<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, 1996

                        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, 1996.

     Common Stock, par value of $.01                        14,696,909
     -------------------------------                     ----------------
           (Titles of Class)                            (Number of Shares)
<PAGE>
 
                             VISION-SCIENCES, INC.
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
Part I.  Financial Information                                              Page
                                                                            ----
         <S>                                                               <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 - 6

         Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................7 - 8

Part II. Other Information.....................................................9

         Signature............................................................10
</TABLE>
<PAGE>
 
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                              December 31,        March 31,
                                                                  1996              1996
                                                            ---------------    --------------
                                             ASSETS
                                             ------
Current Assets:
<S>                                                         <C>                <C>
   Cash and cash equivalents...........................       $    410,292      $  1,688,651
   Marketable securities...............................          3,401,475         4,177,322
   Accounts receivable, net of allowance for doubtful
   accounts of $52,000.................................          1,631,568         1,124,379
   Inventories.........................................          1,106,601         1,803,720
   Prepaid expenses and deposits.......................            258,934           285,904
                                                            ---------------   ---------------
       Total current assets............................          6,808,870         9,079,976
                                                            ---------------   ---------------

Property and Equipment, at cost:
   Machinery and equipment.............................          2,798,019         2,680,261
   Furniture and fixtures..............................            214,626           214,626
   Leasehold improvements..............................            304,564           302,764
                                                            ---------------   ---------------
                                                                 3,317,209         3,197,651
   Less-Accumulated depreciation and amortization......          1,824,936         1,433,572
                                                            ---------------   ---------------
                                                                 1,492,273         1,764,079
                                                            ---------------   ---------------
Other Assets, net of accumulated amortization of $60,500
   and $56,000, respectively...........................            221,861           231,839
                                                            ---------------   ---------------
       Total assets....................................       $  8,523,004      $ 11,075,894
                                                            ===============   ===============

<CAPTION>
                                 LIABILITIES AND STOCKHOLDERS' EQUITY
                                 ------------------------------------

<S>                                                         <C>               <C>
Current Liabilities:
   Acceptances payable to a bank.......................       $     87,259      $    127,602
   Accounts payable....................................            521,031           418,054
   Accrued expenses....................................          2,447,436         1,923,282
                                                            ---------------   ---------------
       Total current liabilities.......................          3,055,726         2,468,938
                                                            ---------------   ---------------

Deferred Credit........................................             54,835           109,665
                                                            ---------------   ---------------

Stockholders' Equity:
   Common stock, $.01 par value--
       Authorized--25,000,000 shares
       Issued and outstanding--14,696,909 shares at
       December 31, 1996 and 12,972,699 shares at
       March 31, 1996..................................            146,968           129,726
   Additional paid-in capital..........................         46,098,212        44,035,454
   Accumulated deficit.................................       (40,832,737)      (35,667,889)
                                                            ---------------   ---------------
       Total stockholders' equity......................          5,412,443         8,497,291
                                                            ---------------   ---------------
       Total liabilities and stockholders' equity......       $  8,523,004      $ 11,075,894
                                                            ===============   ===============
</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,
                                                    ------------------------------  ------------------------------

                                                         1996           1995            1996            1995
                                                    --------------  --------------  --------------  --------------
                                                                                                 
<S>                                                 <C>             <C>             <C>             <C>
Net sales..........................................  $ 2,263,893     $ 1,922,277     $ 6,239,761     $ 4,460,478
Cost of sales......................................    1,887,837       1,890,660       5,601,171       4,372,723
                                                    --------------  --------------  --------------  --------------
    Gross profit...................................      376,056          31,617         638,590          87,755
                                                                                                 
Selling, general and administrative expenses.......    1,345,470       1,586,902       4,170,327       4,749,119
Research and development expenses..................      621,240         620,670       1,835,829       1,711,559
                                                    --------------  --------------  --------------  --------------
    Loss from operations...........................   (1,590,654)     (2,175,955)     (5,367,566)     (6,372,923
                                                                                                 
Interest income....................................       31,309          50,432         136,334         230,753
Interest expense...................................           --              --              --              --
Other income(expense), net.........................       32,182         (16,626)         66,384           9,750
                                                    --------------  --------------  --------------  --------------
    Net loss.......................................  $(1,527,163)    $(2,142,149)    $(5,164,848)    $(6,132,420)
                                                    ==============  ==============  ==============  ==============
Net loss per common share..........................  $     (0.12)    $     (0.20)    $     (0.40)    $     (0.58)
                                                    ==============  ==============  ==============  ==============
Weighted average shares outstanding................   13,140,845      10,917,245      13,044,043      10,674,787
                                                    ==============  ==============  ==============  ==============
</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, 1996,
  (audited).................  12,972,699       $129,726       $44,035,454      $(35,667,889)       $8,497,291
                                                                                              
