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

                                    FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the quarterly period ended June 30, 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
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. [ X ] Yes [ ] No


The number of outstanding  shares of the  registrant's  Common Stock,  $.001 par
value, was 20,650,603 as of August 13, 1999.


Page 1 of 17
<PAGE>

<TABLE>

                                                     VIDAMED, INC.

                                                         INDEX

<CAPTION>
PART I: FINANCIAL INFORMATION
                                                                                                  Page
<CAPTION>
<S>                                                                                                 <C>
Item 1.      Financial Statements

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

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

             Condensed consolidated statements of cash flows - six months
                  ended June 30, 1999 and 1998                                                      5

             Notes to condensed consolidated financial statements                                   6


Item 2.      Management's Discussion and Analysis of Financial Condition
                 and Results of Operations                                                          8

Item 3       Quantitative and Qualitative Disclosure About Market Risk                             13



PART II: OTHER INFORMATION

Item 1.      Legal Proceedings                                                                     14

Item 2.      Changes in Securities                                                                 14

Item 3.      Defaults Upon Senior Securities                                                       14



Item 4.      Submission of Matters to a Vote of Security Holders                                   14


Item 5.      Other Information                                                                     15


Item 6.      Exhibits and Reports on Form 8-K                                                      15

             Signatures                                                                            16


</TABLE>
                                                                    Page 2 of 17
<PAGE>


                          PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                                                           June 30, December 31,
                                                             1999        1998
                                                           --------    --------
                                                          (Unaudited)     (*)
Assets
Current Assets:
     Cash and cash equivalents                             $  4,411    $  9,384
     Accounts receivable                                        736         228
     Inventories                                                891       1,228
     Other current assets                                       795       1,179
                                                           --------    --------
           Total current assets                               6,833      12,019

     Property and equipment, net                              1,316       1,797
     Other assets, net                                          287         316
                                                           --------    --------
           Total assets                                    $  8,436    $ 14,132
                                                           ========    ========

Liabilities and stockholders' equity
Current liabilities:
     Notes payable, current portion                        $  1,070    $    764
     Accounts payable                                           321         338
     Accrued professional fees                                  181         317
     Accrued clinical trial costs                               271         431
     Accrued and other liabilities                            2,157       2,362
     Accrued advertising costs                                  309         309
     Restructuring accrual                                      198         252
     Current portion of obligations under capital leases       --            22
     Deferred revenue                                           130         229
                                                           --------    --------
           Total current liabilities                          4,637       5,024

     Notes payable, long-term portion                         1,424       1,785

Stockholders' equity:

     Capital stock                                           97,235      95,542
     Accumulated deficit                                    (94,860)    (88,219)
                                                           --------    --------

           Total stockholders' equity                         2,375       7,323
                                                           --------    --------
           Total liabilities and stockholders' equity      $  8,436    $ 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>

<TABLE>


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

<CAPTION>

                                                                         Three Months Ended                   Six Months Ended
                                                                              June 30,                             June 30,
                                                                     --------------------------          ---------------------------
                                                                       1999              1998             1999               1998
                                                                     --------          --------          --------          --------
<S>                                                                  <C>               <C>               <C>               <C>
Revenues:
     Product sales, net                                              $  1,208          $    861          $  2,196          $  2,236
     License fees and grant revenue                                        17                50                67               339
                                                                     --------          --------          --------          --------
     Net revenues                                                       1,225               911             2,263             2,575

Cost of Products Sold                                                     646               608             1,480             1,680
                                                                     --------          --------          --------          --------
Gross Profit                                                              579               303               783               895


Operating Expenses:
     Research and development                                             742             1,200             1,555             2,334
     Selling, general and administrative                                3,409             3,297             5,913             7,904
                                                                     --------          --------          --------          --------
     Total operating expenses                                           4,151             4,497             7,468            10,238
                                                                     --------          --------          --------          --------
Loss from operations                                                   (3,572)           (4,194)           (6,685)           (9,343)
Other income(expense), net                                                 87               (46)               44              (135)
                                                                     --------          --------          --------          --------
Net loss                                                             $ (3,485)         $ (4,240)         $ (6,641)         $ (9,478)
                                                                     ========          ========          ========          ========
Basic and diluted net loss per share                                 $  (0.17)         $  (0.24)         $  (0.33)         $  (0.58)
                                                                     ========          ========          ========          ========
Shares used in computing basic and diluted
     net loss per share                                                20,546            17,443            20,430            16,341
                                                                     --------          --------          --------          --------

