in mid-1998 due to Medicare's  review of its "Year 2000" compliance.
We believe that Medicare  reimbursement in doctors' offices and ASCs, as well as
patient awareness and physician  advocacy of the TUNA System and procedure,  are
our greatest  challenges.  Our business strategy is to focus marketing and sales
efforts on patient education and physician  support for our fee-per-use  program
while at the same time continuing to advance Medicare reimbursement for the TUNA
Procedure.  As discussed below in "Liquidity and Capital  Resources," we may not
be able to continue to execute the  business  plan  without  additional  debt or
equity financing.

There can be no assurance that the TUNA System will be deemed clinically or cost
effective by health care providers and payors,  or superior to other current and
emerging  methods  for  treating  BPH,  or that the  TUNA  System  will  achieve
significant market acceptance in the United States. Furthermore,  determinations
of reimbursement of the TUNA Procedure by private and governmental health payors
are made by such  payors  and their  medical  directors  independent  of the FDA
approval.  Accordingly, we can give no assurance that the TUNA Procedure will be
reimbursed at adequate levels or continue to be reimbursed at adequate levels in
the United  States  under  either  private or  governmental  healthcare  payment
systems.  Both  lack of  coverage  and  inadequate  reimbursement  for the  TUNA
Procedure could adversely affect market acceptance of the TUNA System

Results of Operations

Net revenue for the three months ended September 30, 1999 was  $1,487,000.  This
was an increase of $262,000 or 21% from  $1,225,000  in the three  months  ended
June 30, 1999.  Product  sales in the third  quarter of 1999  increased 129 % to
$1,487,000  from  $650,000 in the same  period in 1998.  The  difference  is due
primarily to acceptance of our fee-per-use  program.  The 1998 sales of $650,000
are before a $2,718,000  sales reserve,   recorded in the third quarter of 1998,
related primarily to sales in the first two quarters. This reserve was taken due
to the announced delay in office based Medicare reimbursement.

For the first nine months of 1999,  net revenue  increased  to  $3,749,000  from
$487,000  during the same period of 1998.  The increase is  attributable  to the
$2,718,000  charge to sales reserves taken in 1998 and increased sales under the
fee-per-use program.

Cost of product sold for the three months ended September 30, 1999 was $579,000,
a decrease of 39% or $375,000 from $954,000 for the three months ended September
30, 1998. For the nine months ended  September 30, 1999 cost of product sold was
$2,059,000,  down 22% from  $2,634,000  in the first  nine  months of 1998.  The
decrease  is a function of (i) a  transition  from a sales and  marketing  model
based on the sales of the TUNA System to a  fee-per-use  sales  model,  and (ii)
outsourcing the manufacture of the disposable component of our product resulting
in lower materials cost.


                                                                    Page 9 of 16
<PAGE>

Gross  margin  expressed  as a  percentage  of sales in the three  months  ended
September  30,  1999 was 61%,  up from 47% for the three  months  ended June 30,
1999. This  significant  improvement in gross margin is primarily  attributed to
the increased volume in our U.S. based fee-per-use program.

Research and development (R & D) expenses  included  expenditures for regulatory
compliance and clinical trials. Clinical trial costs consist largely of payments
to clinical  investigators,  product for clinical  trials,  and costs associated
with initiating and monitoring  clinical trials.  R&D expenses  decreased 40% to
$683,000 in the three months ended  September  30, 1999 from  $1,136,000  in the
three months ended  September 30, 1998. For the nine months ended  September 30,
1999  expenses  decreased 36% to  $2,238,000  from  $3,471,000 in the first nine
months of 1998. The decrease was primarily due to reduced  clinical  activity in
1999,  resulting  from the  completion of FDA clinical  trial  studies,  and the
completion of R&D  expenditures  for our current ProVu generation of products in
1998.

Selling,  general and administrative (SG&A) expenses increased 5%, when compared
to 1998 expenditures  after the  reclassification  of bad debt, to $2,934,000 in
the three months ended  September  30, 1999 from  $2,802,000 in the three months
ended September 30, 1998. The third quarter of 1998 included a  reclassification
of bad debt expense to sales reserves recorded in connection with the $2,718,000
sales  reserve  discussed  above.  The impact on the third  quarter of 1998 from
items in the first two quarters was  approximately  $337,000  Adjusting  for the
impact  of  this  reclassification,   SG&A  decreased  $235,000  or 8% from  the
comparable  quarter last year.  The difference is due to added legal expense for
patent litigation in 1998.

