<PAGE>


                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                For the quarterly period ended December 31, 2000


              For the transition period from __________ to________

                         Commission file number 0-28604
                                                -------

                                  ENCISION INC.
--------------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)


          COLORADO                                       84-1162056
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

                  4828 STERLING DRIVE, BOULDER, COLORADO 80301
            ---------------------------------------------------------
                    (Address of principal executive offices)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (303) 444-2600
   --------------------------------------------------------------------------
                           (Issuer's telephone number)

CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OF 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES        X           NO
    -----------------     ---------------

STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICABLE DATE:

   COMMON STOCK, NO PAR VALUE                        5,396,507 SHARES
--------------------------------              ----------------------------------
             Class                            (outstanding at February 12, 2001)


TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT

YES         NO    X
   --------   --------


                                       1

<PAGE>

                                  ENCISION INC.

                                   FORM 10-QSB

                     FOR THE QUARTER ENDED DECEMBER 31, 2000


                                      INDEX

<TABLE>
<CAPTION>

                                                                                                                 Page
                                                                                                                Number
                                                                                                                ------
<S>                                                                                                             <C>
PART I.             FINANCIAL INFORMATION

         ITEM 1     -    Condensed Unaudited Interim Financial Statements:
                    -    Condensed Unaudited Balance Sheets as of December 31,
                            2000 and March 31, 2000.........................................................        3
                    -    Condensed Unaudited Statements of Operations for
                            the Three Months Ended December 31, 2000 and 1999...............................        4
                    -    Condensed Unaudited Statements of Operations for
                            the Nine Months Ended December 31, 2000 and 1999................................        5
                    -    Condensed Unaudited Statements of Cash Flows for
                            the Nine Months Ended December 31, 2000 and 1999................................        6
                    -    Notes to Unaudited Condensed Interim Financial
                            Statements......................................................................        7

         ITEM 2     -    Management's Discussion and Analysis
                            of Financial Condition and Results of Operations................................       12

PART II.            OTHER INFORMATION

         ITEM 6     -    Exhibits and Reports on Form 8-K...................................................       17

         SIGNATURE..........................................................................................       18

         EXHIBIT INDEX......................................................................................       19
</TABLE>

                                       2
<PAGE>




PART I            FINANCIAL INFORMATION

ITEM 1   -   CONDENSED INTERIM FINANCIAL STATEMENTS

                                   ENCISION INC.

                            CONDENSED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                        December 31,         March 31,
                                                                                           2000                2000
                                                                                      ----------------   ----------------
<S>                                                                                   <C>                <C>
                                        ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                                              $ 252,929        $  446,473
    Short-term investments                                                                   639,717         1,727,480
    Accounts receivable, net of allowance for doubtful
       accounts of $21,000 and $7,000, respectively                                          598,974           286,027
    Inventory, net of reserve for obsolescence of $80,000
       and $145,000, respectively                                                            760,162           594,514
    Prepaid expenses                                                                          87,909            22,180
                                                                                      --------------     -------------
              Total current assets                                                         2,339,691         3,076,674
                                                                                      --------------     -------------
EQUIPMENT, at cost:
    Furniture, fixtures and equipment                                                        772,929           745,527
    Less - Accumulated depreciation                                                         (659,646)         (565,769)
                                                                                      --------------     -------------
              Equipment, net                                                                 113,283           179,758
                                                                                      --------------     -------------
PATENTS, net of accumulated amortization of $27,087 and $22,852,
              respectively                                                                   118,978           121,507
OTHER ASSETS                                                                                  43,600            13,472
                                                                                      --------------     -------------
              Total assets                                                               $ 2,615,552       $ 3,391,411
                                                                                           =========        ==========

                        LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Accounts payable                                                                    $    181,229       $   179,967
    Accrued compensation                                                                     141,553            82,530
    Other accrued liabilities                                                                176,778           205,388
    Other current liabilities                                                                     --            10,100
                                                                                      --------------     -------------
              Total current liabilities                                                      499,560           477,985
                                                                                      --------------     -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
    Preferred stock, no par value, 10,000,000 shares authorized,
       no shares outstanding                                                                      --                --
    Common stock, no par value, 100,000,000 shares authorized,
       5,396,507 and 5,383,507 shares outstanding, respectively                           16,945,542        16,941,317
    Warrants to purchase common stock                                                        290,400           290,400
    Accumulated other comprehensive loss                                                          --           (48,642)
    Accumulated deficit                                                                  (15,119,950)      (14,269,649)
                                                                                      --------------     -------------
              Total shareholders' equity                                                   2,115,992         2,913,426
                                                                                      --------------     -------------
              Total liabilities and shareholders' equity                                 $ 2,615,552       $ 3,391,411
                                                                                          ==========        ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       3
<PAGE>

                                  ENCISION INC.