<FN>

                                                See accompanying notes.
</FN>
                                                                                                                        Page 4 of 17


</TABLE>
<PAGE>

<TABLE>

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

                                                                                                             Six Months Ended
                                                                                                                  June 30,
                                                                                                         --------------------------
                                                                                                           1999              1998
                                                                                                         --------          --------
<S>                                                                                                      <C>               <C>
Cash flows from operating activities:
     Net loss                                                                                            $ (6,641)         $ (9,478)
     Adjustments to reconcile net loss to net cash used in operating activities:
           Depreciation and amortization                                                                      626               635
           Changes in assets and liabilities:
               Accounts receivable                                                                           (508)              693
               Inventory                                                                                      337              (251)
               Other current assets                                                                           384              (567)
               Other assets                                                                                    29                 5
               Accounts payable                                                                               (17)             (822)
               Accrued professional fees                                                                     (136)             (178)
               Accrued clinical trial costs                                                                  (160)                6
               Accrued interest payable                                                                      --                (225)
               Accrued restructuring cost                                                                     (54)             (569)
               Accrued and other liabilities                                                                 (205)              348
               Deferred revenue                                                                               (99)             (272)
                                                                                                         --------          --------
Net cash used in operating activities                                                                      (6,444)          (10,675)
                                                                                                         --------          --------

Cash flows from investing activities:
     Expenditures for property and equipment                                                                 (145)             (611)
                                                                                                         --------          --------
        Net cash used in investing activities                                                                (145)             (611)
                                                                                                         --------          --------

Cash flows from financing activities:
     Principal payments under capital leases                                                                  (22)              (58)
     Principal payments of notes payable                                                                      (55)             (716)
     Net proceeds from issuance of notes payable                                                             --               1,500
     Net proceeds from issuance of common stock                                                             1,693            17,865
                                                                                                         --------          --------
Net cash provided by financing activities                                                                   1,616            18,591
                                                                                                         --------          --------

Net (decrease) increase in cash and cash equivalents                                                       (4,973)            7,305
Cash and cash equivalents at the beginning
     of the period                                                                                          9,384             8,026
                                                                                                         --------          --------
Cash and cash equivalents at the end of the period                                                       $  4,411          $ 15,331
                                                                                                         ========          ========
Supplemental disclosure of cash flows information:
Cash paid for interest                                                                                   $    124          $    458
                                                                                                         ========          ========


<FN>

                                                See accompanying notes.
</FN>
                                                                                                                        Page 5 of 17
</TABLE>
<PAGE>


                                  VIDAMED, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1999
                                   (Unaudited)

1.       Basis of presentation

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
VidaMed, Inc. (the "Company" or "VidaMed") have been prepared in accordance with
generally accepted accounting  principles for interim financial  information and
with the  instructions  for Form 10-Q and  Article  10 of  Regulation  S-X.  The
balance sheet as of June 30, 1999 and the statements of operations for the three
and six months ended June 30, 1999 and 1998,  and the  statements  of cash flows
for the three and six months  ended June 30, 1999 and 1998,  are  unaudited  but
include all adjustments  (consisting of normal recurring  adjustments) which the
Company considers necessary for a fair presentation of the financial position at
such date and the operating  results and cash flows for those periods.  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 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 earning (loss) per share and diluted earnings
per share, if more dilutive,  for all periods  presented.  Basic and diluted net
loss per share is computed using the weighted average number of shares of common
stock  outstanding  during the periods  presented..  As the Company has incurred
losses from operations in each of the periods presented,  there is no difference
between basic and diluted net loss per share amounts.


3.       Inventories

Inventories  are  stated at the lower of cost  (determined  using the  first-in,
first-out method) or market value. Inventories at June 30, 1999 and December 31,
1998 consist of the following (in thousands):


                                                June 30,      December 31,
                                                  1999           1998
                                                 ------         ------
          Raw materials                          $   93         $  404
          Work in process                             0            261
          Finished goods                            798            563
                                                 ------         ------
                                                 $  891         $1,228
                                                 ======         ======

Reductions  in  Raw  materials  and  Work  in  Process  levels  are  due  to the
outsourcing of manufacturing.

