<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20459

                                   FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                    FOR THE QUARTER ENDED DECEMBER 31, 1997

                         COMMISSION FILE NUMBER 0-20970

                             VISION-SCIENCES, INC.
                             ---------------------
             (Exact name of registrant as specified in its charter)


               Delaware                                 13-3430173
               --------                                 ----------
    (State or other jurisdiction of                   (IRS Employer
    incorporation or organization)               Identification Number)

    6 Strathmore Road, Natick, MA                          01760
    -----------------------------                          -----
(Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code (508) 650-9971
                                                   --------------

                                      None
                                      ----
                       (Former name, former address, and
                former fiscal year if changed since last report)


          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 requirement for the past 90 days.

                              Yes  X        No  
                                  ---         ---
                                        

          Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of December 31, 1997.

   Common Stock, par value of $.01                         16,638,657
   -------------------------------                      ----------------
          (Titles of Class)                            (Number of Shares)
<PAGE>
 
                             VISION-SCIENCES, INC.
                               TABLE OF CONTENTS
                                        
<TABLE>
<CAPTION>
 
 
Part I.     Financial Information                                        Page
                                                                         -----
<S>         <C>                                                          <C>
 
            Consolidated Balance Sheets................................      1
 
            Consolidated Statements of Operations......................      2
 
            Consolidated Statement of Stockholders' Equity.............      3
 
            Consolidated Statements of Cash Flows......................      4
 
            Notes to Consolidated Financial Statements.................  5 - 7
 
            Management's Discussion and Analysis of Financial Condition
            and Results of Operations..................................  8 - 9
 
Part II.    Other Information..........................................     10
 
            Signatures.................................................     11
</TABLE>
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                         December 31,               March 31,             
                                                                             1997                      1997               
                                                                         ------------               ---------             
                                                                                                    (audited)             
                              ASSETS                                                                ---------             
                              ------                                                                                      
Current Assets:                                                                                                           
<S>                                                                     <C>                        <C>                    
  Cash and cash equivalents...................................           $3,568,485                $2,681,271             
  Accounts receivable, net of allowance for doubtful                                                                      
     accounts of $111,000 and $127,000, respectively..........            1,253,344                 1,849,407             
  Inventories.................................................              611,125                   706,342             
  Prepaid expenses and deposits...............................               81,067                   150,021             
                                                                         ----------                ----------             
     Total current assets.....................................            5,514,021                 5,387,041             
                                                                         ----------                ----------             
                                                                                                                          
Property and Equipment, at cost:                                                                                          
  Machinery and equipment.....................................            2,728,021                 2,684,286             
  Furniture and fixtures......................................              214,626                   214,626             
  Leasehold improvements......................................              304,563                   304,563             
                                                                         ----------                ----------             
                                                                          3,247,210                 3,203,475             
  Less-Accumulated depreciation and amortization..............            2,286,378                 1,949,596             
                                                                         ----------                ----------             
                                                                            960,832                 1,253,879             
                                                                         ----------                ----------             
Other Assets, net of accumulated amortization of $68,000  
  and $63,000, respectively...................................              195,908                   208,913             
                                                                         ----------                ----------             
     Total assets.............................................           $6,670,761                $6,849,833             
                                                                         ==========                ==========             
</TABLE>                                                       
                                                               
                      LIABILITIES AND STOCKHOLDERS' EQUITY     
                      ------------------------------------     
<TABLE>                                                        
<CAPTION>                                                      
Current Liabilities:                                           
<S>                                                                      <C>                       <C>                    
  Acceptances payable to a bank...............................           $   69,312                $    46,251            
  Accounts payable............................................              844,045                    499,142            
  Accrued expenses............................................            1,891,270                  1,878,638            
                                                                         ----------                -----------            
     Total current liabilities................................            2,804,627                  2,424,031            
                                                                         ----------                -----------            
                                                                                                                          
Deferred Credit...............................................               --                         36,558            
                                                                         ----------                -----------            
                                                                                                                          
