<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 SEPTEMBER 30, 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 September 30, 1996.

     Common Stock, par value of $.01                  13,012,699
     -------------------------------              ----------------
            (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>
 
                                            September 30,     March 31,
                                                 1996           1996
                                           -------------   -------------
                                  ASSETS                     (audited)
                                  ------                   -------------
Current Assets:
<S>                                       <C>             <C>
 Cash and cash equivalents...............  $    814,399   $  1,688,651
 Marketable securities                        2,196,980      4,177,322
 Accounts receivable, net of allowance...
 for doubtful accounts of $52,000........     1,671,408      1,124,379
 Inventories.............................     1,507,162      1,803,720
 Prepaid expenses and deposits...........       240,876        285,904
                                              ---------      ---------
     Total current assets................     6,430,825      9,079,976
                                              ---------      ---------
 
Property and Equipment, at cost:
 Machinery and equipment.................     2,763,817      2,680,261
 Furniture and fixtures..................       214,626        214,626
 Leasehold improvements..................       302,764        302,764
                                              ---------      ---------
                                              3,281,207      3,197,651
 Less-Accumulated depreciation and             
 amortization...........................      1,695,993      1,433,572      
                                              ---------      ---------
                                              1,585,214      1,764,079
                                              ---------      ---------
Other Assets, net of accumulated
 amortization of $59,000 and $56,000,
 respectively...........................        247,204        231,839
                                              ---------      ---------
    Total assets                            $ 8,263,243    $11,075,894
                                            ===========    ===========
 
 
         LIABILITIES AND STOCKHOLDERS' EQUITY
         ------------------------------------
 
Current Liabilities:
 Acceptances payable to a bank..........     $   83,437    $   127,602
 Accounts payable.......................      1,062,134        418,054
 Accrued expenses.......................      2,104,954      1,923,282
                                              ---------      ---------
    Total current liabilities..........       3,250,525      2,468,938
                                              ---------      ---------
 
Deferred Credit........................          73,112        109,665
                                              ---------      ---------
 
Stockholders' Equity:
 Common stock, $.01 par value--
  Authorized--25,000,000 shares
  Issued and outstanding--13,012,699
  shares at September 30, 1996 and
  12,972,699 shares at March 31, 1996..         130,126        129,726

Additional paid-in capital.............      44,115,054     44,035,454
Accumulated deficit....................     (39,305,574)   (35,667,889)
                                             ----------     ----------
  Total stockholders' equity...........       4,939,606      8,497,291
                                       
  Total liabilities and stockholders' 
    equity.............................     $ 8,263,243   $ 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             Six Months Ended
                                                            September 30,                September 30,
                                                      -------------------------     --------------------------
<S>                                       <C>              <C>             <C>            <C>
 
                                              1996                 1995               1996               1995
                                        --------------        --------------     --------------     --------------
 
Net sales...............................   $ 2,178,318          $ 1,317,712       $ 3,975,868        $ 2,538,201
Cost of sales...........................     2,012,295            1,268,980         3,713,334          2,482,063
                                        --------------        --------------     --------------     --------------
 Gross profit...........................       166,023               48,732           262,534             56,138
 
Selling, general and administrative          
 expenses...............................     1,365,899            1,559,207         2,824,856          3,162,217
Research and development expenses.......       552,470              448,478         1,214,589          1,090,889
                                        --------------        --------------     --------------     --------------
 Loss from operations...................    (1,752,346)          (1,958,953)       (3,776,911)        (4,196,968)
 
Interest income.........................        43,795               84,092           105,025            180,321
Interest expense........................            --                   --                --                 --
Other income(expense), net..............        13,234                5,629            34,201             26,376
                                        --------------        --------------     --------------     --------------     
 Net loss...............................   $(1,695,317)         $(1,869,232)      $(3,637,685)       $(3,990,271)
                                        ==============        ==============     ==============     ==============
 
Net loss per common share...............        $(0.13)              $(0.17)           $(0.28)            $(0.38)
                                        ==============        ==============     ==============     ============== 
 
Weighted average shares outstanding.....    13,005,743           10,789,511        12,995,595         10,552,897
                                        ==============        ==============     ==============     ============= 
 
</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
 
Net loss.....................           --        --           --     (3,637,685)   (3,637,685)
                                ----------  ----------  ----------    -----------   ------------
Balance, September 30, 1996..   13,012,699   $130,126  $44,115,054   (39,305,574)  $ 4,939,606
                                ==========   =========  ==========    ===========   ============
 
</TABLE>



          See accompanying notes to consolidated financial statements.



