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, 1999

                                       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 20,566,323 as of May 13, 1999.

                                                                    Page 1 of 15

<PAGE>

<TABLE>
                                             VIDAMED, INC.

                                                 INDEX

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

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

             Condensed consolidated statements of operations - three months
                  ended March 31, 1999 and 1998                                                     4

             Condensed consolidated statements of cash flows - three months
                  ended March 31, 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 1.      Legal Proceedings                                                                     13

Item 2.      Changes in Securities                                                                 13

Item 3.      Defaults Upon Senior Securities                                                       13

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

Item 5.      Other Information                                                                     13

Item 6.      Exhibits and Reports on Form 8-K                                                      13

             Signatures                                                                            14
</TABLE>

                                                                    Page 2 of 15
<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                                          March 31, December 31,
                                                             1999        1998
                                                           --------    --------
                                                          (Unaudited)      (*)
Assets
Current Assets:
     Cash and cash equivalents                             $  7,816    $  9,384
     Accounts receivable                                        499         228
     Inventories                                              1,020       1,228
     Other current assets                                     1,113       1,179
                                                           --------    --------
           Total current assets                              10,448      12,019

     Property and equipment, net                              1,542       1,797
     Other assets, net                                          318         316
                                                           --------    --------
           Total assets                                    $ 12,308    $ 14,132
                                                           ========    ========

Liabilities and stockholders' equity Current liabilities:
     Notes payable, current portion                        $    912    $    764
     Accounts payable                                           255         338
     Accrued professional fees                                  217         317
     Accrued clinical trial costs                               320         431
     Accrued and other liabilities                            2,650       2,362
     Accrued advertising costs                                  309         309
     Restructuring accrual                                      252         252
     Current portion of obligations under capital leases       --            22
     Deferred revenue                                           231         229
                                                           --------    --------
           Total current liabilities                          5,146       5,024

     Notes payable, long-term portion                         1,607       1,785

Stockholders' equity:
     Capital stock                                           96,930      95,542
     Accumulated deficit                                    (91,375)    (88,219)
                                                           --------    --------
           Total stockholders' equity                         5,555       7,323
                                                           --------    --------
           Total liabilities and stockholders' equity      $ 12,308    $ 14,132
                                                           ========    ========

* 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.

                                                                    Page 3 of 15
<PAGE>


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


                                                           Three Months Ended
                                                                March 31,
                                                         ----------------------
                                                           1999          1998
                                                         --------      --------
Revenues:
     Product sales, net                                  $    987      $  1,375
     License fees and grant revenue                            50           289
                                                         --------      --------
     Net revenues                                           1,037         1,664

Cost of Products Sold                                         833         1,072
                                                         --------      --------
Gross Profit                                                  204           592

Operating Expenses:
     Research and development                                 814         1,132
     Selling, general and administrative                    2,504         4,607
                                                         --------      --------
     Total operating expenses                               3,318         5,739

                                                         --------      --------
Loss from operations                                       (3,114)       (5,147)

Other income(expense), net                                    (42)          (91)
                                                         --------      --------
Net loss                                                 $ (3,156)     $ (5,238)
                                                         ========      ========
Basic and diluted net loss per share                     $  (0.16)     $  (0.34)
                                                         ========      ========
Shares used in computing basic and diluted
     net loss per share                                    20,313        15,238
                                                         ========      ========

                             See accompanying notes.

                                                                    Page 4 of 15

<PAGE>


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

                                                          Three Months Ended
                                                               March 31,
                                                      -------------------------
                                                        1999             1998
                                                      -------          -------
Cash flows from operating activities:
     Net loss                                         $(3,156)         $(5,238)
     Adjustments to reconcile net loss to net cash
        used in operating activities:
           Depreciation and amortization                  313              348
           Changes in assets and liabilities:
               Accounts receivable                       (271)             452
               Inventory                                  208               (7)
               Other current assets                        66             (762)
               Other assets                                (2)              (2)
               Accounts payable                           (83)            (347)
               Accrued professional fees                 (100)            (163)
               Accrued clinical trial costs              (111)             (29)
               Accrued interest payable                  --                 38
               Accrued restructuring cost                --               (568)
               Accrued and other liabilities              288            1,118
               Deferred revenue                             2             (235)
                                                      -------          -------
Net cash used in operating activities                  (2,846)          (5,395)
                                                      -------          -------

Cash flows from investing activities:
     Expenditures for property and equipment              (58)            (504)
        Net cash used in investing activities             (58)            (504)
                                                      -------          -------

