SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                             ----------------------

                                    FORM 10-Q
     (Mark One)

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

              For the quarterly period ended June 30, 1998

                                or

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

             For the transition period from ____________ to ____________


                         Commission File Number 0-25036


                                 VIDEONICS, INC.
             (Exact name of Registrant as specified in its charter)


           California                                    77-0118151
    (State or jurisdiction of                         (I.R.S. Employer
    incorporation or organization)                    Identification No.)


                   1370 Dell Ave, Campbell, California 95008
                    (Address of principal executive offices)

       Registrant's telephone number, including area code: (408) 866-8300



       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. Yes [X] No [ ]

       As of July,  31, 1998,  there were 5,854,149  shares of the  Registrant's
Common Stock outstanding.

This quarterly report on form 10-Q,  including all exhibits,  contains 11 pages,
of which this is page 1. The exhibit index is located on page 10 of this report.


<PAGE>



PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
                                 VIDEONICS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                   (unaudited)
<CAPTION>
                                                 Three Months Ended           Six Months Ended
                                                     June 30,                     June 30,
                                              --------------------         ---------------------
                                              1998           1997           1998           1997
                                              ----           ----           ----           ----
<S>                                        <C>            <C>            <C>            <C>
Net revenues                               $  5,907       $  5,467       $ 10,626       $  9,968

Cost of revenues                              3,470          3,177          6,447          6,719
                                           --------       --------       --------       --------
         Gross profit                         2,437          2,290          4,179          3,249
                                           --------       --------       --------       --------

Operating expenses:
   Research and development                   1,189          1,607          2,571          3,590
   Selling and marketing                      1,780          1,925          3,421          3,711
   General and administrative                   351            407            775          1,006
   Amortization of intangibles                                  98                           197
                                           --------       --------       --------       --------
                                              3,320          4,037          6,767          8,504
                                           --------       --------       --------       --------
         Operating loss                        (883)        (1,747)        (2,588)        (5,255)
                                           --------       --------       --------       --------

Other income, net                                10             78              9            169
                                           --------       --------       --------       --------
         Loss before income
            taxes                              (873)        (1,669)        (2,579)        (5,086)

Benefit from income
   taxes                                        (32)          (448)           (32)        (1,453)
                                           --------       --------       --------       --------

         Net loss                          $   (841)      $ (1,221)      $ (2,547)      $ (3,633)
                                           ========       ========       ========       ========

Net loss per common share and per
 common share - assuming dilution          $  (0.14)      $  (0.21)      $  (0.44)      $  (0.63)
                                           ========       ========       ========       ========

Shares used in computing net loss per
 common share and per common share
 - assuming dilution                          5,831          5,736          5,810          5,733
                                           ========       ========       ========       ========
<FN>

                     The accompanying notes are an integral
                       part of these financial statements.
</FN>
</TABLE>

                                        2

<PAGE>
<TABLE>

                                 VIDEONICS, INC.
                            CONDENSED BALANCE SHEETS
                                 (in thousands)

<CAPTION>
                                                                  June 30,    December 31,
                           ASSETS                                   1998          1997
                                                                 --------       --------
                                                                (unaudited)
<S>                                                              <C>            <C>
  Current assets:
     Cash and cash equivalents                                   $    924       $    992
     Accounts receivable, net                                       1,794          1,291
     Inventories                                                    8,713          9,938
     Recoverable income taxes                                           2            550
     Prepaids and other current assets                                114            219
                                                                 --------       --------
              Total current assets                                 11,547         12,990

  Property and equipment, net                                       2,033          2,438
  Other assets                                                        266            266
                                                                 --------       --------

                 Total assets                                    $ 13,846       $ 15,694
                                                                 ========       ========

                          LIABILITIES

  Current liabilities:
     Loan payable to shareholder                                 $    600
     Accounts payable                                               1,624       $  1,442
     Accrued expenses                                               1,531          1,646
                                                                 --------       --------
              Total current liabilities                             3,755          3,088
                                                                 --------       --------

     SHAREHOLDERS' EQUITY

  Common stock, no par value:
     Authorized:  30,000 shares
     Issued and outstanding: 5,854 shares at
        June 30, 1998 and 5,785 shares at
        December 31, 1997                                          20,645         20,613