For the nine months ended September 30, 1999 SG&A expenses decreased  $1,858,000
or 17% from  $10,705,000  in 1998 to  $8,847,000  in  1999.  The  decrease  is a
function of higher expenditures in the first quarter of 1998, including a charge
to the  allowance  for  doubtful  accounts  necessitated  by the  length of time
involved  in  obtaining  state  Medicare  coverage,  a  charge  incurred  in the
transition to a new chief  executive  officer and for legal expenses  related to
patent defense.

Other  income/expense  for the three months ended  September  30, 1999  included
expense of $60,000 compared to an income of $80,000 for the comparable period in
1998.  For the nine months  ended  September  30, 1999 other  income was $44,000
compared to an expense of $135,000 for the nine months ended September 30, 1998.
Other income is primarily composed of interest income and expense.

Liquidity and Capital Resources

         For  the  quarter  ending   September  30,  1999,  our  cash  and  cash
equivalents decreased by $3.0 million to $1.4 million,  compared to $4.4 million
at June 30,  1999.  The decrease is due to  operating  expenses  incurred in the
normal course of business.  For the nine months  ending  September 30, 1999 cash
decreased by $8.0  million from $9.4 million at December 31, 1998.  The decrease
is due to normal operating expenses offset in part by financing activities.

         In October 1999,  we received  $4,300,000 in net proceeds from the sale
of 2.2 million  shares of our common stock in a private sale.  The financing was
necessitated  because of increased  costs  associated  with developing the newly
introduced  fee-per-use  program and a longer than  anticipated  ramp-up time to
generate revenues from that program. While management believes that the proceeds
of that equity  financing  plus  revenues from the  fee-per-use  program will be
sufficient to fund  operations at current levels through the end of fiscal 1999,
additional  financing  may be  required  to fund  operations  at current  levels
through the end of fiscal  2000.  Management  is  pursuing,  and believes it can
obtain, financing to fund operations at current levels through the end of fiscal
2000. Additional financing may not be available, or if available,  may not be on
favorable  terms.  Any future equity  financing  would result in dilution to our
stockholders.


                                                                   Page 10 of 16
<PAGE>

         If  additional  financing  is  unavailable,   management   nevertheless
believes that it would be able to fund operations through the end of fiscal 2000
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 affect 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.

         During 1998,  we  finalized a  commitment  for $5.5 million in new debt
financing with Transamerica Business Credit 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.

         As of September 30, 1999, we borrowed  approximately  $330,0000 against
the Transamerica revolving accounts receivable-based line at a rate of 9.75% per
year. We were  eligible to borrow  approximately  $511,000  against this line on
September   30,  1999,   and  borrowed  the  remaining   available   balance  of
approximately $181,000 in October 1999.

         On October 26, 1999, we entered into an Amendment and Waiver  Agreement
with Transamerica. Under that agreement, Transamerica waived an event of default
under our Loan and Security  Agreement.  The event of default  resulted from the
inclusion  of a  going  concern  uncertainty  in an  updated  opinion  from  our
independent  auditors.  In consideration  for the waiver, we paid Transamerica a
$10,000 fee and issued it a warrant to acquire up to 20,000 shares of our common
stock for a purchase  price of $0.89 per share.  The  warrant has a term of five
years and carries piggy-back registration rights.

Restructuring Accrual

In September 1997, VidaMed announced a restructuring  program designed to reduce
costs and  improve  operating  efficiencies  by closing  our U.K.  manufacturing
facility.  In 1997, we incurred a $2,100,000 charge in cost of goods sold due to
the closure of the plant. The charge reflects $390,000 for the estimated loss on
the  abandonment  of  fixed  assets,  a  $1,305,000  charge  for our  short-term
obligation  related to the closure of our British  manufacturing  facility and a
$405,000 obligation to repay a grant received when we opened the facility. As of
September  30,  1999,  the  remaining  accrual  balance is $183,000 and consists
mainly  of a grant  repayment  due by the end of  1999.  See  Note 5 of Notes to
Condensed Consolidated Financial Statements.

RISK FACTORS

Our  business,  results of operations  and financial  condition are subject to a
number of 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, 1998, as amended.

                                                                   Page 11 of 16

<PAGE>

The  Fee-Per-Use  Sales  Program is New and  Subject to  Medicare  Reimbursement
Policies.

         At the beginning of fiscal 1999, we introduced our fee-per-use  program
in the United States. Under this program, an entire TUNA System is placed with a
hospital at no charge and a fee is charged for each  procedure  performed.  This
program  replaced our previous  sales model,  which focused on sales of the TUNA
System generator and related equipment to hospitals.  Given the relatively short
time that the fee-per-use  program has been in place, the success of the program
and the amount of  revenues it will  generate  are  uncertain.  Also a change in
Medicare reimbursement policy,  allowing for payment for procedures in an office
setting but at a reduced rate,  would directly impact the revenue and associated
margins of the fee-per-use  program.  If revenues do not meet  expectations,  we
will have to obtain  additional debt or equity financing to cover the shortfall,
and may consider  developing  another sales model to replace or  supplement  the
fee-per-use  program.  We  currently  do not  have  any  plans  to  replace  the
fee-per-use  program,  and are  continually  working to develop  and enhance the
program.