Cash flows from financing activities:
     Principal payments under capital leases              (22)             (38)
     Principal payments of notes payable                  (30)            (303)
     Net proceeds from issuance of notes payable         --              1,500
     Net proceeds from issuance of common stock         1,388               52
                                                      -------          -------
Net cash provided by financing activities               1,336            1,211
                                                      -------          -------

Net decrease in cash and cash equivalents              (1,568)          (4,688)
Cash and cash equivalents at the beginning
     of the period                                      9,384            8,026
                                                      -------          -------
Cash and cash equivalents at the end of the period    $ 7,816          $ 3,338
                                                      =======          =======

Supplemental disclosure of cash flows information:
Cash paid for interest                                $    95          $    98
                                                      =======          =======

                             See accompanying notes.
                                                                   Page 5 of 15

<PAGE>


                                  VIDAMED, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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 March 31, 1999 and the  statements  of  operations  for the
three months ended March 31, 1999 and 1998, and the statements of cash flows for
the three months ended March 31, 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.  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, 1998 filed with the Securities and
Exchange Commission.

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

2.       Net loss per share

Basic and  diluted  net loss per share is computed  using the  weighted  average
number of shares of common  stock  outstanding  during  the  periods  presented.
Common equivalent shares from options,  warrants and convertible  securities are
excluded from the computation, as their effect is anti-dilutive.  As the Company
has incurred losses from operations in each of the periods  presented,  there is
no difference between basic and diluted net loss per share amounts.

3.       Inventories

Inventories  are  stated at the lower of cost  (determined  using the  first-in,
first-out  method) or market value.  Inventories  at March 31, 1999 and December
31, 1998 consist of the following (in thousands):

                                                   March 31,        December 31,
                                                     1999              1998
                                                    ------            ------
                  Raw materials                     $  260            $  404
                  Work in process                      208               261
                  Finished goods                       552               563
                                                    ------            ------
                                                    $1,020            $1,228
                                                    ======            ======


                                                                    Page 6 of 15
<PAGE>

4.       Notes Payable

During 1998,  the Company  finalized a  commitment  for $5.5 million in new debt
financing  with  Transamerica  Technology  Finance,  a division of  Transamerica
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, fully funded. As of March 31, 1999 the Company was
eligible  to borrow and has  borrowed,$335,000  against the  revolving  accounts
receivable-based line at a rate of 9.75% per year.

5.        Restructuring Accrual

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

The  elements  of the  total  charge  as of March 31,  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                                    405        --           153         252
                                      ------      ------      ------      ------
Total Special Charges                 $2,100      $  390      $1,458      $  252
                                      ------      ------      ------      ------


6.       Reporting Comprehensive Income (Loss)

As of January 1, 1998,  the Company  adopted  Statement of Financial  Accounting
Standards No.130,  Reporting Comprehensive Income (Statement 130). Statement 130
establishes new rules for the reporting and display of comprehensive  income and
its  components.  Statement  130  requires  unrealized  gains or  losses  on the
Company's   available-for-sale   securities  and  foreign  currency  translation
adjustments,  which prior to adoption were reported in shareholders'  equity, to
be included in other comprehensive income (loss).  During the three months ended
March  31,  1999 and  1998,  the  total  comprehensive  loss was not  materially
different from the net loss.

7.       Common Stock

Proceeds  from the issuance of common stock for the quarter ended March 31, 1999
were $1,388,000. In February 1999, the Company completed a sale of common stock,
related to a key vendor of the Company. In this transaction,  the Company issued
368,596 shares of common stock at a purchase price of $2.713 per


                                                                    Page 7 of 15
<PAGE>

share  resulting in net proceeds of  $1,000,000  to the Company.  The balance of
$388,000 was attributable to employee stock plans.