                                     
                                        

                                       3
<PAGE>
 
                    VISION-SCIENCES, INC., AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
 
 
                                                    Six Months Ended    Six Months Ended
                                                      September 30,      September 30,
                                                          1996               1995
                                                    ---------------     ---------------
<S>                                                  <C>           <C>
 
  Cash flows from operating activities:
    Net loss........................................ $(3,637,685)       $(3,990,271)
    Adjustments to reconcile net loss
     to net cash used for operating activities:
     Depreciation and amortization..................     265,591            259,388
     Compensation expense from stock option grants..          --             36,369
     Amortization of deferred credit................     (36,553)           (36,555)
     Changes in assets and liabilities:
       Accounts receivable..........................    (547,029)           104,100
       Inventories.................................      296,558           (225,692)
       Prepaid expenses and deposits...............       45,028            (57,749)
       Accounts payable............................      644,080            295,931
       Accrued expenses............................      181,672             (3,597)
                                                      -----------        -----------
        Net cash used for operating activities.....   (2,788,338)        (3,618,076)
                                                      -----------        -----------
  Cash flows provided by (used for) 
    investing activities:
    (Increase) Decrease in marketable securities...    1,980,342           (252,565)
    Purchase of property and equipment.............      (83,556)          (382,296)
    Increase in other assets.......................      (18,535)                --
                                                      -----------        -----------
        Net cash provided by (used for) 
            investing activities...................    1,878,251           (634,861)
                                                      -----------        -----------
  Cash flows provided by (used for) 
    financing activities:
   
    Proceeds from sale of common stock.............           --          2,500,000
    Proceeds from (payments of) acceptances                
      payable to a bank............................      (44,165)            62,189
    Exercise of Stock Options......................       80,000             50,000
                                                      -----------        -----------
        Net cash provided by financing activities..       35,835          2,612,189
                                                     -----------        -----------
  Net decrease in cash and cash equivalents........     (874,252)        (1,640,748)
  Cash and cash equivalents, beginning of period...    1,688,651          3,479,035
                                                     -----------        -----------
  Cash and cash equivalents, end of period.........  $   814,399        $ 1,838,287
                                                     ===========        ===========
 
</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.


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


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>

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:
                                                                   
            
                              September 30,                 March 31,
                                  1996                        1996
                              -------------               ------------- 
<S>                          <C>                   <C>      (audited)
                                                           
       Raw materials.......   $  214,825                   $  573,192
       Work-in-process.....      247,933                      217,026
       Finished goods......    1,044,404                    1,013,502
                              ----------                   ----------
                              $1,507,162                   $1,803,720
                              ==========                   ==========
</TABLE>
       Work-in-process and finished goods inventories consist of material,
       labor, and manufacturing overhead.
       

  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 September 30, 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.

       

                                       6
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

  Results of Operations
  ---------------------

  Net sales for the three and six months ended September 30, 1996, increased
  $860,000 and $1,438,000, respectively, (or 65% and 57%, respectively), over
  the comparable prior year periods.  The increase in net sales was primarily
  attributable to a combination of medical sales increasing $667,000 and
  $1,184,000, (or 127% and 113%, respectively) and industrial sales increasing
  $194,000 and $254,000, respectively, (or 25% and 17%, respectively) over the
  comparable prior year periods.

  The increase in medical sales for the three and six months ended September 30,
  1996, as compared to the comparable prior year periods, resulted primarily
  from  the sales of the Company's ENT product line increasing $446,000 and
  $787,000, respectively, (or 161% and 140%, respectively) and sales of the
  Company's sigmoidoscope product line increasing $161,000 and $323,000,
  respectively, (or 68% and 74%, respectively).  The increase of sales of the
  ENT product line was primarily the result of the Company being able to sell
  its fiberoptic ENT scope during the first six months ended September 30, 1996
  after receiving clearance from the FDA in December 1995.  The increase in
  sales of the Company's sigmoidoscope product line was primarily the result of
  increased acceptance in the marketplace.

