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


                                   FORM 10-Q/A

                                 AMENDMENT NO. 1



[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               (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 20,650,603 as of August 13, 1999.




<PAGE>


                                  VIDAMED, INC.
<TABLE>
                                      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 6.      Exhibits and Reports on Form 8-K                                                      14

             Signatures                                                                            14


                                                                                         Page 2 of 15

</TABLE>

<PAGE>




                          PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>
                                  VidaMed, Inc.
                      Condensed Consolidated Balance Sheets
                                 (In thousands)
<CAPTION>
                                                                        March 31,      December 31,
                                                                          1999             1998
                                                                        --------         --------
                                                                       (Unaudited)          (*)
<S>                                                                     <C>              <C>
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
                                                                        ========         ========
<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>
</TABLE>


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

<CAPTION>
                                                              Three Months Ended
                                                                   March 31,
                                                          ------------------------
                                                             1999            1998
                                                          -------         -------
<S>                                                       <C>             <C>
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                         --              (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
                                                          =======         =======

<FN>
                             See accompanying notes.
</FN>
</TABLE>

                                                                    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,  as amended,  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


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 are 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.


3.       Inventories


Inventories  are  stated at the lower of cost  (determined  using the  first-in,
first-out  method) or market value.  The decrease in inventory from December 31,
1998,  through  March 31,  1999,  is due  primarily  to sales of finished  goods
inventory and the Company not undertaking to manufacture additional inventory at
this time


                                                                    Page 6 of 15
<PAGE>


due to a planned  surplus of finished  goods.  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
                              ======               =======

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. 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 March 31, 1999, the Company  borrowed  approximately  $335,000 against the
revolving  accounts  receivable-based  line at a rate of 9.75% per year.  It was
eligible to borrow  approximately  $358,000 against this line on March31,  1999,
and borrowed the remaining  available balance of approximately  $23,000 in April
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.


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 repayment                             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


                                                                    Page 7 of 15
<PAGE>

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


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,  one of our
manufacturers.  The purchase  price of the common stock was $2.713,  the 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.

Total proceeds from the issuance of common stock for the quarter ended March 31,
1999 were $1,388,000. The balance of $388,000 was attributable to employee stock
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. If any of those officers left the Company prior to April 1, 1999,
the  amount  of the  obligation  would  decease.  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.


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 ended March 31, 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  reimbursement
coverage  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 in
the forward-looking statements because of the factors described under



                                                                    Page 8 of 15
<PAGE>

"Liquidity  and Capital  Resources" and "Risk Factors" in this report and 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.  We 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.

At the beginning of fiscal 1999, we began  restructuring our United States sales
and marketing model to align with current hospital-based reimbursement coverage.
Under the prior  model,  we focused on selling  the TUNA  System  generator  and
related equipment to hospitals,  physician groups and ambulatory service centers
("ASC").  Under the new sales  model,  an entire  TUNA  System is placed  with a
hospital  at no initial  capital  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 March 31,  1999,  30 states  provided  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.  Notwithstanding
the  foregoing,  there  can  be no  assurance  that  the  Company  will  receive
additional Medicare  reimbursement  coverage in major states in a timely manner,
and the failure to receive such coverage would have a material adverse effect on
the business, financial condition and results of operations of the Company.

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 continue to advance Medicare  reimbursement  for the TUNA
Procedure, but, as discussed below in "Liquidity and Capital Resources," we will
not be able to do so without additional debt or equity financing.

Although initial results from our fee-per-use  sales model are favorable,  we do
not  anticipate  reaching  profitability  in the  near  future.  We  expect  our
operating  losses to  continue  as we  commit  substantial  resources  to expand
marketing and sales  activities,  fund clinical  trials in support of regulatory
and  reimbursement  approvals,  and fund  research and  development.  Our future
profitability will be dependent upon, among other factors,  market acceptance of
the VidaMed TUNA Procedure, availability and timing of third-party reimbursement
for  procedures  performed  with the TUNA  System,  adoption of our  fee-per-use
program  and our  ability  to fund  operations  absent  sufficient  sales of our
products.

There  can be no  assurance  that the TUNA  System  will  continue  to be deemed
clinically or cost  effective by health care  providers and payors,  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,


                                                                    Page 9 of 15
<PAGE>

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, there can be 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.  Failure of the TUNA Procedure to achieve market  acceptance in
the United States, lack of adequate funding,  the impact of competitive products
and  pricing  and  other  risks  could  have a  material  adverse  effect on our
business, financial condition and results of operations.

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. The decrease in net revenue is primarily due to a $500,000  stocking order
from Century Medical,  Inc., our Japanese  distributor,  in the first quarter of
1998.