                       CONDENSED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                              For the Three Months
                                                                                                Ended December 31,
                                                                                         -----------------------------
                                                                                              2000              1999
                                                                                         -----------       -----------
<S>                                                                                      <C>               <C>
REVENUE, NET                                                                               $ 849,162         $ 572,841
COST OF REVENUE                                                                              360,308           346,354
                                                                                         -----------       -----------
              Gross profit                                                                   488,854           226,487
                                                                                         -----------       -----------
OPERATING EXPENSES:
    Sales and marketing                                                                      377,574           392,878
    General and administrative                                                               204,703           218,472
    Research and development                                                                 134,357           133,244
                                                                                         -----------       -----------
              Total operating expenses                                                       716,634           744,594
                                                                                         -----------       -----------
INCOME (LOSS) FROM OPERATIONS                                                               (227,780)         (518,107)
OTHER INCOME:
    Interest income                                                                            8,855            31,668
    Other income (expense)                                                                    21,890            (2,468)
                                                                                         -----------       -----------
NET INCOME (LOSS)                                                                          $(197,035)        $(488,907)
                                                                                            =========         =========
NET INCOME (LOSS) PER SHARE (Note 2):
    Basic and diluted net income (loss) per common share                                    $(0.04)          $(0.09)
                                                                                             ======           ======
    Basic and diluted weighted average shares outstanding                                  5,393,474         5,383,507
                                                                                           =========         =========
</TABLE>

  The accompanying notes are an integral part of these financial statements.


                                       4
<PAGE>

                                  ENCISION INC.


                       CONDENSED STATEMENTS OF OPERATIONS
                            AND COMPREHENSIVE INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                               For the Nine Months
                                                                                                Ended December 31,
                                                                                       ---------------------------------
                                                                                              2000              1999
                                                                                       --------------   ----------------
<S>                                                                                    <C>              <C>
REVENUE, NET                                                                              $2,015,106        $1,491,295
COST OF REVENUE                                                                              969,135           899,805
                                                                                       -------------    --------------
              Gross profit                                                                 1,045,971           591,490
                                                                                       -------------    --------------
OPERATING EXPENSES:
    Sales and marketing                                                                    1,006,440           972,128
    General and administrative                                                               576,115           635,478
    Research and development                                                                 333,629           391,935
                                                                                       -------------    --------------
              Total operating expenses                                                     1,916,184         1,999,541
                                                                                       -------------    --------------
INCOME (LOSS) FROM OPERATIONS                                                               (870,213)       (1,408,051)
OTHER INCOME:
    Interest income                                                                           37,535            98,114
    Other income (expense)                                                                   (17,622)           (7,407)
                                                                                       -------------    --------------
NET INCOME (LOSS)                                                                          $(850,301)      $(1,317,344)
                                                                                            ========        ==========
NET INCOME (LOSS) PER SHARE (Note 2):
    Basic and diluted net income (loss) per common share                                    $(0.16)          $(0.24)
                                                                                             =====            =====
    Basic and diluted weighted average shares outstanding                                  5,387,029         5,383,507
                                                                                           =========         =========

</TABLE>

        The accompanying notes are an integral part of these statements.


                                       5
<PAGE>



                                  ENCISION INC.