Stockholders' Equity:                                                                                                     
  Common stock, $.01 par value--                                                                                          
     Authorized--25,000,000 shares                                                                                        
     Issued and outstanding-- 16,638,657 shares at                                                                        
     December 31, 1997 and 14,696,909 at March 31, 1997.......              166,386                    146,968            
  Additional paid-in capital..................................           48,078,794                 46,098,212            
  Accumulated deficit.........................................          (44,379,046)               (41,855,936)           
                                                                         ----------                -----------            
     Total stockholders' equity...............................            3,866,134                  4,389,244            
                                                                         ----------                -----------            
     Total liabilities and stockholders' equity...............           $6,670,761                $ 6,849,833            
                                                                         ==========                ===========            
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      -1-
                                        
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)


<TABLE>
<CAPTION>



                                                      Three Months Ended                Nine Months Ended
                                                         December 31,                      December 31,
                                               ------------------------------    -----------------------------
                                                    1997             1996             1997             1996
                                               -------------    -------------    ------------     ------------
<S>                                            <C>              <C>              <C>              <C>
Net sales....................................   $ 2,007,583      $ 2,263,893     $ 5,694,957      $ 6,239,761
Cost of sales................................     1,970,531        1,887,837       5,027,158        5,601,171
                                               -------------    -------------    ------------     ------------
 
     Gross profit............................        37,052          376,056         667,799          638,590
 
Selling, general and administrative expenses.       947,149        1,345,470       2,810,442        4,170,327
Research and development expenses............       126,211          621,240         661,850        1,835,829
                                               -------------    -------------    ------------     ------------
     Loss from operations....................    (1,036,308)      (1,590,654)     (2,804,493)      (5,367,566)
 
Interest income..............................        30,236           31,309         103,524          136,334
Interest expense.............................           399               --             399               --
Other income(expense), net...................            --           32,182         178,258           66,384
                                               -------------    -------------    ------------     ------------
     Net loss................................   $(1,006,471)     $(1,527,163)    $(2,523,110)     $(5,164,848)
                                               =============    =============    ============     ============
Net loss per common share....................        $(0.07)          $(0.12)         $(0.17)          $(0.40)
                                               =============    =============    ============     ============
Weighted average shares outstanding..........    14,886,863       13,140,845      14,760,457       13,044,043
                                               =============    =============    ============     ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -2-
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                  (Unaudited)




<TABLE>
<CAPTION>
                                    Common Stock                              
                             ------------------------   Additional                     Total
                              Number of      $.01        Paid-in     Accumulated    Stockholders'
                               Shares      Par Value     Capital       Deficit         Equity
                             ----------   -----------   -----------  ------------   -------------
<S>                          <C>          <C>           <C>          <C>            <C> 
Balance, March 31, 1997,
  (audited).................  14,696,909    $146,968    $46,098,212  $(41,855,936)  $ 4,389,244
 
New shares purchased........   1,941,748      19,418      1,980,582                   2,000,000
 
Net loss....................         ---         ---            ---    (2,523,110)   (2,523,110)
                             -----------  -----------   -----------  ------------   -----------
 
Balance, December 31, 1997..  16,638,657    $166,386    $48,078,794  $(44,379,046)  $ 3,866,134
                             ===========  ===========   ===========  ============   ===========
</TABLE>







         See accompanying notes to consolidated financial statements.



                                      -3-
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                               Nine Months              Nine Months           
                                                                 Ended                     Ended                              
                                                               December 31,              December 31,                         
                                                                  1997                      1996                              
                                                         -----------------------    -----------------------                     