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

The  following  is a  discussion  and  analysis  of the  consolidated  financial
condition and results of  operations  for the Company for the three months ended
March 31, 1999 and 1998,  and of certain  factors that may affect the  Company's
prospective financial condition and results of operations.  The following should
be read in conjunction with the Condensed  Consolidated Financial Statements and
related Notes appearing  elsewhere  herein,  the Company's Annual Report on Form
10-K/A  for the year ended  December  31,  1998,  and the  Company's  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  current   expectations   and  beliefs.   Such
forward-looking  statements  involve a number of risks  and  uncertainties  that
could cause actual results to differ materially.  Some of the factors that could
cause  actual  results  to  differ  materially  include,  among  others,  market
acceptance of the VidaMed Tuna Procedure, availability and timing of third-party
reimbursement   for   procedures   performed   with  the  VidaMed  Tuna  System,
availability  of cash  resources  sufficient  to fund  operations,  the possible
volatility  of the  Company's  stock  price,  and the factors  discussed  in the
Company's  report on Form  10-K/A for the fiscal  year ended  December  31, 1998
under Factors Affecting Results of Operations.  VidaMed undertakes no obligation
to  publicly  revise  these  forward-looking  statements  to  reflect  events or
circumstances that arise after the date hereof.  Readers should carefully review
the risk factors  described in other  documents  the Company  files from time to
time with the  Securities  Exchange  Commission,  including  but not  limited to
reports on Form 10-K, 10-Q and current reports on Form 8-K filed by the Company.


Overview

VidaMed is engaged in the design, development, clinical testing and marketing of
the  VidaMed  TUNA System for the  treatment  of  symptoms  associated  with the
enlarged prostate or benign prostatic  hyperplasia  (BPH). The Company commenced
international  sales of the VidaMed TUNA System in late 1993 and received United
States FDA 510(k) clearance in October 1996.

VidaMed anticipates that a substantial amount of its revenues from product sales
in the  future  will be from  sales  in the  United  States.  Following  the 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  beginning in calendar year
1998.  VidaMed sells its products in the United  States to individual  and group
urology  practices and  hospitals.  The Company  markets the VidaMed TUNA System
through a network of three VidaMed  regional  business  directors,  supported by
both sales representatives and

                                                                    Page 8 of 15
<PAGE>

independent  dealers in the United States.  Outside the United States, 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  as it  continues  to commit
substantial  resources to expand marketing and sales  activities,  fund clinical
trials in support of regulatory and reimbursement  approvals,  and fund research
and  development.  The Company's  future  profitability  will be dependent upon,
among other  factors,  market  acceptance  of the  VidaMed  TUNA  Procedure  and
availability and timing of third-party  reimbursement  for procedures  performed
with the TUNA System.

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 health care providers and
payors,  that it will be deemed  superior to other current and emerging  methods
for treating BPH or that it will achieve  significant  market  acceptance in the
United States. Furthermore,  determinations of reimbursement of the VidaMed TUNA
Procedure by private and governmental  health payors are made by such payors and
their medical directors independent of the FDA approval.  Accordingly, there can
be no assurance that the TUNA Procedure will be reimbursed at adequate levels in
the United  States  under  either  private or  governmental  healthcare  payment
systems.  Availability of Medicare  reimbursement  for the TUNA Procedure may be
dependent on the publication of clinical data relating to the cost-effectiveness
and  duration  of the  TUNA  therapy.  Inadequate  reimbursement  for  the  TUNA
procedure  could  adversely  effect market  acceptance  of the TUNA System.  The
business,  financial condition and results of operations of the Company could be
adversely  affected  by the  failure of the TUNA  procedure  to  achieve  market
acceptance in the United States, the impact of competitive  products and pricing
and other risks identified in the Company's form 10K/A for the fiscal year ended
1998, under the Factors Affecting Results of Operations.

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 revenue for the three months ended March 31, 1999 was $1.0 million. This was
down $0.7  million or 41% from $1.7  million in the three months ended March 31,
1998.  Product sales in the first quarter of 1999  decreased 29% to $1.0 million
from $1.4 in the same period in 1998.

The decrease in net revenue  between the 1999 and 1998 periods is primarily  due
to a one time  license  fee and a $500,000  stocking  order  from the  Company's
Japanese  distributor  in the first  quarter  of 1998.  United  States  sales of
$577,000 in the first quarter of 1999,  down from sales of $698,000 in the first
quarter of 1998, have been limited by Medicare Part B reimbursement  approval at
the state levels.  VidaMed has now gained approval of the professional component
(under  Medicare Part B) in 35 states.  Other states with  significant  Medicare
populations   are  moving   forward   with  regard  to  this  type  of  Medicare
reimbursement.  In addition, Medicare reimbursement for the TUNA system (as part
of  Medicare  Part  B  facility  expenses)  generally  follows  approval  of the
professional  component.  At this  time  such  approval  extends  to  procedures

                                                                    Page 9 of 15
<PAGE>

performed in a hospital  outpatient setting. In order for the Company to achieve
significant  increases  in sales  volume,  it will likely be  necessary  for the
Company to obtain Medicare reimbursement approvals in all 50 states, or at least
in all states with  significant  population  centers,  particularly  since sales
agreements  with  major  healthcare  providers  are  often  on  a  national,  or
system-wide  basis. The Company has several  initiatives  underway to facilitate
the Medicare  reimbursement  approval process,  including working in cooperation
with state Medicare Medical Directors.  Notwithstanding the foregoing, there can
be no assurance that the Company will receive additional Medicare  reimbursement
approvals  in major states in a timely  manner,  and the failure to receive such
approvals  would  have a  material  adverse  effect on the  business,  financial
condition and results of operations of the Company.