                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                For the Nine Months
                                                                                                Ended December 31,
                                                                                      -----------------------------------
                                                                                              2000              1999
                                                                                      ----------------   ----------------
<S>                                                                                   <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income (loss)                                                                  $    (850,301)      $(1,317,344)
    Adjustments to reconcile net income (loss) to net cash
       used in operating activities-
          Depreciation and amortization                                                       98,112            74,704
          Amortization of discount on short-term investments                                  (9,226)          (53,481)
          Inventory reserves                                                                 (65,000)           35,000
          Doubtful accounts allowance                                                         14,000              (500)
          Changes in operating assets and liabilities-
              Accounts receivable                                                           (326,947)          (50,125)
              Inventory                                                                     (100,648)         (145,068)
              Other assets                                                                   (95,857)           22,979
              Accounts payable                                                                 1,262           (56,408)
              Accrued compensation and other accrued
                 liabilities                                                                  20,313             2,503
              Other non-current liabilities                                                       --            (2,335)
                                                                                      --------------    --------------
                 Net cash (used in) operating activities                                  (1,314,292)       (1,490,075)
                                                                                      --------------    --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchases of equipment                                                                   (27,402)         (112,358)
    Patent costs                                                                              (1,706)           (3,981)
    Purchases of short-term investments, net                                                      --        (2,259,335)
    Sale of short-term investments                                                         1,145,631         3,559,751
                                                                                      --------------    --------------
              Net cash provided by investing activities                                    1,116,523         1,184,077
                                                                                      --------------    --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from the exercise of stock options                                                4,225                --
                                                                                      --------------     -------------
              Net cash provided by financing activities                                        4,225                --
                                                                                      --------------    --------------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS                                                 (193,544)         (305,998)
CASH AND CASH EQUIVALENTS, beginning of period                                               446,473         1,188,867
                                                                                      --------------    --------------
CASH AND CASH EQUIVALENTS, end of period                                               $     252,929       $   882,869
                                                                                      ==============    ==============

</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       6
<PAGE>


                                  ENCISION INC.


                 NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS

                                DECEMBER 31, 2000
                                   (Unaudited)


(1)    ORGANIZATION AND NATURE OF BUSINESS


The Company was incorporated as a Colorado corporation on February 1, 1991. The
Company designs, develops, manufactures and markets patented electrosurgical
instruments, which are designed to provide greater safety to patients who
undergo minimally-invasive surgery. The products are primarily utilized in
laparoscopic surgery by General Surgeons and Gynecologic Surgeons. The Company
has developed and is marketing its own line of laparoscopic electrosurgical
instruments that incorporate the Company's proprietary technology. These
products, called AEM* Laparoscopic Instruments, provide the tissue effects
the surgeons desire while helping to prevent stray electrical energy and
potential patient injury. The Company's sales to date have been principally in
the U.S.

The Company has incurred losses since its inception and has an accumulated
deficit of $15,119,950 at December 31, 2000 and its operations have been
financed primarily through issuance of equity. The Company's liquidity has
substantially diminished because of such continuing operating losses and the
Company may be required to seek additional capital to continue operations or
pursue other alternatives, including a sale of the Company.

The Company's operations are subject to certain risks and uncertainties,
including that increased commercial acceptance of the Company's products will
have to occur in the marketplace before the Company can attain profitable
operations and that continued operating losses and use of cash resources will
continue through fiscal year 2001 which will significantly impact the Company's
ongoing operations.

As of December 31, 2000, the Company had $892,646 in cash, cash equivalents and
short-term investments available to fund future operations. During the nine
months ended December 31, 2000, the Company used $1,314,292 in its operations,
and $29,108 for investments in property and patents. During the three months
ended December 31, 2000, the Company incurred a Net Loss of $197,035 and used
approximately $385,000 in its operations. Based on this rate of cash use, the
Company believes that it has cash to fund approximately two to three quarters of
operations.

Leading into fiscal year 2001, the Company instituted a cost containment program
for its operations as well as reduced its employee head count to conserve its
cash resources. The Company has also fully implemented its marketing and sales
plan to maintain a certain number of essential sales representatives and entered
into exclusive agreements with stocking distributors and independent sales
representatives to sell the Company's products. These efforts have resulted and
are expected to continue to result in increased sales revenues for fiscal year
2001 and reduced


                                       7

<PAGE>

operating expenses. With increased sales in fiscal year 2001, the Company is
expecting an increase in the gross profit margin that will ultimately reduce
the overall net loss incurred from operations and conserve the Company's cash
resources. The Company believes that gross profit margin will increase from
approximately 35% last fiscal year to 50% by the end of FY 2001, with an
overall 45% gross profit margin on sales revenues this year.

It is uncertain if the Company will be able to meet the operational and
financial requirements of the fiscal year 2001 budget and limit its use of cash
and cash equivalents. The Company can not predict the expected revenues, gross
profit margin, net loss and usage of cash and cash equivalents for fiscal year
2001.

If the Company is able to manage the business operations in line with the budget
expectations, the Company believes that its cash resources will be sufficient to
fund its operations for the remainder of fiscal year 2001, and for a portion of
fiscal year 2002. If the Company is unable to manage the business operations in
line with the budget expectations, it could have a material adverse effect on
the Company's business viability, financial position, results of operations and
cash flows. If the Company is not successful by the end of fiscal year 2001 in
becoming cash flow break even, additional capital resources will be required to
maintain ongoing operations.