United States sales of $577,000 in the first quarter of 1999 are down from sales
of  $698,000  in the first  quarter of 1998 due to the change in the sales model
described above in the Overview.

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.  Those  charges  were not
material and did not have a material effect on liquidity.


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 charges to the allowance
for doubtful  accounts,  as a result of the length of time involved in obtaining
Medicare reimbursement coverage for each state, the transition to a new CEO, and
a higher level of general and administrative spending.


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.


Our 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:

o        Actions relating to regulatory and reimbursement matters;
o        Results of clinical trials;


                                                                   Page 10 of 15
<PAGE>

o        The extent to which the TUNA System gains market acceptance;
o        Varying pricing promotions;
o        Volume discounts to customers; and
o        Introduction  of new  products  and  the  competitive  introduction  of
         alternative therapies for BPH.

  Operating expenses may fluctuate as a result of several factors, including:

o        The timing of expansion of sales and marketing activities;
o        Costs of clinical activities; and
o        R&D and SG&A  expenses  associated  with the  potential  growth  of our
         organization.

Fluctuations  in operating  results could have a material  adverse affect on our
business by, among other things,  disrupting our cash flow, limiting our ability
to attract  investors,  and impairing our ability to implement long range plans.
As a result,  there can be no  assurance  as to when or whether we will  achieve
profitability.  If  profitability  is achieved,  there can be no assurance  such
profitability will continue in the future.

Liquidity and Capital Resources

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. 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 as discussed in footnote 8.

As we began fiscal 1999, we believed that our current cash  balances,  projected
cash flows from operations  including a U.S.  procedure based sales program (the
"fee-per-use  program")  and cash  available  under the  Transamerica  financing
facility  would  be  sufficient  to  meet  our  current  operating  and  capital
requirements  through  the end of the  fiscal  year.  We now  believe  that  the
fee-per-use program will take longer to implement than originally planned. In an
effort to increase revenues, we believe that it is necessary to:

         o   Increase  consumer  awareness of the treatment options available to
             BPH patients with the view that an informed  patient and his doctor
             are more likely to choose the TUNA procedure;
         o   Provide  opportunities  for our field  organization to increase the
             number of physicians who perform TUNA Procedures; and
         o   Implement  marketing  initiatives to assist  physicians build their
             practices by increasing the number of TUNA Procedures performed.

The increased costs associated with this  three-pronged  approach  together with
lower than anticipated  revenues from the fee-per-use program will require us to
obtain   additional   financing  to  meet  our  current  operating  and  capital
requirements  through the end of the fiscal year.  Management  is pursuing,  and
believes it can obtain,  financing  to fund  operations  through the end of this
fiscal  year and into  fiscal  year 2000.  Additional  financing  will likely be
required in order to fund operations throughout fiscal 2000.

We cannot give any assurance  that we will be successful in securing any debt or
equity  financing,  or that such financing,  if available,  will be on favorable
terms. Any future equity financing would result in dilution to our stockholders.
If we are unable to secure additional  financing this year, we would not be able
to


                                                                   Page 11 of 15
<PAGE>

continue  as  a  going  concern.   We  would  be  forced  to  explore  strategic
relationships,  reduce  staff and  discontinue  clinical  trials,  research  and
development and marketing and sales activities.

During 1998,  we 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 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 March 31, 1999, we borrowed  approximately  $335,000 against the revolving
accounts  receivable-based line at a rate of 9.75% per year. We were eligible to
borrow approximately  $358,000 against this line on March 31, 1999, and borrowed
the remaining available balance of approximately $23,000 in April 1999.


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


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 currently  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 initiated  communication 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. 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 not
likely  to be  effective  before  June 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. Other than issues related to


                                                                   Page 12 of 15
<PAGE>

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.

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 ability 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 and the like.
Such tasks would be more time  consuming  and would  likely  require  additional
human resources to complete.


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 doe not have a material
market risk exposure.



                                                                   Page 13 of 15
<PAGE>


                                  VIDAMED, INC.
PART II: OTHER INFORMATION



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.

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



                                          VIDAMED, INC.

Date:     August 26, 1999                 By:     /s/ Randy Lindholm
     ---------------------------                  ------------------------------
                                                      Randy Lindholm
                                                      President, Chief Executive
                                                      Officer

Date:      August 26, 1999                By:    /s/ John F. Howe
     --------------------------                  -------------------------------
                                                     John F. Howe
                                                     VP Finance, Chief Financial
                                                     Officer
                                                     (Principal Financial and
                                                     Accounting Officer)