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 March 31, 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 15,547,858 as of May 13, 1998.

                                                                    Page 1 of 13

<PAGE>


                                  VIDAMED, INC.

                                      INDEX

PART I: FINANCIAL INFORMATION
                                                                            Page
                                                                            ----
Item 1. Condensed consolidated financial statements - unaudited

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

        Condensed consolidated statements of operations -
             three months ended March 31, 1998 and 1997                      4

        Condensed consolidated statements of cash flows -
             three months ended March 31, 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                                                   12

Item 2. Changes in Securities                                               12

Item 3. Defaults Upon Senior Securities                                     12

Item 4. Submission of Matters to a Vote of Security Holders                 12

Item 5. Other Information                                                   12

Item 6. Exhibits and Reports on Form 8-K                                    12

        Signatures                                                          13

                                                                    Page 2 of 13

<PAGE>


<TABLE>
                          PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

<CAPTION>
                                                                                                    March 31,           December 31,
                                                                                                      1998                   1997
                                                                                                    --------               --------
                                                                                                   (Unaudited)                (*)
<S>                                                                                                 <C>                       <C>
Assets
Current Assets:
     Cash and cash equivalents                                                                      $  3,338                  8,026
     Accounts receivable                                                                               3,192                  3,644
     Inventory                                                                                         1,519                  1,512
     Other current assets                                                                              1,692                    930
                                                                                                    --------               --------
           Total current assets                                                                        9,741                 14,112

     Property and equipment, net                                                                       2,826                  2,647
     Other assets, net                                                                                   208                    206
                                                                                                    --------               --------
           Total assets                                                                             $ 12,775               $ 16,965
                                                                                                    ========               ========

Liabilities and stockholders' equity Current liabilities:
     Notes payable, current portion                                                                 $  1,686               $    480
     Accounts payable                                                                                  1,189                  1,536
     Accrued professional fees                                                                           396                    559
     Accrued clinical trial costs                                                                        343                    372
     Accrued and other liabilities                                                                     3,738                  2,620
     Accrued interest payable                                                                            460                    422
     Restructuring Accrual                                                                               432                  1,000
     Current portion of long-term debt                                                                    33                     34
     Current portion of obligations under capital leases                                                  44                     82
     Deferred revenue, current portion                                                                   376                    611
                                                                                                    --------               --------
           Total current liabilities                                                                   8,697                  7,716

     Other long-term liabilities                                                                          14                     22

Stockholders' equity:
     Capital stock                                                                                    77,648                 77,573
     Accumulated deficit                                                                             (73,584)               (68,346)
                                                                                                    --------               --------
           Total stockholders' equity                                                                  4,064                  9,227
                                                                                                    --------               --------
           Total liabilities and stockholders' equity                                               $ 12,775               $ 16,965
                                                                                                    ========               ========

<FN>
* 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.
</FN>

                                                                                                                        Page 3 of 13
</TABLE>

<PAGE>


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


                               Three Months Ended
                                    March 31,
                                                         ----------------------
                                                           1998           1997
                                                         --------      --------
Revenues:
     Product sales, net                                  $  1,375      $  3,252
     License fees and grant revenue                           289            50
                                                         --------      --------
     Net revenues                                           1,664         3,302

Cost of Products Sold                                       1,072         1,783
                                                         --------      --------
Gross Profit (Loss)                                           592         1,519

Operating Expenses:
     Research and development                               1,132         1,898
     Selling, general and administrative                    4,607         3,358
                                                         --------      --------
     Total operating expenses                               5,739         5,256

     Loss from operations                                  (5,147)       (3,737)

Other income(expense), net                                    (91)           (7)
                                                         --------      --------
Net loss                                                 $ (5,238)     $ (3,744)
                                                         ========      ========
Basic and diluted net loss per share                     $   (.34)     $   (.34)
                                                         ========      ========
Shares used in computing basic and diluted
     net loss per share                                    15,238        11,128
                                                         ========      ========

                             See accompanying notes.

                                                                    Page 4 of 13

<PAGE>


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

<CAPTION>
                                                                                               Three Months Ended
                                                                                                     March 31,
                                                                                          ----------------------------
                                                                                             1998                 1997
                                                                                          -------              -------
Cash flows from operating activities:
<S>                                                                                       <C>                  <C>
     Net loss                                                                             $(5,238)             $(3,744)
     Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                      348                  326
           Other                                                                                                   (24)
           Changes in assets and liabilities:
               Accounts receivable                                                            452               (1,692)
               Inventory                                                                       (7)                 457
               Other current assets                                                          (762)                (681)
               Other assets                                                                    (2)                   4
               Accounts payable                                                              (347)                 135
               Accrued professional fees                                                     (163)                  20
               Accrued clinical trial costs                                                   (29)                (139)
               Accrued interest payable                                                        38                   37
               Accrued restructuring cost                                                    (568)                --
               Accrued and other liabilities                                                1,118                  457
               Deferred revenue                                                              (235)                 (21)
                                                                                          -------              -------
Net cash used in operating activities                                                      (5,395)              (4,865)
                                                                                          -------              -------