  Gross profit for the three months ended September 30, 1996, increased to
  $166,000, or 8% of net sales, as compared to $49,000, or 4% of net sales, for
  the comparable prior year period.  Gross profit for the six months ended
  September 30, 1996 increased to $263,000, or 7% of net sales, as compared to
  $56,000, or 2% of net sales, for the comparable prior year period.  The
  increase in gross profit was primarily attributable to an increased sales
  volume and an increased efficiency in manufacturing as the product processes
  have been further refined.

  Selling, general and administrative expenses for the three and six months
  ended September 30, 1996, decreased $193,000 and $337,000, respectively, (or
  12% and 11%, respectively), and represented 63% and 71% of net sales,
  respectively, in the current year periods versus 118% and 125% of net sales,
  respectively, in the comparable prior year periods.  The decrease in these
  expenses was primarily attributable to a decrease of $148,000 and $319,000,
  respectively, (or 21% and 22%, respectively), in general and administrative
  expenses for the three and six months ended September 30, 1996, as compared to
  the comparable prior year periods.  The decrease in general and administrative
  expenses was primarily the result of lower payroll costs due to reduced
  headcount in the financial and administrative areas.  Selling and marketing
  expenses decreased $45,000 and $19,000, respectively, (or 5% and 1%,
  respectively), for the three and six months ended September 30, 1996, as
  compared to the comparable prior year periods.  The decrease in selling and
  marketing expenses was primarily due to lower spending on outside services
  which was partially offset by the costs associated with four additional direct
  sales representatives.

  Research and development expenses for the three and six months ended September
  30, 1996, increased $104,000 and $124,000, respectively, (or 23% and 11%,
  respectively), and represented 25% and 31% of net sales for the three and six
  months ended September 30, 1996, respectively, versus 34% and 43% of net
  sales, respectively, in the comparable prior year periods.  The increase in
  these expenses during the six months ended September 30, 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.

                                       7
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                                  (Continued)



  Results of Operations (Continued)
  ---------------------            

  Interest income, net, for the three and six months ended September 30, 1996,
  decreased $40,000 and $75,000, 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 six months ended September 30, 1996,
  increased $8,000 as compared to the comparable prior year periods primarily
  due to increased royalty income.


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

  As of September 30, 1996, the Company had $814,000 in cash and cash
  equivalents, $2,197,000 in marketable securities and working capital of
  $3,180,000.  The Company also has a cash collateralized demand bank line of
  credit for up to $1,000,000 (which had approximately $916,000 available at
  September 30, 1996) subject to renewal in January 1997, for use in support of
  general working capital needs and the issuance of commercial and standby
  letters of credit.  The Company's cash, cash equivalents, and marketable
  securities decreased $2,855,000 since March 31, 1996.

  As of September 30, 1996, the Company's inventories had decreased $297,000 to
  $1,507,000 as compared to $1,804,000 at March 31, 1996.  The decrease was
  primarily attributable to lower raw material stock as a result of increased
  sales volume. The Company's capital expenditures during the six months ended
  September 30, 1996 were $84,000.  The Company anticipates that capital
  expenditures for the fiscal year ending March 31, 1997 will total
  approximately $500,000.

  The Company has incurred losses since its inception and losses are expected to
  continue at least through fiscal year 1997.  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

     Rider A

  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
           September 30, 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: November 8, 1996      By:


                              /s/ Steven A. Barner
                              ---------------------     
                              Corporate Controller
                              (Principal Financial Officer and
                              Principal Accounting Officer)

                                       10
<PAGE>
 
  RIDER A
  -------

  The Company held the 1996 Annual General Meeting of Shareholders (the "Annual
  Meeting") on August 19, 1996.  At the Annual Meeting, the following actions
  were taken:

  1. The stockholders re-elected Katsumi Oneda, Fred E. Silverstein, M.D. and
     Janice B. Wyatt, as Class II Directors, to serve for a three-year term.
     Holders of 11,541,828, 11,542,828 and 11,542,828 shares of Common Stock,
     voted for Mr. Oneda, Dr. Silverstein and Ms. Wyatt, respectively; and
  2. The stockholders ratified the appointment of Arthur Andersen LLP as the
     Company's independent auditors for the current fiscal year by a vote of
     11,553,849 shares of Common Stock for, 24,025 shares of Common Stock
     against and 18,969 shares of Common Stock not voting.

                                       11