                                                                    Page 6 of 17
<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. As of June 30, 1999,  the term loan had funded in
full at a rate of 12%.

As of June  30,  1999,  we have  borrowed  approximately  $200,000  against  the
revolving  accounts  receivable-based  line at a rate of 9.75% per year. We were
eligible to borrow approximately $330,000 against this line on June 30, 1999 and
borrowed the remaining available balance in July.

5.        Restructuring Accrual

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

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

                                                        Representing
                                                --------------------------------
                                                                 Cash Outlays
                                       Total      Asset     --------------------
                                      Charges   Write-down  Completed     Future
                                      ------      ------      ------      ------
Fixed assets                          $  390      $  390      $ --        $ --
Facility shut down                     1,305        --         1,305        --
Grant                                    405        --           207         198
                                      ------      ------      ------      ------
Total Special Charges                 $2,100      $  390      $1,512      $  198
                                      ------      ------      ------      ------

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 and six
months  ended  June 30,  1999 and  1998,  the total  comprehensive  loss was not
materially different from the net loss.

7. Common Stock

The increase in Capital  stock,  for the six months ended June 30, is due to the
Company selling common stock, to the principals of Telo Electronics,  one of our
manufacturers.  In this transaction, the Company issued 368,596 shares of common
stock at a purchase price of $2.713 per share.

                                                                    Page 7 of 17
<PAGE>


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


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

Cautionary Statement Regarding Forward-Looking Statements

This Management's  Discussion and Analysis of Financial Condition and Results of
Operations  contains,  in addition to  historical  information,  forward-looking
statements that are based on VidaMed's current expectations, beliefs, intentions
or future  strategies.  The  forward-looking  statements  concern,  among  other
things,  the  availability  of cash resources to fund  continued  operations and
market  acceptance of and the  likelihood of additional  Medicare  reimbursement
approvals  for the TUNA  Procedure.  We base all  forward-looking  statements on
information  available to us on the date of this report.  We do not undertake to
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 "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.

VidaMed  received FDA clearance to market the TUNA System in 1996,  and in 1998,
Medicare  reimbursement became available for procedures using our equipment that
are  performed in hospitals.  Currently,  38 states  provide such  reimbursement
coverage.  To achieve  significant  increases in sales,  we must secure Medicare
reimbursement  approvals  at least in all states with large  populations  of men
over 50 years of age, which is our target patient population.  Medicare coverage
for supplies  and devices in the  office-based  and  Ambulatory  Service  Center
("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
products and procedures  until Medicare  coverage  issues are resolved,  but, as
discussed in "Liquidity and Capital  Resources" below, we will not be able to do
so without additional debt or equity financing.


                                                                    Page 8 of 17
<PAGE>

Results of Operations

Net revenue for the three months ended June 30, 1999 was $1,225,000. This was an
increase  of $314,000 or 34% from  $911,000 in the three  months  ended June 30,
1998.  Product sales in the second  quarter of 1999  increased 40% to $1,208,000
from  $861,000 in the same period in 1998.  The  difference  is due primarily to
increased European sales.


For the first six months of 1999, net revenue  decreased 12% to $2,263,000  from
$2,575,000 during the same period of 1998.  Product sales decreased by less than
2% from $2,236,000 for the first six months of 1998, to $2,196,000 for the first
six months of 1999.  The decrease is primarily due to a one time grant  revenue,
that was recognized in 1998.

Cost of product sold for the three months ended June 30, 1999 was  $646,000,  an
increase of 6% or $38,000  from  $608,000  for the three  months  ended June 30,
1998. This was due to higher product sales.

For the six months ended June, 30, 1999 cost of product sold ws $1,480,000  down
12% from  $1,680,000  in the first six months of 1998.  The decrease is due to a
change in our sales and marketing efforts and outsourcing the manufacture of our
hand pieces.

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 38% to
$742,000 in the three  months ended June 30, 1999 from  $1,200,000  in the three
months  ended June 30,  1998.  For the six months  ended June 30, 1999  expenses
decreased 33% to $1,555,000 from $2,334,000 in the first six months of 1998. The
decrease was primarily  reduced clinical  activity in 1999 and the launch of our
current ProVu  generation of product in 1998.  The decrease was primarily due to
reduced clinical  activity in 1999, and resulting from the completion of the FDA
clinical trial studies,  and the completion of R&D  expenditures for our current
ProVu generation of product in 1998.