Cash flows from investing activities:
     Expenditures for property and equipment                                                 (504)                (257)
     Proceeds from maturities of short-term investments                                      --                  1,976
                                                                                          -------              -------
        Net cash provided by (used in)  investing activities                                 (504)               1,719
                                                                                          -------              -------

Cash flows from financing activities:
     Principal payments under capital leases                                                  (38)                (164)
     Principal payments of long-term debt                                                      (9)                 (34)
     Principal payments of notes payable                                                     (294)                (255)
     Net proceeds from issuance of notes payable                                            1,500                 --
     Net cash proceeds from issuance of common stock                                           52                4,021
                                                                                          -------              -------
Net cash provided by financing activities                                                   1,211                3,568
                                                                                          -------              -------

Net increase (decrease) in cash and cash equivalents                                       (4,688)                 422
Cash and cash equivalents at the beginning of the period                                    8,026                3,879
                                                                                          -------              -------
Cash and cash equivalents at the end of the period                                        $ 3,338              $ 4,301
                                                                                          =======              =======

Supplemental disclosure of cash flows information:
Cash paid for interest                                                                    $    98              $   654
                                                                                          =======              =======

<FN>
                                                See accompanying notes.
</FN>

                                                                                                          Page 5 of 13
</TABLE>

<PAGE>


                                  VIDAMED, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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 March 31, 1998 and the  statements  of  operations  for the
three months ended March 31, 1998 and 1997, and the statements of cash flows for
the three months ended March 31, 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

Net loss per share is computed  using the weighted  average  number of shares of
common stock outstanding during the periods presented.  Common equivalent shares
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 per share with basic and diluted earnings per
share.  Unlike primary earnings per share,  basic earnings per share exclude any
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings  per share are very  similar  to the  previously  named  fully  diluted
earnings  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  incurred  loses 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 March 31, 1998 and December
31, 1997 consist of the following (in thousands):



                                                                    Page 6 of 13

<PAGE>

                                                 March 31,     December 31,
                                                   1998           1997
                                                  ------         ------
         Raw materials                            $  181         $  261
         Work in process                              86             90
         Finished goods                            1,252          1,161
                                                  ------         ------
                                                  $1,519         $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 March 31, 1998, no funds
remained  available for  borrowing  under this loan.  Concurrently,  the Company
established a $3,000,000 working capital line with this bank.

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.  Following the transition period, ended March 31, 1998,
manufacturing  of the VidaMed Trans Urethral  Needle Ablation  (TUNA(R))  System
hand pieces will occur in the U.S.  The charge in the third  quarter of 1997 was
$2.1 million.

The  elements  of the  total  charge  as of March 31,  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      --       1,278        27
         Grant                          405      --        --         405
                                     ------    ------    ------    ------
         Total Special Charges       $2,100    $  390    $1,278    $  432
                                     ------    ------    ------    ------


6.       Reporting Comprehensive Income (Loss)

As  of  January  1,  1998,  the  Company   adopted   Statement  130,   Reporting
Comprehensive Income.  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 (loss).
Prior  year  financial  statements  have been  reclassified  to  conform  to the
requirements of Statement 130.

During the first quarter of 1998 and 1997, the total  comprehensive loss was not
materially different from the net loss.



                                                                    Page 7 of 13

<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 months ended March 31, 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 March 31, 1998 there have been
over 350 RF generators sold and over 10,000 TUNA procedures performed worldwide.
Revenues for the quarters ended March 31, 1998 and 1997 include license fees for
distribution rights in Japan.

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 five  VidaMed  sales  managers,  supported  by both  sales
representatives  and  independent  dealers  in the U.S.  Primarily  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 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

                                                                    Page 8 of 13

<PAGE>


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 March 31, 1998 were $1.7  million,  down
$1.6  million or 50% from $3.3 million in the three months ended March 31, 1997.
Product  sales in the first  quarter of 1998  decreased 58% to $1.4 million from
$3.3 in the same period in 1997.  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  reimbursement approval at the state levels. VidaMed has
now gained approval in 10 states,  including  Massachusetts,  Ohio and Colorado.
Another factor contributing to the decrease from 1997 to 1998 was that sales for
the first quarter of 1997 included a significant  amount of  accumulated  demand
resulting  from the late-1996  receipt  of Food and Drug  Administration  510(k)
clearance  for the VidaMed  TUNA System, including a sale of 40 TUNA  Systems to
Tenet HealthSystem.