Cash flows from operating activities:
<S>                                                      <C>                        <C>
  Net loss............................................        $(2,523,110)          $  (5,164,848) 
  Adjustments to reconcile net loss to net cash  
   used for operating activities:                                                                 
   Depreciation and amortization......................            372,414                 391,364 
   Loss on disposal of property and equipment.........             58,410                      -- 
   Amortization of deferred credit....................            (36,558)                (54,830)
   Changes in assets and liabilities:                                                             
     Accounts receivable..............................            596,063                (507,189)
     Inventories......................................             95,217                 697,119 
     Prepaid expenses and deposits....................             68,954                  26,970 
     Accounts payable.................................            344,903                 102,977 
     Accrued expenses.................................             12,633                 524,154 
                                                              -----------             ----------- 
      Net cash used for operating activities..........         (1,011,074)             (3,984,283)
                                                              -----------             ----------- 
Cash flows provided by investing activities:                                                      
  Decrease in marketable securities..................                  --                 775,847 
  Purchase of property and equipment.................            (133,022)               (119,558)
  Increase in other assets...........................               8,249                   9,978 
                                                              -----------             ----------- 
      Net cash provided by investing activities......            (124,773)                666,267 
                                                              -----------             ----------- 
Cash flows provided by financing activities:                                                      
  Proceeds from sale of common stock.................           2,000,000               2,000,000 
  Proceeds from (payments of) acceptances 
   payable to a bank.................................              23,061                 (40,343)
  Proceeds from exercise of stock options............                  --                  80,000 
                                                              -----------             ----------- 
      Net cash provided by financing activities......           2,023,061               2,039,657 
                                                              -----------             ----------- 
Net increase (decrease) in cash and cash 
 equivalents.........................................             887,214              (1,278,359)
Cash and cash equivalents, beginning of                                                           
 period..............................................           2,681,271               1,688,651 
                                                              -----------             ----------- 
Cash and cash equivalents, end of period.............         $ 3,568,485             $   410,292 
                                                              ===========             =========== 
 
</TABLE>



         See accompanying notes to consolidated financial statements.

                                      -4-
<PAGE>



                     VISION-SCIENCES, INC., AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)


1.    Basis of Presentation

      The unaudited consolidated financial statements included herein have been
      prepared by the Company, without audit, pursuant to the rules and
      regulations of the Securities and Exchange Commission and include, in the
      opinion of management, all adjustments (consisting only of normal and
      recurring adjustments) that the Company considers necessary for a fair
      presentation of such information. Certain information and footnote
      disclosures normally included in financial statements prepared in
      accordance with generally accepted accounting principles have been
      condensed or omitted pursuant to such rules and regulations. The Company
      believes, however, that its disclosures are adequate to make the
      information presented not misleading. These consolidated financial
      statements should be read in conjunction with the audited consolidated
      financial statements and notes thereto included in the Company's latest
      annual report to stockholders. The results for the interim periods
      presented are not necessarily indicative of results to be expected for the
      full fiscal year.

2.    Summary of Significant Accounting Policies

      The accompanying consolidated financial statements reflect the application
      of certain accounting policies described below:

      a. Principles of Consolidation: The accompanying consolidated financial
         statements include the accounts of the Company and its wholly-owned
         subsidiaries. All material intercompany accounts and transactions have
         been eliminated in consolidation.

      b. Cash Equivalents: Cash equivalents are carried at amortized cost, which
         approximates market value. Cash equivalents are short-term, highly
         liquid investments with original maturities of less than three months.

      c. Inventories: Inventories are stated at the lower of cost or market
         using the first-in, first-out (FIFO) method and consist of the
         following:


                                     December 31,         March 31,           
                                         1997               1997              
                                                          (audited)           
         Raw materials                $ 192,537           $ 202,833           
         Work-in-process                237,861             111,538            
         Finished goods                 180,727             391,971            
                                      ---------           ---------
                                      $ 611,125           $ 706,342           
                                      =========           =========       

         Work-in-process and finished goods inventories consist of material,
         labor, and manufacturing overhead.


                                     - 5 -
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                                  (Continued)


2.   Summary of Significant Accounting Policies (Continued)

 
     d.   Depreciation and Amortization: The Company provides for depreciation
          and amortization using the straight-line method in amounts that
          allocate the cost of the assets to operations over their estimated
          useful lives as follows:

                                                          Estimated
             Asset Classification                        Useful Life
             --------------------                        -----------
            Machinery and Equipment....................... 5 Years
            Furniture and Fixtures........................ 5 Years

          Leasehold improvements are amortized over the shorter of their
          estimated useful lives or the lives of the leases.

     e.   Net Loss Per Common Share:  Net loss per common share is based on the
          weighted average number of common shares outstanding.  Shares of
          common stock issuable pursuant to stock options and warrants have not
          been considered, as their effect would be antidilutive.