Cost of product sold for the three months ended March 31, 1999 was $0.8 million,
a decrease of 22% or $0.3  million  from $1.1 million for the three months ended
March 31, 1998.  The decrease is due to lower  product  sales.  Also included in
cost of products  sold for the three  months  ended March 31, 1999 were  charges
related to a reduction in work force,  due to the announced  outsourcing  of the
manufacturing of the Company's disposable product.

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 28% to
$0.8  million in the three  months ended March 31, 1999 from $1.1 million in the
three months ended March 31, 1998. The decrease was primarily  reduced  clinical
activity in 1999.

Selling,  general  and  administrative  (SG&A)  expenses  decreased  46% to $2.5
million in the three  months  ended March 31, 1999 from $4.6 in the three months
ended  March  31,  1998.  The  expenditures  in 1998  included  a charge  to the
allowance for doubtful  accounts,  as a result of the length of time involved in
obtaining Medicare  reimbursement levels for each state, and the transition to a
new CEO.

Other expense for the three months ended March 31, 1999 was $42,000  compared to
$91,000  for the  comparable  period in 1998.  These  changes  were  primarily a
function of the balance of cash, cash  equivalents and debt, the interest earned
or incurred, respectively, and fluctuations in the relative balances.

VidaMed's results of operations have fluctuated in the past and may fluctuate in
the future from year to year as well as from  quarter to quarter.  Revenues  may
fluctuate  as a  result  of  several  factors,  including  actions  relating  to
regulatory and reimbursement matters,  results of clinical trials, the extent to
which the TUNA System  gains  market  acceptance,  varying  pricing  promotions,
volume discounts to customers,  introduction of new products and the competitive
introduction of alternative  therapies for BPH. Operating expenses may fluctuate
as a result of several  factors,  including the timing of expansion of sales and
marketing  activities,  costs of  clinical  activities,  R&D and  SG&A  expenses
associated with the potential growth of VidaMed's  organization.  As a result of
these  factors  there can be no assurance as to when or whether the Company will
achieve profitability.  If profitability is achieved,  there can be no assurance
such profitability will continue in the future.

Liquidity and Capital Resources

                                                                   Page 10 of 15
<PAGE>

In October  1998,  the Company  finalized  a debt  financing  with  Transamerica
Technology  Finance,  a division of  Transamerica  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, fully funded. As of March 31, 1999 the company was eligible to borrow
and has borrowed,$335,000  against the revolving accounts  receivable-based line
at a rate of 9.75% per year.

At March 31,  1999,  the  Company's  cash and cash  equivalents  decreased  $1.6
million to $7.8  million,  compared  to $9.4  million at December  31,1998.  The
decrease  is due to  operating  expenses  offset  by the  issuance  of equity as
discussed in footnote 7 of this Form 10-Q. In April 1999,  pursuant to retention
agreements with certain executives, which expired in April, the Company paid the
executives the aggregate of $0.8 million.

VidaMed  believes  that the  Transamerica  financing,  combined with its current
capital  resources  and  cash  generated  from  the  sale  of  products  will be
sufficient to meet the Company's operating and capital requirements for the next
twelve months. It's ability to fund operating and capital  requirements  assumes
revenues  to double  over  1998  levels  based on new  United  States  sales and
marketing  programs  focussing  on usage rather than  capital  equipment  sales.
However there can be no assurances that such growth established under it's plans
will continue to be achieved.  The Company's existing inventory of generators is
sufficient  to support  this program  without an  immediate  need to incur costs
associated with manufacturing  additional generators.  Funds currently available
for operations and capital requirements could become  insufficient,  however, if
the product is not  accepted in the  marketplace  and the Company is not able to
achieve  its usage  and  revenue  plan.  Further,  the  Company's  plans  assume
reimbursement by additional key states during 1999.  Delays of Medicare coverage
in these key states or other  reasons  could also cause the  Company's  sales to
fall below  projections,  and if expenses exceed budgeted  amounts,  the Company
would require  additional  funding.  In summary,  the Company may be required to
expend greater than anticipated  funds if unforeseen  difficulties  arise in the
marketing  and  sales  of  the  VidaMed  TUNA  System,  in  obtaining  necessary
regulatory  and  reimbursement  approvals or in other  aspects of the  Company's
business. In such a case, the Company will likely require additional debt and/or
equity  financing.  There can be no  assurance  that  additional  financing,  if
required,  will be  available on  satisfactory  terms or at all.  Future  equity
financing would result in dilution to the holders of the Company's Common Stock.
If financing were not available,  management would need to reevaluate and revise
current  operating  plans as well as reduce  spending in general.  Should such a
situation  arise,  management has formulated a contingent  operating plan, which
management believes is achievable,  to sustain the Company's operations at least
through the next twelve months.