(2)      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
Such estimates and assumptions affect the reported amounts of assets and
liabilities as well as disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expense
during the reporting period. Actual results could differ from those estimates.

       CASH AND EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all cash and
highly liquid investments with an original maturity of three months or less to
be cash equivalents.

       FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments consist of cash, short-term investments and
short-term trade receivables and payables. The carrying values of cash,
short-term investments and short-term receivables and payables approximate their
fair value.

       SHORT-TERM INVESTMENTS

As required under Statement of Financial Accounts Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," (SFAS 115) management
determines the appropriate classification of its investments in debt securities
at the time of purchase. At December 31, 2000, the Company's short-term
investments consist primarily of government securities that the Company
classifies as available for sale.


                                       8

<PAGE>

Since the Company will be required to sell certain of its debt securities prior
to their maturity, the Company has elected to classify its short-term
investments as available for sale.

       INVENTORY

Inventory consists primarily of component parts and raw materials, and is valued
at the lower of cost (first-in, first-out basis) or market. Inventory consists
of the following:

<TABLE>
<CAPTION>
                                                                              December         March 31,
                                                                               31, 2000            2000
                                                                            ------------     --------------
<S>                                                                         <C>              <C>
                  Raw materials                                               $656,828          $526,195
                  Finished goods                                               183,334           213,319
                                                                            ----------        ----------
                                                                               840,162           739,514
                  Less- Reserve for obsolescence                               (80,000)         (145,000)
                                                                            ----------        ----------
                                                                              $760,162          $594,514
                                                                               =======           =======
</TABLE>
       PATENTS

The costs of applying for patents are capitalized and amortized on a
straight-line basis over the lesser of the patent's economic or legal life (17
years in the U.S.). Capitalized costs are expensed if patents are not granted.
The Company reviews the carrying value of its patents periodically to determine
whether the patents have continuing value.

       INCOME TAXES

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). SFAS No. 109 requires recognition of deferred income tax assets and
liabilities for the expected future income tax consequences, based on enacted
tax laws, of temporary differences between the financial reporting and tax bases
of assets and liabilities. SFAS No. 109 requires recognition of deferred tax
assets for the expected future tax effects of all deductible temporary
differences, loss carryforwards and tax credit carryforwards. The Company's
deferred tax assets have been completely offset by a valuation allowance because
the realization criteria set forth in SFAS 109 are not currently satisfied,
primarily due to the Company's history of operating losses.

       REVENUE RECOGNITION

Revenue from product sales is recorded when the Company ships the product and
the earnings process is complete. The Company recognizes revenue from sales to
stocking distributors when there is no significant right of return, other than
for normal warranty claims.

       STOCK BASED COMPENSATION

The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), and applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees"


                                       9

<PAGE>


("APB 25"), and related interpretations in accounting for stock options
granted to employees. The Company has made pro forma disclosures of what net
loss and net loss per common share would have been had the provisions of SFAS
123, based upon the fair value method, been applied to the Company's stock
option grants.

       COMPREHENSIVE INCOME

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") as of April 1,
1998. SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The components of Other Comprehensive Income are included in the Condensed
Statements of Operations and Comprehensive Income and consist of an adjustment
to the fair value of short-term investments.

       BASIC AND DILUTED LOSS PER COMMON SHARE

Basic and diluted loss per common share for each period presented is computed
using the sum of the weighted average number of shares of common stock
outstanding. Shares that would result from the exercise of common stock options
and warrants would be anti-dilutive and thus are not included in the computation
of diluted loss per share.

       RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133 - An Amendment of FASB Statement
No. 133" ("SFAS 137"). SFAS 137 delays the effective date of SFAS 133 to
financial quarters and financial years beginning after June 15, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognizes all derivatives as
either assets or liabilities in the statement of financial position and measures
those instruments at fair value. Management believes that the adoption of SFAS
133 will not have a significant impact on the Company's financial condition and
results of operations.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition ("SAB 101"). SAB 101 provides
guidance on recognition, presentation, and disclosures related to revenue in the
financial statements. The Company is required to adopt this standard as of April
1, 2001. Management does not believe the adoption of SAB 101 will have a
significant impact on the results of operations or financial position of the
Company.

In March 2000, The Financial Accounting Standards Board Issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation" ("FIN No. 44"). FIN No. 44 clarifies the application of APB No. 25
for certain issues related to equity-based instruments issued to employees. FIN
No. 44 is effective on July 1, 2000, except for certain transactions, and will
be applied on a prospective basis. Management believes that FIN No. 44 will not
have a significant impact on its financial statements.