          On March 3, 1997, the Financial Accounting Standards Board issued
          Statement of Financial Accounting Standards (SFAS) No. 128, Earnings
          Per Share.  SFAS No. 128 establishes standards for computing and
          presenting earnings per share, and applies to entities with publicly
          held common stock or potential common stock.  This statement is
          effective for fiscal years ending after December 15, 1997, and early
          adoption is not permitted.  When adopted, the statement will require
          restatement of prior years' earnings per share.  The Company will
          adopt this statement for its fiscal year ending March 31, 1998.  The
          Company believes that the adoption of SFAS No. 128 will not have a
          material effect on its financial statements.

     f.   Revenue Recognition:  The Company recognizes revenue upon product
          shipment.

     g.   Foreign Currency Transactions:  The Company charges foreign currency
          exchange gains or losses, in connection with its purchases of products
          from vendors in Japan, to operations in accordance with SFAS No. 52,
          Foreign Currency Translation.



                                     - 6 -

 
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                                  (Continued)


2.   Summary of Significant Accounting Policies (Continued)


     h.   Income Taxes: The Company accounts for income taxes under the
          liability method in accordance with SFAS No. 109, Accounting for
          Income Taxes.  Under SFAS No. 109, deferred tax assets or liabilities
          are computed based upon the differences between the financial
          statement and income tax bases of assets and liabilities as measured
          by the enacted tax rates.

          The Company has recorded a valuation allowance equal to its net
          deferred tax asset due to the uncertainty of realizing the benefit of
          this asset.



                                    -  7  -
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                        
Results of Operations
---------------------

Net sales for the three and nine months ended December 31, 1997 decreased
$256,310 and $544,804, respectively, or 11.3% and 8.7%, respectively, versus the
comparable prior year three-month and nine-month periods.  The decrease in sales
was due to a decrease in sales of medical products of $170,962 and $235,762 for
the three-month and nine-month periods, respectively, or 13.4% and 6.9%,
respectively, versus the comparable prior year periods.  In addition, industrial
sales decreased $85,348 and $309,042, for the three-month and nine-month
periods, respectively, or 8.6% and 11.0%, respectively, versus the comparable
prior year periods.

Sales of the Company's disposable EndoSheath/R/ technology increased $50,238 and
$215,442 in the three-month and nine-month periods ended December 31, 1997,
respectively, compared to the same periods last year.  In addition, in the nine
months ended December 31, 1997, the Company recorded  sales of $61,434 of
medical devices to a company in the image-guided surgery market, under an
original equipment manufacturing arrangement. These increases were offset by a
decrease in sales of scopes of $240,195 and $462,585 for the three-month and
nine-month periods, respectively, versus the comparable prior year periods.

Gross profit for the three and nine months ended December 31, 1997 decreased to
$37,052, or 1.8% of net sales, and increased to $667,799, or 11.7% of net sales,
respectively, versus $376,056, or 16.6% of net sales, and $638,590, or 10.2% of
net sales, for the comparable prior year three-month and nine-month periods.
The decrease in gross profit for the three months ended December 31, 1997 was
due primarily to an increase in labor and overhead costs for manufacturing which
were previously utilized for product development.

Selling, general and administrative expenses for the three and nine months ended
December 31, 1997 decreased $398,321, or 29.6%, and $1,359,885, or 32.6%,
respectively, versus the comparable prior year three-month and nine-month
periods.  Selling, general and administrative expenses amounted to 47% and 49%
of net sales, respectively, in the three-month and nine-month periods ended
December 31, 1997.  For the three-month and nine-month periods ended December
31, 1996, these expenses amounted to 59% and 67% of net sales, respectively.
The decrease in these expenses was primarily attributable to the change from a
direct sales force to independent sales representatives, and reduced
administrative payroll costs.

Research and development expenses for the three and nine months ended December
31, 1997 decreased $495,029, or 80%, and $1,173,979, or 64%, respectively,
versus the comparable prior year three-month and nine-month periods.  In the
three-month and nine-month periods ended December 31, 1997, these expenses
amounted to 6.3% and 11.6% of net sales, respectively.  The decrease in research
and development expenses for the three months ended December 31, 1997 was due
primarily to utilizing certain labor and overhead costs in manufacturing which
were previously devoted to product development.  For the nine months ended
December 31, 1997, the reductions were due to this shift in utilization and to
reductions in headcount and other expenses, resulting from the Company's
decision to focus primarily on improvements in its existing products.