Cost of product sold for the three months ended March 31, 1998 was $1.1 million,
a decrease of 40% or $0.7  million  from $1.8 million for the three months ended
March 31, 1997.  The decrease is due to lower  product  sales in the first three
months of 1998.  Decreased gross margin  percentage in the first three months of
1998 when  compared  to the three  months  ended  March 31, 1997 was a result of
reduced absorption of manufacturing overhead.

Research and  development  (R & D) expenses  decreased  40% to $1.1 in the three
months  ended March 31, 1998 from $1.9 in the three months ended March 31, 1997.
The  difference  is primarily  due to the  investment in the first quarter ended
March 31,  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  increased  37% to $4.6
million in the three  months  ended March 31, 1998 from $3.4 in the three months
ended March 31, 1997.  Spending in SG&A in both quarters  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 period ended March 31, 1998 included
an investment in  additional  headcount to enhance the existing  sales and field
reimbursement  force  and the  period  ended  March  31,  1997  included  a coop
advertising agreement with Tenet HealthSystem. The increase in 1998 from 1997 is
primarily due to an increase to the allowance for doubtful  accounts of $655,000
as a result of the length of time involved in obtaining  Medicare  reimbursement
levels for each state and the transition to a new CEO.

                                                                    Page 9 of 13

<PAGE>


Total  operating  expenses in the three months ended March 31, 1998 increased 9%
to $5.7  million  from $5.3 in the  three  months  ended  March  31,  1997.  The
difference  in operating  expenses was due primarily to the increase in selling,
general and administrative expenses and offset in part by the decreased spending
in research and development.

Other expense for the three months ended March 31, 1998 was $91,000  compared to
other  expense  of $7,000  for the  comparable  period in 1997.  This  change is
primarily due to lower interest income attributable to lower investment balances
as well as increased interest expense attributable to increased debt balances.

The net loss for the three  months  ended  March 31,  1998 and 1997 was $5.2 and
$3.7, respectively.

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 March 31, 1998 the  Company's  cash and cash  equivalents  were $3.3  million
compared to $8.0 at December  31,  1997.  The cash used in  operations  was used
primarily on expenses associated with 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 default of certain
covenants  pursuant to this  financing  agreement.  The Company has  obtained an
agreement from the bank to refrain from exercising remedies, including demanding
immediate  repayment of the note, through May 25, 1998. The Company is currently
in  discussions  with  several  prospective  investors,  and  expects  to obtain
additional financing from such investors by such date. However,  there can be no
assurance that such financing will be obtained by such a date or at all, and the
failure to obtain such  financing  would have a material  adverse  effect on the
Company's  business and  financial  condition.  Such  financing  would bring the
Company back into compliance  with its loan  covenants.  Until such financing is
obtained and the Company is able to return to compliance with its covenants, the
Company may not borrow additional  amounts from the bank. In addition,  the note
payable to the bank is reflected  on the  Company's  balance  sheet as a current
liabilty as a result of these circumstances.

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.  Borrowings bear
interest at the prime rate plus 3% per annum plus additional  lump-sum  interest
of 15% of each  borrowing,  payable at  maturity.  Repayment  of  principal  and
interest is based on a three year amortization schedule.

The Company is currently in discussions with several prospective investors, and,
as indicated  above,  expects to obtain  additional  financing  during May 1998.
VidaMed believes that this 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.

                                                                   Page 10 of 13

<PAGE>


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 $432,000 in
cash outlays over the next twenty-four months. See also Footnote 5.

Impact of Year 2000

The Company is  currently  in the process of assessing  and  modifying  internal
software systems in order to function  properly in the Year 2000 and thereafter.
The Company believes that with limited  modifications to existing software,  the
Year 2000 issue will not pose significant  operational problems for its computer
systems.  There can be no assurance  that these  modifications  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 11 of 13

<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 U. S. Patent Nos.  5,536,240,  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  related to U.S Patent No.
5,536,240.  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 July 1, 1998 to allow the parties to obtain  discovery  from several
third parties and to accommodate certain other scheduling constraints. The Court
tentatively  has set October 19, 1998 as a trial date, and the Court has ordered
the  parties to  attempt  to reach a  settlement  through  mediation.  The court
ordered mediation is expected to be completed by June 1, 1998.

Item 2.           Changes in Securities

                  None

Item 3.           Defaults upon Senior Securities

                  None

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

                  None

Item 5.           Other Information

                  None

Item 6.           Exhibits and Reports on Form 8-K

                           a) Exhibits

                                    (10.17)  Employment  Offer Letter  Agreement
                                             between  Registrant  and  David  J.
                                             Illingworth

                                    (27.1)   Financial Data Schedule

                           b)       Reports on Form 8-K.  No reports on Form 8-K
                                    were filed  during the  quarter  ended March
                                    31, 1998.

                                                                   Page 12 of 13

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

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

                                                                   Page 13 of 13