                                      10

<PAGE>

(3)    COMMITMENTS AND CONTINGENCIES

The Company is subject to regulation by the United States Food and Drug
Administration ("FDA"). The FDA provides regulations governing the manufacture
and sale of the Company's products and regularly inspects the Company and other
manufacturers to determine their compliance with these regulations. As of
December 31, 2000 the Company believes it was in substantial compliance with all
known regulations. The Company was last inspected in November 1998 and has not,
at December 31, 2000, been notified of any deficiencies from that inspection.
FDA inspections are conducted approximately every two years or on a more
frequent basis at the discretion of the FDA.

Because of seasonal and other factors discussed in Item 2, Historical
Perspective and Outlook and Results of Operations, the results of operations for
the quarter ended December 31, 2000 should not be taken as an indication of the
results of operations for all or any part of the balance of the year.

The accounts receivable balance at December 31, 2000 of $619,974 included
$98,468 (16%) and $65,827 (11%) from two customers and $62,686 (10%) from
international customers. The Company's accounts receivable balances are
primarily domestic.


(4)    MANAGEMENT'S REPRESENTATIONS

The condensed interim financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. 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, although the Company believes that the disclosures made
are adequate to make the information presented not misleading. The condensed
interim financial statements and notes thereto should be read in conjunction
with the financial statements and the notes thereto, included in the Company's
Annual Report to the Securities and Exchange Commission for the fiscal year
ended March 31, 2000, filed on Form 10-KSB on June 29, 2000.

The accompanying condensed interim financial statements have been prepared, in
all material respects, in conformity with the standards of accounting
measurements set forth in Accounting Principles Board Opinion No. 28 and
reflect, in the opinion of management, all adjustments, which are of a normal
recurring nature, necessary to summarize fairly the financial position and
results of operations for such periods. The results of operations for the most
recent interim period are not necessarily indicative of the results to be
expected for the full year.


                                      11

<PAGE>



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

       GENERAL

Encision Inc. (the "Company") was founded in 1991 to address product
opportunities created by the increase in minimally invasive surgery ("MIS"). The
Company's specific focus is on laparoscopy, the most common type of MIS
procedure, and the widespread preference for electrosurgery devices in these
procedures.

During laparoscopic surgical procedures, the surgeon operates from outside the
patient's body, introducing cameras and instruments through small access ports
to perform the surgical intervention. MIS enhances the patient's post-operative
course of recovery and is now the preferred surgical approach in over 50% of
abdominal surgeries.

The market opportunity was created by the surgeons' continued demand for
monopolar electrosurgery tools, which they have preferred using in "open"
procedures, combined with certain inherent risks of this technology in MIS. The
risk of "unintended" electrosurgical burns to the patient in laparoscopic
surgery has been well documented.

The Company's approach to the market opportunity was to design and develop a
laparoscopic instrument system that helps to prevent unintended electrosurgical
burns. The Company's patented AEM* Laparoscopic Instrument System provides
the surgeon with the desired tissue effects while helping to prevent stray
electrical energy, which can cause unintended and unseen tissue injury. The AEM
Instruments incorporate active electrode monitoring technology to dynamically
and continuously monitor the flow of electrosurgical current, thereby helping to
prevent patient injury. The Company believes that with the proprietary AEM
System, surgeons are able to perform a broad range of electrosurgical procedures
more safely and efficaciously than is possible using conventional laparoscopic
instruments.

The Association of Operating Room Nurses (AORN) recently recognized active
electrode monitoring technology as a RECOMMENDED PRACTICE for Endoscopic
Minimally Invasive Surgery.

More than three million laparoscopic surgical procedures are performed annually
in the US and reports estimate that 85% of surgeons utilize electrosurgical
instruments in these procedures. Frost & Sullivan reports an annual market of
over $500 million for instruments in laparoscopic surgery worldwide.

       HISTORICAL PERSPECTIVE AND OUTLOOK

The Company was organized in February 1991 and in the first two years developed
the AEM system and protective sheaths to adapt to traditional electrosurgical
instruments. During this period, the Company applied for patents with the United
States Patent Office and conducted product trials.