Selling,  general and administrative  (SG&A) expenses increased 3% to $3,409,000
in the three  months  ended June 30, 1999 from  $3,297,000  in the three  months
ended June 30,  1998.  For the first six months  ended  June 30,  1999  expenses
decreased  $1,991,000 or 25% from  $7,904,000 in 1998 to $5,913,000 in 1999. The
expenditures  in 1998 included a charge to the allowance for doubtful  accounts,
as a result of the length of time involved in obtaining state Medicare  coverage
and transition to a new Chief Financial Officer. Expenses in 1999 included costs
associated  with  reorganizing  our U.S.  sales  force  organization,  including
recruiting costs.


                                                                    Page 9 of 17
<PAGE>

Other income/expense for the three months ended June 30, 1999 included income of
$87,000 compared to an expense of $46,000 for the comparable period in 1998. For
the six months  ended June 30,  1999 other  income was  $44,000  compared  to an
expense of $135,000  for the six months  ended June 30,  1998.  Other  income is
primarily composed of interest income and expense.

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
fluctuate as a result of several factors, including:

     o    Regulatory and reimbursement approvals

     o    Results of clinical trials

     o    The extent to which the TUNA System gains market acceptance

     o    Varying pricing promotions

     o    Volume discounts to customers and distributors

     o    Introduction of new products, and

     o    Introduction of competing alternative therapies for BPH.


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


     o    The timing of expansion of sales and marketing activities

     o    Costs and frequency of clinical activities, and

     o    R&D  and  SG&A  expenses  associated  with  the  potential  growth  of
          VidaMed's organization.


VidaMed  does not  anticipate  reaching  profitability  in the near  future.  As
discussed below under "Liquidity and Capital  Resources," our cash on hand, cash
flows from sales and credit agreements are not sufficient to fund the operations
through  profitability  without  additional equity or debt financing.  If we are
unable to secure such additional financing, management will substantially reduce
staffing,  clinical trials that support regulatory and reimbursement  approvals,
research and development and marketing and sales activities.


Liquidity and Capital Resources


At June 30,  1999,  our cash and cash  equivalents  decreased by $5.0 million to
$4.4 million, compared to $9.4 million at December 31, 1998. The decrease is due
to operating expenses incurred in the normal course of business.

If we are  unable  to secure  additional  debt or equity  financing  this  year,
management will reevaluate and revise current  operating plans,  reduce spending
and explore possible strategic relationships. We would be forced to reduce staff
and  discontinue  or  substantially   reduce  clinical   trials,   research  and
development and marketing and sales activities,  and may not be able to continue
as a going concern.

                                                                   Page 10 of 17
<PAGE>

Our current  cash  balances and  projected  cash flows from the sale of products
together with cash available under the Transamerica  financing facility will not
be sufficient  to meet our current  operating  and capital  requirements  beyond
approximately  December  1999  without  additional  equity  or  debt  financing.
Management is pursuing and believes it can obtain additional  financing,  cannot
give any assurance that we will be successful in securing such  financing.  Debt
financing may require  VidaMed to pledge assets and to comply with financial and
operational  covenants,  or may not be  available  at  all.  Any  future  equity
financing would result in dilution to our stockholders.

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. As of June 30, 1999, the term loan had funded in full. As of June 30,
1999, we have borrowed  approximately  $200,000  against the revolving  accounts
receivable-basd  line at a rate of 9.75% per year.  We were  eligible  to borrow
approximately  $330,000  against  this line on June,  30 1999 and  borrowed  the
remaining available balance in July.

Restructuring Accrual

In September 1997, VidaMed announced a restructuring  program designed to reduce
costs and  improve  operating  efficiencies  by closing  our U.K.  manufacturing
facility.  In 1997, we incurred a $2,100,000 charge in cost of goods sold due to
the closure of the plant. The charge reflects $390,000 for the estimated loss on
the  abandonment  of  fixed  assets,  a  $1,305,000  charge  for our  short-term
obligation  related to the closure of our British  manufacturing  facility and a
$405,000 obligation to repay a grant received when we opened the facility. As of
June 30, 1999, the remaining  accrual balance is $198,000 and consists mainly of
a grant  repayment  due by the end of 1999.  See  Note 5 of  Notes to  Condensed
Consolidated Financial Statements.