                                     - 8 -
<PAGE>
 
Results of Operations (Continued)
---------------------            

Interest income, net, for the three and nine months ended December 31, 1997,
decreased $1,472 and $33,209, respectively, versus the comparable prior year
three-month and nine-month periods due to lower cash balances.  The Company had
lower cash balances during the three and nine months ended December 31, 1997
versus the comparable prior year three-month and nine-month periods due to its
using cash primarily to fund operating losses.
 
Other income (expense), net for the three and nine months ended December 31,
1997 decreased $32,182 and increased $111,874, respectively, versus the
comparable prior year three-month and nine-month periods, due primarily to
changes in royalty income from both new and existing agreements, including an
initial license fee of $50,000 received in the three months ended June 30, 1997.
The agreement which was the primary source of royalties for the three and six
months ended September 30, 1997 expired July 1, 1997.

Liquidity and Capital Resources
-------------------------------

As of December 31, 1997, the Company had $3,568,485 in cash and cash
equivalents, and working capital of $2,709,394.  The Company also had a cash
collateralized demand line of credit with a bank for borrowings of up to
$250,000.  At December 31, 1997, there was approximately $181,000 available
under this line for use in support of general working capital needs and the
issuance of commercial and standby letters of credit.  The Company's cash and
cash equivalents increased by $887,214 in total from March 31, 1997, due
primarily to a private equity financing wherein the Company sold 1,941,748 new
shares of common stock for $2,000,000 in December 1997, offset by funding losses
for the nine-month period and the purchase of capital equipment.

The Company's net accounts receivable decreased $596,063 to $1,253,344 at
December 31, 1997, from $1,849,407 at March 31, 1997.  This decrease was
primarily attributable to lower sales.  During the period ended December 31,
1997, the Company's inventories decreased $95,217 to $611,125.  The decrease was
primarily attributable to reductions in finished goods resulting from increased
sales of sheaths, and lower production of scopes. The Company's capital
expenditures during the nine months ended December 31, 1997 were approximately
$133,000.  The Company anticipates that capital expenditures for the fiscal year
ending March 31, 1998 will be less than $250,000.

The Company has incurred losses since its inception and losses are expected to
continue at least through the fiscal year ending March 31, 1998.  To date, the
Company has funded the losses principally with proceeds from public and private
equity financings.  The Company anticipates that it will continue to require
additional financing or an alternative means of support; however, there can be
no assurances that such funding or financial support will be available or
adequate to allow the Company to continue as a going concern.  The Company
continues to pursue various sources of financial support.  In the event that
these or other plans are not successful, there is substantial doubt concerning
the Company's ability to continue as a going concern.

                                     - 9 -
<PAGE>
 
                          PART II - OTHER INFORMATION


Item 3:   Changes in Securities and Use of Proceeds

   On December 23, 1997, the Company issued an aggregate of 1,941,748 shares of
   Common Stock to Katsumi Oneda, the Company's Chairman, CEO and President, and
   to Lewis C. Pell, the Company's Vice Chairman.  The price per share in this
   transaction was $1.03, which represents 80% of the average closing price of
   the Common Stock on Nasdaq during the five trading days ended December 22,
   1997.  The shares of Common Stock were sold in this transaction pursuant to
   an exemption from registration under Section 4 (2) of the Securities Act of
   1933, as amended.

Item 4:  Submission of Matters to a Vote of Security-Holders

   None during the current reporting period.

Item 6:  Exhibits and Report on Form 8-K

   (a)   Exhibits.

         27.1  Financial Data Schedule.

   (b)   Reports on Form 8-K.

         The Registrant filed no reports on Form 8-K during the quarter ended
         December 31, 1997.

                                     - 10 -
<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.


                               Vision-Sciences, Inc.


Date: February 6, 1998         By:


                               /s/
                                  -------------------------------
                               Dr. Gerald B. Lichtenberger, Ph.D.
                               Executive Vice President, Chief Operating Officer
 


                               /s/
                                  -------------------------------
                               James A. Tracy
                               Vice President Finance, Chief Financial Officer 
                               and Controller (Principal Financial Officer 
                               and Principal Accounting Officer)

                                     - 11 -