As the Company evolved, it was clear that the active electrode monitoring
technology needed to be integrated into the standard laparoscopic instrument
design. As the development program proceeded, it also became apparent that the
merging of electrical and mechanical engineering skills in the instrument
development process for the Company's patented, integrated electrosurgical


                                      12

<PAGE>

instruments was more complex than expected. As a result, instruments with
integrated AEM technology were not completed until many years later. It was not
until FY 2001 that a sufficiently broad AEM instrument line was available to
provide the operating rooms with a Standard of Care -- AEM instruments for all
of their electrified monopolar instrumentation in laparoscopic surgery. Prior to
offering the full breadth of laparoscopic instrumentation, it was difficult for
hospitals to convert to the AEM solution, as there were not adequate comparable
surgical instrument options to match what the surgeon demanded.

With the broad array of AEM instruments now available, the surgeon has a full
choice of instrument options and does not have to change surgical technique. The
hospital can now universally convert, thus providing all of their laparoscopic
patients the highest level of safety.

The Company's Plans in FY 2001: In February, 2000 the Company appointed James A.
Bowman as President & CEO and implemented an expense reduction program to take
effect by the start of the new fiscal year, April 1, 2000. The expense
constraints were implemented across all of the Company's operations and resulted
in a reduction in headcount and operating expense budget compared to FY 2000.
These budget constraints resulted in an expense structure appropriate with the
ongoing sales achievements while still allowing the Company to move forward with
a progressive plan in the marketplace.

To lay a foundation for future growth within the constraints of the Company's
financial resources, the Company focused on expansion of its product line,
expansion of independent clinical endorsements of the Company's technology and
an improved sales infrastructure.

PRODUCT LINE EXPANSIONS - The Company believes that its strategy of
incorporating AEM technology into the standard laparoscopic instrument styles
ensures that surgeons do not have to change their operative techniques. This
strategy advanced forward in late FY 2000 with new AEM product line extensions.
These new products filled gaps in the product line that were very important to
the General and Gynecologic Surgeons.

Management believes that the AEM Laparoscopic Instrument line now, for the first
time, includes a full array of instrument styles to meet the surgeons' demands
and allows them to implement AEM technology without changing their surgical
techniques or operating room protocols.

SALES INFRASTRUCTURE IMPROVEMENTS - The Company recognizes the need to
continually improve its sales network of independent distributors by developing
relationships with distributors who represent synergistic products and whose
primary focus is Electrosurgery & MIS. This network was substantially overhauled
during FY 2000. With the improved network of Independent Distributors, the
Company has also hired an experienced team of Regional Sales Managers to manage,
motivate, educate and direct the individual distributor sales representatives.
These new business managers were hired in late-FY 2000 to focus on optimizing
the sales function in the field, to accelerate the sales accomplishments and
maximize revenue growth.

CLINICAL ENDORSEMENTS - FY 2000 represented the culmination of a series of
independent clinical endorsements of the Company's proprietary technology. With
its recent recognition as an AORN RECOMMENDED PRACTICE (by the Association of
periOperative Registered Nurses) the Company's technology is now recommended by
sources representing all groups involved with minimally-invasive surgery:
Surgeons, Nurses, Biomed Engineers, Medicolegal professionals, Malpractice
Insurance carriers and other electrosurgery device manufacturers.


                                      13

<PAGE>

The Company believes that gaining broad clinical endorsements is a demonstrated
and successful process for surgical technology to traditionally advance in the
marketplace. From a concern or problem in surgery, the medical device industry
develops a technological solution and this solution evolves to gain the breadth
of endorsements. Once this occurs, the technology is then employed by the
hospital to benefit the patient, surgeon and operating room staff. Management
believes that AEM technology is following the same path as previous revolutions
in electrosurgery. As with "Isolated" ESU generators in the 1970s and with "REM"
technology in the 1980s, AEM technology is receiving the broad clinical
endorsements that drove previous new technology to market acceptance.

The Company believes the unique performance of the AEM technology and its
breadth of clinical endorsements provides an opportunity for market growth.
Management feels that the market visibility and awareness of the AEM technology
and its independent surgical endorsements was substantially improved in the past
year and that this will benefit the sales efforts.

In addition to the above, the Company has received approval to commence CE
marking its products and this allows the Company to launch into new markets in
Europe. CE is an abbreviation of the phrase CONFORMITE EURPEENE indicating the
Company has conformed to all obligations imposed by the European Medical Device
Directive. The market for the Company's products internationally represents
incremental sales opportunities.

Management's continued focus and commitment in FY 2001 is to work to maintain
expense controls while optimizing sales execution in the field, developing
widespread market awareness of the technology and expanding into the
International market.

       RESULTS OF OPERATIONS

FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE THREE MONTHS ENDED
DECEMBER 31, 1999.