  Accumulated deficit                                             (10,554)        (8,007)
                                                                 --------       --------
              Total shareholders' equity                           10,091         12,606
                                                                 --------       --------

                 Total liabilities and shareholders' equity      $ 13,846       $ 15,694
                                                                 ========       ========

<FN>
                     The accompanying notes are an integral
                       part of these financial statements.
</FN>
</TABLE>

                                        3
<PAGE>
<TABLE>

                                 VIDEONICS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)


<CAPTION>
                                                                        Six Months Ended
                                                                            June 30,
                                                                     ---------------------
                                                                       1998          1997
                                                                     -------       -------
<S>                                                                  <C>           <C>
  Cash flows from operating activities:
            Net cash used in operating activities                       (495)       (2,914)
                                                                     -------       -------

  Cash flows from investing activities:
     Purchase of property and equipment                                 (205)         (674)
     Proceeds from sales of marketable securities                       --           1,500
                                                                     -------       -------

            Net cash provided by (used in) investing activities         (205)          826
                                                                     -------       -------

  Cash flows from financing activities:
     Proceeds from issuance of loans payable to shareholder              619          --
     Repayments on loans payable to shareholder                          (19)         --
     Proceeds from issuance of common stock                               32            47
                                                                     -------       -------
            Net cash provided by financing activities                    632            47
                                                                     -------       -------

  Decrease in cash and cash equivalents                                  (68)       (2,041)

  Cash and cash equivalents at beginning of year                         992         6,538
                                                                     -------       -------

  Cash and cash equivalents at end of period                         $   924       $ 4,497
                                                                     =======       =======

<FN>
                     The accompanying notes are an integral
                       part of these financial statements.
</FN>
</TABLE>

                                        4
<PAGE>


                                 VIDEONICS, INC.
                   NOTES TO THE CONDENSED FINANCIAL STATEMENTS


1.       The  condensed  financial  statements  at June 30, 1998 and for the six
         month  period then ended are  unaudited  (except for the balance  sheet
         information  as of  December  31,  1997,  which  is  derived  from  the
         Company's  audited  financial  statements)  and reflect all adjustments
         (consisting  only of normal  recurring  adjustments)  which are, in the
         opinion  of  management,  necessary  for a  fair  presentation  of  the
         financial  position and operating results for the interim periods.  The
         condensed  financial  statements should be read in conjunction with the
         financial  statements  and notes  thereto,  together with  management's
         discussion   and  analysis  of  financial   condition  and  results  of
         operations,  contained in the Company's  Annual Report on Form 10-K for
         the year ended  December 31, 1997.  The results of operations  for this
         six month period ended June 30, 1998 are not necessarily  indicative of
         the  results  for the year  ending  December  31,  1998,  or any future
         interim period.

2.       Inventories comprise (in thousands):

                                            June 30,      December 31,
                                              1998            1997
                                            -------         -------
                                          (unaudited)

            Raw materials                   $ 6,866          $7,649
            Work in process                     431             437
            Finished goods                    1,416           1,852
                                            -------         -------
                                            $ 8,713          $9,938
                                            =======          ======

3.       Loans Payable to Shareholder:

         During the quarter ended March 31, 1998,  the Company  issued a secured
         promissory  note  due  to a  certain  shareholder  of the  Company  for
         repayment of a loan to the Company in the principal amount of $619,000.
         The principal  amount bore simple  interest at a rate of 8.5% per year.
         Principal and accrued interest were due upon demand.  On April 3, 1998,
         the  Company  repaid  $19,000 of  principal  and all  accrued  interest
         through  March 31, 1998 and replaced  this note with an unsecured  loan
         from the same  shareholder.  The loan, in the amount of $600,000,  bore
         interest  at a rate of 8.5% per year and was  initially  due on July 3,
         1998. In July 1998,  the loan was renewed under the same terms,  and is
         due on October 16, 1998.