RISK FACTORS

Our  business,  results of operations  and financial  condition are subject to a
number of risk factors,  in addition to those  described above under "Results of
Operations" and "Liquidity and Capital Resources."

Potential Loss of Nasdaq Listing

The continuing listing  requirements for inclusion on the Nasdaq National Market
require that we maintain minimum net tangible assets of $4.0 million. As of June
30, 1999, our net tangible assets  decreased to $2.375 million.  Although we are
attempting  to increase our net tangible  assets  through the sale of securities
and  increased  sales of our  products,  the Nasdaq  Stock  Market,  Inc.  could
initiate de-listing  proceedings.  There is no assurance that we will be able to
raise  sufficient  capital or increase  sales to meet the  minimum net  tangible
asset  listing  requirements.  In  addition,  there  are other  minimum  listing
requirements that VidaMed must continually satisfy, such as the requirement that
our common stock cannot close below $1.00 for 30  consecutive  trading days. The
failure to satisfy any minimum listing  requirement could cause the Nasdaq Stock
Market, Inc. to initiate delisting proceedings.

Delisting from the Nasdaq National  Market could adversely  affect the liquidity
and price of the Company's  common stock.  Moreover,  investors may find it more
difficult  to  dispose of or obtain  accurate  quotations  for our common  stock
because the bid and asked quotations would be reported on an electronic bulletin
board such as the OTC Bulletin Board or similar quotations medium.

Manufacturing

Three of the four major  components of the TUNA System are manufactured by third
parties.  We  manufacture  the VTS PROVu  Reuseable  Handle at our  headquarters
facility in Fremont, California. Telo



                                                                   Page 11 of 17
<PAGE>

Electronics  manufactures  the VTS Generator (Model 7600) at its facility in San
Jose, California. Humphreys Systems manufactures the VTS Disposable Cartridge at
its  facility  in  Dublin,  California.  Karl Storz  manufactures  the VTS PROVu
Telescope at its facility in Germany.  The transition to Humphreys was completed
during the quarter ended June 30, 1999.

By outsourcing our manufacturing,  we are at risk that our manufacturers will be
able to supply us with our products as ordered.  Our  products are  continuously
subject to Food and Drug Administration regulation,  including recordkeeping and
reporting  requirements  regarding use of the device.  Manufacturing  facilities
where we outsource products are also subject to periodic  inspection by federal,
state and foreign  regulatory  agencies.  Failure of our manufacturers to comply
with regulatory requirements could adversely effect our business.


Impact of Year 2000


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

We are aware of the Y2K issue and have been  proactive in  addressing  the issue
internally  and  externally.  Our  primary  software  system  is  currently  Y2K
compliant.  We do 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 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.

         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.  Other than issues related to Medicare,  none of our
significant  suppliers  or  large  customers  has  notified  us that  they  have
significant Y2K problems.  Even where assurances are received from third parties
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.

We are aware of the Y2K issue and have been  proactive in  addressing  the issue
internally and externally.



                                                                   Page 12 of 17
<PAGE>

     o    Our primary software system is currently Y2K compliant.

     o    We do not depend on in-house custom systems

     o    We purchase off the shelf  software  from  reputable  vendors who have
          tested their software for Y2K compliance.

     o    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.

         Our 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 U.S.  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."  We  have  not,  however,
independently verified Microsoft's claim.

         We have not and do not expect to have material  costs  associated  with
the Y2K issues.

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,

     o    Increasing inventories

     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.

         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.  This occurrence  would require us to manually  prepare  documents,
such as shipping  documents,  invoices and checks, to keep the business running.
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 have  assessed our  exposure to market risk based on our current  market risk
sensitive instruments and determined that amounts are not material.


                                                                   Page 13 of 17
<PAGE>


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


VidaMed held its annual meeting on June 3, 1999. Our  stockholders  voted on the
following:

The stockholders  approved an amendment to the Company's Restated Certificate of
Incorporation  increasing the number of authorized common shares from 30,000,000
to  60,000,000.  There were  14,940,299  votes for,  and  1,815,378  against the
proposal, with 1,852,359 abstentions.