NET REVENUES. Revenues for the quarter ended December 31, 2000 were $849,162
compared to $572,841 for the quarter ended December 31, 1999, an increase of
48%. The increase is attributable to the Company continuing to develop the
effectiveness of the independent distribution network and a visible marketing
campaign. Also, international distributors contributed approximately $50,000 in
new revenues. While there can be no assurance that the arrangement with the
Company's distributors will result in increasing and recurring business, the
Company believes that the improving distribution network will be effective
marketing partners.

GROSS PROFIT. The gross profit for the quarter ended December 31, 2000 of
$488,854 increased by 116% from the quarter ended December 31, 1999 gross profit
of $226,487. Gross profit as a percentage of revenue (gross margin) increased
from 40% for the quarter ended December 31, 1999, to 58% in the quarter ended
December 31, 2000. The increase in gross profit is due to the reduced impact of
fixed operations costs at a higher revenue level, and the increasing margins on
the core AEM products. Gross profit and gross margin can be expected to
fluctuate from quarter to quarter as a result of product sales mix and sales
volume.

SALES AND MARKETING EXPENSES. Sales and marketing expenses of $377,574 for the
quarter ended December 31, 2000, decreased by 4% compared to $392,878 for the
quarter ended December 31, 1999. The decrease is primarily due to efficiencies
in the execution of the Sales & Marketing Plan.


                                       14

<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of
$204,703 for the quarter ended December 31, 2000 decreased by 6% compared to
$218,472 for the quarter ended December 31, 1999. This decrease is the result of
lower headcount and other spending constraints.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of $134,357
for the quarter ended December 31, 2000 increased slightly compared to $133,244
for the quarter ended December 31, 1999.

FOR THE NINE MONTHS ENDED DECEMBER 31, 2000 COMPARED TO THE NINE MONTHS ENDED
DECEMBER 31, 1999.

NET REVENUES. Revenues for the nine months ended December 31, 2000 were
$2,015,106 compared to $1,491,295 for the nine months ended December 31, 1999,
an increase of 35%. The increase is attributable to the Company continuing to
develop the effectiveness of the independent distribution network and a visible
marketing campaign. In addition, international distributors contributed
approximately $150,000 in new revenue for the nine-month period. While there can
be no assurance that the arrangement with the Company's distributors will result
in increasing and recurring business, the Company believes that the improving
distribution network will be effective marketing partners.

GROSS PROFIT. The gross profit for the nine months ended December 31, 2000 of
$1,045,971 increased by 77% from the nine months ended December 31, 1999 gross
profit of $591,490. Gross profit as a percentage of revenue (gross margin)
increased from 40% for the nine months ended December 31, 1999, to 52% in the
nine months ended December 31, 2000. The increase in gross profit is due to the
reduced impact of fixed operations costs at a higher revenue level, and the
increasing margins on the core AEM products. Gross profit and gross margin can
be expected to fluctuate from quarter to quarter as a result of product sales
mix and sales.

SALES AND MARKETING EXPENSES. Sales and marketing expenses of $1,006,440 for the
nine months ended December 31, 2000, increased by 4% compared to $972,128 for
the nine months ended December 31, 1999. The 35% increase in Net Revenue was
accomplished with only a 4% increase in Sales and Marketing expenses due to
efficiencies in executing the ongoing sales and marketing programs and budget.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses of
$576,115 for the nine months ended December 31, 2000 decreased by 9% compared to
$635,477 for the nine months ended December 31, 1999. This decrease is the
result of lower headcount and other spending constraints.

RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses of $33,629
for the nine months ended December 31, 2000 decreased 15% compared to $391,935
for the nine months ended December 31, 1999. This decrease is due to the
completion of some core development projects filling gaps in the product line.

       LIQUIDITY AND CAPITAL RESOURCES

The Company has historically satisfied its cash requirements principally through
sales of Common Stock which approximated $17.3 million through December 31,
2000, and, to a substantially lesser degree, funds provided by sales of the
Company's products. Historically, these funds have been used for working capital
and general corporate purposes including research and development. The


                                      15

<PAGE>

Company may use working capital to build inventories, to ensure that orders
can be filled in a timely manner, to support the sales efforts of the
Company's sales force and to accommodate anticipated growth. The remaining
net proceeds from the Company's initial public offering are currently
invested primarily in money market instruments and government securities.

Capital expenditures historically have been relatively minor, and have consisted
of specialized equipment, manufacturing equipment, office equipment and
leasehold improvements. The Company anticipates that its capital requirements
will remain relatively minor.