Exercise of stock options...      40,000            400            79,600                --            80,000
                                                                                              
New shares purchased........   1,684,210         16,842         1,983,158                           2,000,000 
                                                                                              
Net loss....................         ---            ---               ---        (5,164,848)       (5,164,848)
                              ----------       --------       -----------      ------------       ----------- 
                                                                                              
Balance, December 31, 1996..  14,696,909       $146,968       $46,098,212      $(40,832,737)       $5,412,443
                              ==========       ========       ===========      ============       ===========
</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 Ended    Nine Months Ended
                                                                            December 31,         December 31,
                                                                               1996                 1995
                                                                        -------------------  -------------------
<S>                                                                     <C>                  <C>

  Cash flows from operating activities:
    Net loss...........................................................   $(5,164,848)        $(6,132,420)
    Adjustments to reconcile net loss to net cash
     used for operating activities:
     Depreciation and amortization.....................................       391,364             395,210
     Compensation expense from stock option grants.....................            --              54,555
     Amortization of deferred credit...................................       (54,830)            (54,832)
     Changes in assets and liabilities:
       Accounts receivable.............................................      (507,189)           (297,009)
       Inventories.....................................................       697,119             135,494
       Prepaid expenses and deposits...................................        26,970             (25,199)
       Accounts payable................................................       102,977             319,011
       Accrued expenses................................................       524,154             240,693
                                                                         ------------        ------------
        Net cash used for operating activities.........................    (3,984,283)         (5,364,497)
                                                                         ------------        ------------
  Cash flows provided by investing activities:
    Decrease in marketable securities..................................       775,847             930,637
    Purchase of property and equipment.................................      (119,558)           (628,192)
    Increase in other assets...........................................         9,978            (300,000)
                                                                         ------------        ------------
        Net cash provided by investing activities......................       666,267               2,445
                                                                         ------------        ------------
  Cash flows provided by financing activities:
    Proceeds from sale of common stock.................................     2,000,000           6,500,000
    Payments of acceptances payable to a bank..........................       (40,343)            (35,533)
    Proceeds from exercise of stock options............................        80,000              50,000
                                                                         ------------        ------------
        Net cash provided by financing activities......................     2,039,657           6,514,467
                                                                         ------------        ------------
  Net decrease in cash and cash equivalents............................    (1,278,359)          1,152,415
  Cash and cash equivalents, beginning of period.......................     1,688,651           3,479,035
                                                                         ------------        ------------
  Cash and cash equivalents, end of period.............................   $   410,292         $ 4,631,450
                                                                         ============        ============
</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 cost, which
            approximates market value. Cash equivalents are short-term, highly
            liquid investments with original maturities of less than three
            months.
 
       c.   Marketable Securities: Marketable securities are investments,
            consisting of U.S. Government issues and commercial paper, with
            original maturities greater than three months. Any gains or losses
            resulting from market fluctuations are charged to the consolidated
            statement of operations during the period incurred.
 
       d.   Inventories: Inventories are stated at the lower of cost or market
            using the first-in, first-out (FIFO) method and consist of the
            following:

<TABLE> 
<CAPTION> 
                                          December 31,          March 31,
                                             1996                 1996
                                        ---------------      ---------------
                                                                (audited)
            <S>                         <C>                  <C> 
            Raw materials.......          $   58,621           $  573,192
            Work-in-process.....             232,335              217,026
            Finished goods......             815,645            1,013,502
                                          ----------           ----------
                                          $1,106,601           $1,803,720
                                          ==========           ==========
</TABLE>

       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)

  e.   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 - 7 Years

       Leasehold improvements are amortized over the shorter of their estimated
       useful life or the life of the lease.

  f.   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.

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

  h.   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 Financial
       Accounting Standards Board Statement No. 52.

  i.   Income Taxes: The Company follows Statement of Financial Accounting
       Standards No. 109, "Accounting for Income Taxes," which requires that the
       Company follow the liability method in accounting for income taxes.

       At December 31, 1996, the Company had recorded a full valuation allowance
       against its deferred tax assets, which resulted principally from the
       federal net tax operating losses offset by the tax effect of the
       differing book and tax basis of certain current assets.

3.  Sale of Equity

    On December 24, 1996, the Company completed a $2.0 million private equity
    placement of the Company's common stock with Mr. Katsumi Oneda, Chairman,
    CEO and President, and Mr. Lewis Pell, Vice Chairman. Mr. Oneda and Mr. Pell
    each purchased 842,105 shares of common stock at a price of $1.1875 per
    share, the closing price on Tuesday, December 17, 1996. After this
    transaction, Mr. Oneda and Mr. Pell beneficially own approximately 23.5% and
    22.0%, respectively, of the outstanding shares of common stock of the
    Company.