Potential Loss of or Change in Nasdaq Listing

         The continuing  listing  requirements for inclusion of our stock on the
Nasdaq National  Market require that we maintain  minimum net tangible assets of
$4.0 million.  As of September 30, 1999,  our net tangible  assets  decreased to
($240)  thousand.  Our net tangible  assets  increased  with the receipt of $4.3
million in proceeds from the private sale of common stock in October  1999,  but
not in an amount  sufficient  to satisfy the $4.0 minimum  listing  requirement.
There  is no  assurance  that we will be able to  raise  sufficient  capital  or
increase  sales to meet the minimum net tangible asset listing  requirement.  In
addition,  there  are other  minimum  listing  requirements  that  VidaMed  must
continually  satisfy. For example, our common stock cannot close below $1.00 for
30 consecutive trading days.

         In   August   1999,   the   Nasdaq-Amex   Market   Group  of  the  NASD
("Nasdaq-Amex") notified us of our non-compliance with the listing requirements.
On November 4, 1999, a hearing was  conducted to determine  whether we satisfied
the minimum  listing  requirements,  and if not,  whether we would be granted an
extension of time to achieve compliance. At the time of the hearing, we were not
in  compliance  with the minimum  listing  requirements  of the Nasdaq  National
Market,  but we did satisfy the  continued  listing  requirements  of the Nasdaq
SmallCap Market. We are awaiting  Nasdaq-Amex's  decision on whether our request
for an extension of time to achieve  compliance  with the Nasdaq National Market
requirements will be granted, or whether the listing of our common stock will be
transferred to the Nasdaq SmallCap Market or other action will be taken.

         If our common stock is removed from the Nasdaq  National Market and not
transferred to the Nasdaq SmallCap Market,  the liquidity and price of the stock
could be adversely  affected.  Moreover,  we may find it more difficult to raise
equity  financing,  and  investors  may find it more  difficult to dispose of or
obtain  accurate  quotations  for our  common  stock  because  the bid and asked
quotations  would be reported on an  electronic  bulletin  board such as the OTC
Bulletin Board or a similar quotation medium.

VidaMed Relies on One Product Line

         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
likely  suffer  because  we do not have  other  products  to rely  on.  Possible
problems include, but are not necessarily limited to, malfunctions,  failures 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 product.

Manufacturing

Three of the four major  components of the TUNA System are manufactured by third
parties.  We  manufacture  the VTS PROVu  Reusable  Handle  at our  headquarters
facility in Fremont, California. Telo Electronics manufactures the VTS Generator
(Model 7600) at its facility in San Jose,  California.  Ziess  Humphrey  Systems
manufactures the VTS Disposable Cartridge at its facility in Dublin, California.
Karl Storz manufactures the VTS PROVu Telescope at its facility in Germany.

By outsourcing our manufacturing, we are at risk that our manufacturers will not
be able to supply us with our products as ordered. Our products are continuously
subject to Food and Drug Administration regulation,  including recordkeeping and
reporting  requirements  regarding use of the device.  Manufacturing  facilities
where we outsource

                                                                   Page 12 of 16
<PAGE>

products are also subject to periodic  inspection by federal,  state and foreign
regulatory  agencies.  Failure of our  manufacturers  to comply with  regulatory
requirements could adversely effect our business.

Impact of Year 2000

Many currently  installed  computer  systems and software  products are coded to
accept,  store,  or report  only two digit  year  entries  in date code  fields.
Beginning  in the Year 2000  (Y2K),  these date code  fields will need to accept
four digit entries to  distinguish  21st century dates from 20th century  dates.
The Y2K  issue is a result  of these  programs  being  written  with two  digits
instead of four. As a result,  computer  systems and software used by companies,
including  us and our  vendors and  customers,  will need to comply with the Y2K
requirements. We presently believe that as a byproduct of normal business system
modifications  and  upgrades  and the  short  length  of  time  we have  been in
operation,  the Y2K issue  should  not have a  material  effect  on our  current
financial position,  liquidity or results of operations.  However, this does not
completely  prevent the possibility of problems arising related to the Y2K issue
that could have a material impact on our operations.