The election of directors was conducted and the following nominees were elected,
with the following vote count:

                                                Votes                    Votes
         Name                                   For                     Withheld
         ----                                   ---                     --------
         Franklin D. Brown                   18,380,044                  227,992
         Robert Erra                         18,381,589                  226,447
         David J. Illingworth                18,386,371                  221,665
         Wayne I. Roe                        15,579,406                3,028,630
         Michael H. Spindler                 18,380,289                  227,747

The stockholders  approved an amendment to our 1995 Employee Stock Purchase Plan
to increase  the number of shares of common stock  reserved for future  issuance
under the plan by 200,000  shares to a new total of 600,000  shares.  There were
10,312,832  votes for, and 589,954  votes  against the  amendment,  with 122,591
abstentions and 7,582,659 shares were not voted.

The stockholders did not approve an amendment to the 1992 Stock Plan to increase
the number of shares of common stock  reserved for future  issuance by 1,200,000
shares to a new total of 5,500,000  shares.  There were 4,058,264 votes for, and
6,591,311 against the amendment, with 148,901 abstentions. 7,809,560 shares were
not voted.



                                                                   Page 14 of 17
<PAGE>

The  stockholders  approved an  amendment  to the 1995  Director  Option Plan to
eliminate the vesting  provisions  and to vest  immediately  any future  options
granted.  There were  14,761,446  votes for,  and  3,649,417  votes  against the
amendment, with 197,173 abstentions.

The stockholders  ratified Ernst & Young LLP as our independent auditors for the
fiscal year ending  December  31,  1999.  There were  18,336,879  votes for, and
189,177 against ratification, with 81,980 abstentions.


Item 5.           Other Information


Management Changes

In June 1999,  several  changes  occurred in our  management and on our Board of
Directors.  David Illingworth  resigned as President and Chief Executive Officer
to become  Executive  Chairman  of the  Board,  effective  August 1,  1999.  Mr.
Illingworth  will  devote up to 50  percent  of his  working  time to  strategic
relationships and strategic  planning.  He continues to serve as Chairman of the
Board of Directors.  Mr. Illingworth's contract with VidaMed for his services as
Executive Chairman is attached as exhibit 10.19 to this report.

Randy  Lindholm,  who had  been  our  Executive  Vice  President  of  Sales  and
Marketing,  was promoted to President  and Chief  Executive  Officer,  effective
August 1, 1999. Mr. Lindholm also joined the Board of Directors.  Mr. Lindholm's
contract with VidaMed for his services as President and Chief Executive  Officer
is attached as exhibit 10.20 to this report.

Two members of the Board of  Directors of VidaMed  resigned in June 1999.  Wayne
Roe resigned due to potential  conflicts in his relationship with a major health
care industry  consulting  firm. Mr. Roe's  resignation was effective  August 1,
1999.  Frank  Brown  resigned  due  to  personal  health  reasons.  Mr.  Brown's
resignation was effective July 1, 1999.

VidaMed now has 4 members on its Board of Directors.  A nominating  committee of
the Board,  consisting  of Robert Erra and Mr.  Illingworth,  has been formed to
conduct a search for a new Board member.


Item 6.           Exhibits and Reports on Form 8-K


                  (a)      Exhibits

                           10.19    Transition  Agreement between VidaMed,  Inc.
                                    and David Illingworth, dated June 26, 1999.

                           10.20    Employment  Agreement between VidaMed,  Inc.
                                    and Randy Lindholm, dated June 22, 1999.

                           27.1     Financial Data Schedule

                  (b)      Reports on Form 8-K.


                           No reports on Form 8-K were filed  during the quarter
                           ended June 30, 1999.


                                                                   Page 15 of 17
<PAGE>

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


<CAPTION>
<S>                                         <C>
                                            VIDAMED, INC.

Date:     August 13, 1999                   By:     /s/   Randy D. Lindholm
       -------------------------                 ------------------------------------
                                                 Randy D. Lindholm
                                                 President, Chief Executive Officer

Date:     August 13, 1999                   By:    /s/   Richard D. Brounstein
       --------------------------                ----------------------------------------
                                                 Richard D. Brounstein
                                                 VP Finance, Chief Financial Officer
                                                 (Principal Financial and Accounting Officer)


</TABLE>

                                                                   Page 16 of 17