                                      -6-
<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, 1996, increased
  $341,616 and $1,779,283, respectively, (or 18% and 40%, respectively) over the
  comparable prior year periods.  The increase in net sales was attributable to
  a combination of medical sales increasing $809,531 and $2,358,030, (or 175%
  and 220%, respectively) partially offset by decreases in industrial sales of
  $467,915 and $578,747, respectively, (or 32% and 17%, respectively) versus the
  comparable prior year three and nine month periods.

  The increase in medical sales for the three and nine months ended December 31,
  1996, as compared to the comparable prior year periods, resulted primarily
  from increased sales of the Company's ENT and sigmoidoscope products due to
  increased market acceptance.  The decrease in industrial sales for the three
  and nine months ended December 31, 1996, as compared to the comparable prior
  year periods, resulted primarily from the fact that non-recurring revenue of
  $634,000 was recognized during the third quarter of the prior year upon
  completion of a government contract.

  Gross profit for the three months ended December 31, 1996, increased to
  $376,056, or 17% of net sales, as compared to $31,617, or 2% of net sales, for
  the comparable prior year period.  Gross profit for the nine months ended
  December 31, 1996 increased to $638,590, or 10% of net sales, as compared to
  $87,755, or 2% of net sales, for the comparable prior year period.  The
  increase in gross profit was primarily attributable to increased sales volume,
  allowing greater efficiency and reduced costs in manufacturing.

  Selling, general and administrative expenses for the three and nine months
  ended December 31, 1996, decreased $241,432 and $578,792, respectively, (or
  15% and 12%, respectively) over the comparable prior year periods, and
  represented 59% and 67% of net sales, respectively, in the current year
  periods versus 83% and 107% of net sales, respectively, in the comparable
  prior year periods.  The decrease in these expenses was primarily attributable
  to reduced headcount and lower spending on outside services.

  Research and development expenses for the three and nine months ended December
  31, 1996, increased $570 and $124,270, respectively, (or 0% and 7%,
  respectively), over the comparable prior year periods, and represented 27% and
  29% of net sales for the three and nine months ended December 31, 1996,
  respectively, versus 32% and 38% of net sales, respectively, in the comparable
  prior year periods.  The increase in these expenses during the nine months
  ended December 31, 1996, was the result of the Company continuing to focus on
  research and development in order to improve its existing products as well as
  bring new products to market.

  Interest income, net, for the three and nine months ended December 31, 1996,
  decreased $19,123 and $94,419, respectively, as compared to the comparable
  prior year periods, primarily due to the lower cash and marketable securities
  balances as a result of the Company's continued losses.

  Other income (expense) net, for the three and nine months ended December 31,
  1996, increased $48,808 and $56,634, respectively, as compared to the
  comparable prior year periods, primarily due to increased royalty income from
  existing agreements.

                                      -7-
<PAGE>
 
  Liquidity and Capital Resources
  -------------------------------

  As of December 31, 1996, the Company had $410,292 in cash and cash
  equivalents, $3,401,475 in marketable securities and working capital of
  $3,811,767. The Company also had a cash collateralized demand bank line of
  credit for up to $1,000,000, which had approximately $819,445 available at
  December 31, 1996, for use in support of general working capital needs and the
  issuance of commercial and standby letters of credit. This line of credit was
  reduced in January 1997 for use up to $250,000. The Company's cash, cash
  equivalents, and marketable securities decreased $2,054,206 in total since
  March 31, 1996. The decrease was primarily due to the use of $4,093,863 to
  fund operations and property and equipment purchases, partially offset by an
  increase of $2,039,657 attributable to net proceeds of financing activities,
  including issuance of $2,000,000 of common stock in a private placement during
  December 1996.

  As of December 31, 1996, the Company's inventories had decreased $617,119 to
  $1,106,601 as compared to $1,803,720 at March 31, 1996.  The decrease was
  primarily attributable to lower raw material stock as a result of increased
  sales volume. The Company's net accounts receivable had increased $507,189 to
  $1,631,568 at December 31, 1996, as compared to $1,124,379 at March 31, 1996.
  This increase was primarily attributable to increased sales.  The Company's
  capital expenditures during the nine months ended December 31, 1996 were
  $119,558.  The Company anticipates that capital expenditures for the fiscal
  year ending March 31, 1997 will be in total less than $300,000.

  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 from the proceeds from public and
  private equity financings.  The Company will be required to obtain 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 is
  currently pursuing 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.

                                      -8-
<PAGE>
 
                          PART II - OTHER INFORMATION


  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, 1996.
             

                                      -9-
<PAGE>
 
                                   SIGNATURE



  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 7, 1997



                              /s/ Gerald B. Lichtenberger
                              ------------------------------------
                              Gerald B. Lichtenberger, Ph.D.
                              Executive Vice President/COO
                              (Acting Chief Financial Officer)

                                      -10-