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 $252,000 in
cash  outlays  during 1999.  See also Note 5 of notes to condensed  consolidated
financial statements.


Impact of Year 2000

                                                                   Page 11 of 15
<PAGE>

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 VidaMed, Inc. and its vendors and customers,  will need to comply with
the Y2K  requirements.  The Company  presently  believes  that as a byproduct of
normal business system  modifications  and upgrades and the short length of time
the  Company  has been in  operation,  the Y2K issue  should not have a material
effect on the  Company's  current  financial  position,  liquidity or results of
operations.  However,  this  does not  completely  prevent  the  possibility  of
problems  arising  related  to the Y2K that  could  have a  material  impact  on
operations of the Company.

The Company is aware of the Y2K issue and has been  proactive in addressing  the
issue  internally  and  externally.  The Company's  primary  software  system is
currently Y2K compliant.  The Company does not depend on in-house custom systems
and generally  purchases 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 the Company believes the Y2K issue will
not pose material operational problems for its computer systems, there can be no
assurance  that  problems   arising  from  the  Y2K  issue  will  be  completely
eliminated.

In early 1999, the Company completed its evaluation of its significant suppliers
and large  customers  systems to  determine  the  extent to which the  Company's
interface  with  these  systems  is  vulnerable  to the  Y2K  issue.The  Company
determined that 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  now  likely  to  go  into  effect  before  mid-2000,  at  which  time,
office-based payments will begin their three year phase-in:  50% in 2000, 75% in
2001 and full  payment in 2002.  As a result of Medicare  coverage  delays,  the
Company  established a $2.7 million reserve in the third quarter of 1998 for all
office-based and ASC sales.

VidaMed's  products are Y2K  compliant  and are able to operate in the Year 2000
and beyond.  The Y2K issue is relevant to the hardware and software  used in the
TUNA System  generator.  There are two  processors  used in the  generator.  One
processor does not have date sensitivity and the other is a motherboard assembly
running  Microsoft's  Windows 95  Operating  system.  With  regard to Windows 95
Operating  system  being  Y2K  compliant,  Microsoft  wrote  in a  letter  dated
September 10, 1996, to the UNITED STATES House of Representatives  stating that,
"All Microsoft's operating systems (MS-DOS, Windows 3.x, Windows 95, and Windows
NT) can handle files created up to the year 2108."

The Company has not and does not expect to have material costs  associated  with
the Y2K issues.

The Company believes it has an effective  program in place to resolve Y2K issues
in a timely manner.  The Company also has contingency plans for certain critical
applications and is working on such plans for others.  These  contingency  plans
involve, among other actions, manual workarounds,  increasing  inventories,  and
adjusting staffing strategies. In the event that the Company does not completely
resolve  all of the Y2K

                                                                   Page 12 of 15
<PAGE>

issues, the Company's business operations could be adversely affected,  although
the resulting costs and loss of business cannot be reasonably  estimated at this
time.

Item 3
           Quantitative and Qualitative Disclosures About Market Risk

The  Company has  assessed  it's  exposure to market risk based on it's  current
market risk sensitive instruments and determined that amounts are not material.


                                  VIDAMED, INC.

PART II: OTHER INFORMATION

Item 1.           Legal Proceedings

                  None
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

                                    (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, 1999.

                                                                   Page 13 of 15
<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 14, 1999          By:     /s/   David J. Illingworth
       ----------------             ---------------------------------------
                                    David J. Illingworth
                                    Chairman, President, Chief Executive Officer

Date:    May 14, 1999          By:    /s/   Richard D. Brounstein
       ----------------            ----------------------------------------
                                    Richard D. Brounstein
                                    VP Finance, Chief Financial Officer
                                    (Principal Financial and Accounting Officer)



                                                                   Page 14 of 15