During late fiscal year 2000, the Company instituted a cost containment program
for its operations as well as reduced its employee head count to conserve its
cash resources. The Company has also fully implemented its marketing and sales
plan to maintain a certain number of essential sales representatives and entered
into exclusive agreements with stocking distributors and independent sales
representatives to sell the Company's products. These efforts have and are
expected to continue to result in increased sales revenues for fiscal year 2001
and reduced operating expenses. With increased sales in fiscal year 2001, the
Company is expecting an increase in the gross profit margin that will ultimately
reduce the overall net loss incurred from operations and slow the consumption of
the Company's cash resources. Competitive disadvantages might occur as a result
of the Company's current liquidity situation and diminishing cash resources.

The Company's operations are subject to certain risks and uncertainties,
including that increased commercial acceptance of the Company's products will
have to occur in the marketplace before the Company can attain profitable
operations and that operating losses and use of cash resources will continue
during fiscal year ended March 31, 2001 ("FY 2001") which will significantly
impact the Company's ongoing operations.

Even though the Company has been able to increase revenue during FY 2001 over
the prior year period, and decrease its net loss during this same period, it is
uncertain if the Company will be able to meet the operational and financial
requirements of the proposed fiscal year 2001 budget and limit its use of cash
and cash equivalents. The Company used $1,314,292 in cash and cash equivalents
for its operations for the nine months ended December 31, 2000. While the
Company has budgets to guide its operating decisions, the Company can not
predict with certainty the expected revenues, gross profit margin, net loss and
usage of cash and cash equivalents for fiscal year 2001.

At December 31, 2000, the Company has approximately $900,000 in cash and $1.8
million in working capital. At current rates of cash consumption, this provides
the Company with between two and three quarters of cash availability and between
three and four quarters of working capital to fund operations and other cash
needs, and to achieve cash flow break even from its operations. Quarterly
revenue levels of approximately $1.1 million are required to achieve cash flow
break even. Management has begun the process of identifying options to provide
funds for ongoing operations as well as other possible courses of action. Such
actions include, but are not limited to, sales of debt or equity securities
(which may result in substantial dilution to existing shareholders), licensing
of technology, strategic alliances, mergers and other similar actions.
Management expects to complete its analysis of the alternative courses of action
and plans to commence execution of its selected course of action no later than
March 31, 2001.

If additional capital is unavailable, it could have a material adverse effect on
the Company's business viability, financial position, results of operations and
cash flows. Due to the above factors, the report of independent public
accountants which accompany the Fiscal Year 2000 Financial


                                      16

<PAGE>


Statements expresses substantial doubt regarding the Company's ability to
continue as a going concern. The Company has been advised by its independent
public accountants that, if it is unable to raise sufficient capital to
reasonably fund its operations and other cash needs through at least March
31, 2002, prior to the completion of their audit of the Company's financial
statements for the year ending March 31, 2001, their auditor's report on
those financial statements will continue to be modified to include a
statement regarding their substantial doubt regarding our ability to continue
as a going concern.

The Company's common stock is traded on the Over The Counter Bulletin Board (OTC
Bulletin Board: ECSN.OB).

         INCOME TAXES

Net operating loss carryforwards totaling approximately $15.1 million are
available to reduce taxable income as of December 31, 2000. The net operating
loss carryforwards expire, if not previously utilized, at various dates
beginning in the year 2011. The Company has not paid income taxes since its
inception. The Tax Reform Act of 1986 and other income tax regulations contain
provisions which may limit the net operating loss carryforwards available to be
used in any given year, if certain events occur, including changes in ownership
interests. The Company has established a valuation allowance for the entire
amount of its deferred tax asset since inception due to its history of operating
losses.


                                      17

<PAGE>


<TABLE>
<CAPTION>

PART II.            OTHER INFORMATION
<S>                 <C>
         ITEM 1            Not Applicable

         ITEM 2            Not Applicable

         ITEM 3            Not Applicable

         ITEM 4     -      Not Applicable

         ITEM 5     -      Not Applicable

         ITEM 6     -      EXHIBITS AND REPORTS ON FORM 8-K

                          (a)  Exhibits
                               None
</TABLE>

                                      18

<PAGE>



                                    SIGNATURE



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Electroscope has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.



          Name                        Title                         Date
-----------------------   ------------------------------    -------------------

  /s/ Marcia McHaffie     Controller                         February 14, 2001
-----------------------   (Principal Accounting Officer)
     Marcia McHaffie


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