4.       Recent Accounting Pronouncement:

         In June of  1998,  the  Financial  Accounting  Standards  Board  issued
         Statement No. 133,  "Accounting for Derivative  Instruments and Hedging
         Activities",  (SFAS 133) which  establishes  accounting  and  reporting
         standards for derivative  instruments,  and for hedging activities.  It
         requires that an entity  recognize all  derivatives as either assets or
         liabilities  in the  statement of financial  position and measure those
         instruments at fair value. Management has evaluated the effects of this
         standard and believes there will be no material impact on the Company's
         financial  position or results of  operations.  The Company  will adopt
         SFAS 133 as required for its first quarterly filing of the year 2000.


                                       5
<PAGE>


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

       The following  discussion in this section  "Management's  Discussion  and
Analysis of  Financial  Condition  and  Results of  Operations"  contains  trend
analysis and other forward looking  statements within the meaning of Section 27A
of the  Securities  Act of 1933, as amended,  and Section 21E of the  Securities
Exchange Act of 1934, as amended.  Actual results could differ  materially  from
those  expressed or forecasted in the forward looking  statements.  Factors that
might cause such a difference  include,  but are not limited to, the factors set
forth in this Form 10-Q,  in the  Company's  Annual  Report on Form 10-K for the
year ended December 31, 1997 and in the Company's other public filings.

Results of Operations

       Net  Revenues.  Net  revenues  increased  approximately  8% in the second
quarter of 1998  compared to the second  quarter of 1997 and 7% in the first six
months of 1998  compared  to the  first six  months  of 1997.  The  increase  is
primarily attributable to sales of MXPro, which began shipping in April 1998.

       Gross  Profit.  Gross  profit  increased  approximately  6% in the second
quarter of 1998 compared to the second  quarter of 1997 and 29% in the first six
months of 1998  compared  to the first six months of 1997.  Gross  profit,  as a
percentage of net revenues, were approximately 41% in the second quarter of 1998
compared to  approximately  42% in the second quarter of 1997 and  approximately
39% in the first six months of 1998 compared to  approximately  33% in the first
six months of 1997.  Gross  margins  between six month  periods  would have been
similar  if not for cost of  revenue  adjustments  in the first  quarter of 1997
totaling  $733,000 to inventory  reserves for  components  rendered  obsolete by
product revisions and to warranty reserves for new product hardware updates.

       Research and Development. Research and development expenses decreased 26%
and 28%, respectively, between the quarterly and six month comparison periods in
fiscal years 1997 and 1998 and decreased as a percentage  of net  revenues.  The
decreased  expenses  were  primarily  due to a reduction  of  personnel  and the
reduced use of consultants.

       Selling  and  Marketing.  Selling and  marketing  expenses  decreased  8%
between the second quarter of 1997 and the second quarter of 1998 and 8% between
the first six months of 1997 and the first six months of 1998.  The  decrease is
related primarily to a reduction of personnel.

       General and Administrative. General and administrative expenses decreased
14% between the quarterly  comparison  periods and decreased 23% between the six
month  comparison  periods in fiscal years 1997 and 1998.  The decrease  relates
primarily to lower administrative costs.

       Interest  Income The Company had net interest  income of $10,000,  in the
second quarter of 1998 compared to net interest  income of $78,000 in the second
quarter of 1997  representing  a decrease of 87%. This decrease is primarily due
to interest expense calculated on shareholder loans offset by interest income on
lower cash balances  available for  investment  and interest  income from a long
outstanding state tax refund claim.

       Benefit from Income Taxes.  During the second quarter of 1998 the Company
recorded  an income tax  benefit  of $32,000 as a result of a state tax  refund.
During the first six months of 1998,  the Company  maintained  a 100%  valuation
allowance against its deferred tax assets due to the uncertainty surrounding the
realization of such assets.  If it is determined that it is more likely than not
that the deferred tax assets are  realizable,  the valuation  allowance  will be
reduced.  During the first six months of 1997,  the Company  had  recorded a tax
benefit  totaling $1.5  million.  This benefit was based on a 30% tax rate which
had been calculated based on anticipated net income for the year.


                                       6
<PAGE>

       Factors  That May  Affect  Future  Results  of  Operations:  The  Company
believes  that in the future its  results of  operations  could be  impacted  by
factors such as delays in development and shipment of the Company's new products
and major new versions of existing  products,  market acceptance of new products
and  upgrades,  growth  in the  marketplace  in which it  operates,  competitive
product offerings,  and adverse changes in general economic conditions in any of
the countries in which the Company does business. The Company's results in prior
years  have  been  affected  by these  factors,  particularly  with  respect  to
developing and introducing new products such as PowerScript,  MXPro, and Effetto
Pronto in 1996, 1997 and 1998.