We have been  proactive in addressing the Y2K issue  internally and  externally.
Our  primary  software  system is Y2K  compliant.  We do not depend on  in-house
custom  systems and generally  purchase  off-the-shelf  software from  reputable
vendors who have tested  their  software  for Y2K  compliance.  The Y2K issue is
being considered for all future software purchases.  Although we believe the Y2K
issue will not pose  material  operational  problems for our  computer  systems,
there can be no  assurance  that  problems  arising  from the Y2K issue  will be
completely eliminated.

We have communicated  with our significant  suppliers and customers to determine
the extent to which our  operations  are vulnerable to a failure of any of those
third parties to remediate their own Y2K issues.  Medicare coverage for supplies
and devices in the  office-based  and ASC markets was delayed in mid-1998 due to
Medicare  announced  Y2K  problems.  The ASC  reimbursement  program,  which was
expected to be effective  January 1, 1999, is not likely to be effective  before
September 30, 2000.  As a result of the Medicare  coverage  delays,  the Company
established  a $2.7  million  reserve  in the  third  quarter  of  1998  for all
office-based and ASC sales,  which occurred  principally in the first and second
quarter of 1998. Other than issues related to Medicare,  none of our significant
suppliers  or large  customers  has notified us that they have  significant  Y2K
problems. Even where assurances are received from third parties,  however, there
remains a risk that failure of systems and products of other  companies on which
we rely could have a material adverse effect on our business.

Our  products  are Y2K  compliant  and are able to  operate in the Year 2000 and
beyond.  There  are  two  processors  used in the  TUNA  System  generator.  One
processor  does not have date  sensitivity  while the other does. We have tested
the date sensitive  processor and have concluded that it has no significant  Y2K
problems.

We believe  we have an  effective  program  in place to resolve  Y2K issues in a
timely manner. We also have contingency plans for certain critical  applications
and are working on such plans for others. These contingency plans involve, among
other actions:

o   Manual workarounds (e.g. manual preparation of invoices, paychecks)
o   Adjusting staffing strategies, to meet additional and changing demands.

In the  event  that we do not  completely  resolve  all of the Y2K  issues,  our
business  operations could be adversely  affected.  Although the resulting costs
and loss of business  cannot be  reasonably  estimated at this time, we have not
and do not expect to have material costs associated with the Y2K issues.

The most reasonably  likely worst case scenario  relates to our inability to use
our  computerized  manufacturing  and accounting  system.  Although the software
product is Y2K compliant,  other unforeseen factors could render it inoperative,
such as the inability of public  utilities to provide  service.  This occurrence
could  materially  adversely  effect our business.  We could also be required to
manually prepare  documents,  such as shipping  documents,  invoices and checks.
Such tasks would be more time  consuming  and would  likely  require  additional
human resources to complete.

                                                                   Page 13 of 16
<PAGE>

Item 3. Quantitative and Qualitative Disclosures 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

No matters were submitted to a vote of our stockholders during the quarter ended
September 30, 1999.

Item 5. Other Information

Management Changes

In August 1999,  several changes  occurred in our management and on our Board of
Directors.  David Illingworth resigned as President and Chief Executive Officer,
effective August 1, 1999. He remains a member of the Board.

Randy  Lindholm,  who had  been  our  Executive  Vice  President  of  Sales  and
Marketing,  was promoted to President  and Chief  Executive  Officer,  effective
August 1, 1999.  Mr.  Lindholm also was named  Chairman of the Board,  effective
November 12, 1999.

Effective  September  27,  1999  Elizabeth  H.  Davila was named to the Board of
Directors.  Effective November 4, 1999 Paulita Laplante and Kurt C. Wheeler were
named to the Board of Directors.

On August  23,  1999,  John F.  Howe  replaced  Richard  D.  Brounstein  as Vice
President  Finance,  Chief  Financial  Officer.  Mr. Howe was most recently Vice
President,  Finance and Hospital Division Controller for Nellcor Puritan Bennett
of  Pleasanton,  Calif.,  a $800 million  international  medical  device company
specializing  in  respiratory  products  and  services,  which was  acquired  by
Mallinckrodt Inc. (NYSE: MKG) in 1997.

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 September 30, 1999.

<TABLE>
<CAPTION>

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.
<S>                                                           <C>
                                                              VIDAMED, INC.

Date:     November 12, 1999                                   By:     /s/   Randy D. Lindholm
       ---------------------------                                 ------------------------------------
                                                                   Randy D. Lindholm
                                                                   President, Chief Executive Officer

                                                                                                  Page 14 of 16
<PAGE>


Date:     November 12, 1999                                   By:    /s/   John F. Howe
       ----------------------------                               -------------------------------
                                                                   John F. Howe

                                                                   VP Finance, Chief Financial Officer
                                                                   (Principal Financial and Accounting Officer)

                                                                                                   Page 15 of 16
</TABLE>