       Due  primarily to the factors  noted above,  the Company has  experienced
substantial  volatility in its  operations.  The Company's  future  earnings and
stock price may continue to be subject to significant  volatility,  particularly
on a quarterly  basis. Any shortfall in revenue or earnings from levels expected
by  securities  analysts  or  anticipated  by the  Company  based  upon  product
development and  introduction  schedules could have an immediate and significant
adverse  effect on the trading price of the Company's  common stock in any given
period. Additionally, the Company may not learn of such shortfalls until late in
the fiscal  quarter,  which could result in an even more  immediate  and adverse
effect on the trading price of the Company's common stock.  Finally, the Company
participates  in a highly dynamic  industry,  which often results in significant
volatility of the Company's common stock price. See the Company's 1997 Form 10-K
section entitled "Business - Research and Development".


Liquidity and Capital Resources

       From the  Company's  inception  until  its  initial  public  offering  in
December  1994,  which resulted in net proceeds to the Company of $15.8 million,
the Company financed its operations through private sales of equity, shareholder
loans, cash flow from operations,  and bank borrowings.  In January of 1998, the
Company  again  financed its  operations  through a  shareholder  loan  totaling
$619,000.  As of June  30,  1998,  the  Company  had  $924,000  of cash and cash
equivalents.

       Net cash used by  operations  was $495,000 for the first six months ended
June 30, 1998  compared to net cash used in  operations  of $2.9 million for the
same period in 1997. The use of cash from operating  activities during the first
six  months  of 1998 is  primarily  due to a net loss  before  depreciation,  an
increase in  receivables,  offset  partially  by a decrease in  inventories  and
recoverable income taxes. The decrease in cash from operating  activities during
the first six months ended June 30, 1997 is  primarily  due to a net loss before
the  provisions  for doubtful  accounts,  excess and obsolete  inventories,  and
depreciation  and  amortization,  an  increase  in  inventories,  an increase in
recoverable  income taxes,  offset  partially by a decrease in receivables.  Net
cash used by investing  activities  for the first six months ended June 30, 1998
was  $205,000,  due  to  property  and  equipment  expenditures,  primarily  for
computers,  software and engineering  equipment used in research and development
and other  activities.  Net cash provided by investing  activities for the first
six  months  ended  June 30,  1997 was  $826,000,  primarily  due to the sale of
marketable  securities offset partially by property and equipment  expenditures,
primarily for computers, software and engineering equipment used in research and
development  and other  activities.  Net cash  provided by financing  activities
during  the  first  six  months  of 1998  was  $632,000,  primarily  because  of
shareholder loans and the receipt of cash from the exercise of the stock options
issued under the Company's  Stock Option  Plans.  Net cash provided by financing
activities during the first six months of 1997 was $47,000,  due entirely to the
receipt  of cash  from the  exercise  of the  stock  options  issued  under  the
Company's Stock Option Plan.

       The Company believes that its cash balances,  together with its operating
cash flows and  shareholder  borrowings will be sufficient to meet the Company's
requirements  for working  capital and capital  expenditures  through the end of
1998.


                                       7
<PAGE>


PART II. OTHER INFORMATION

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits

        Exhibit No.           Description of Document
        ----------            -----------------------

        27                    Financial Data Schedule

(b)     No  reports on Form 8-K were filed  during  the  quarter  ended June 30,
        1998.

                                       8
<PAGE>


                                   SIGNATURES


         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.



                                                      VIDEONICS, INC.
                                               ----------------------------
                                                        Registrant

                                                      August 6, 1998
                                               ----------------------------
                                                           Date


                                            By:/s/  James A. McNeill
                                               ----------------------------
                                                    James A. McNeill
                                               Vice President of Finance,
                                               Chief Financial Officer and
                                                   Assistant Secretary
                                            (Principal Financial and Accounting
                                               Officer and Authorized Signer)


                                       9
<PAGE>


                                INDEX OF EXHIBITS



Exhibits:


         27          Financial Data Schedule..................................11


                                       10