SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D. C. 20459




FORM
10-Q




(Mark One)x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the quarterly period ended June 30, 2009oro
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the transition period
      from                          to




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
                incorporation
      or organization)
              (IRS
      Employer
                Identification
      Number)40
      Ramland Road South, Orangeburg, NY
              10962(Address
      of principal executive offices)
              (Zip
      Code)




(845) 365-0600


(Registrant’s
telephone number, including area code)




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 o




Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate website, if any every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the Registrant was required to submit
and post such files. Yes o  No  o





Indicate
by check mark whether the registrant is a large accelerated filer, accelerated
filer, non-accelerated filer, or smaller reporting company. See definitions of
“accelerated filer”, “large accelerated filer”, and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.




Large accelerated filer 
       o
            Accelerated filer 
       o
            Non-accelerated filer 
       o
              (Do
      not check if a smaller reporting company)
            Smaller reporting company 
       x




Indicate by check mark whether the
registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act). Yes o    No x




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of August 14, 2009




Common
      Stock, par value of $.01
            36,854,001(Title
      of Class)
            (Number
      of Shares)








VISION-SCIENCES, INC.


TABLE
OF CONTENTS




Part I.
                      Financial
      InformationItem 1.
                      Financial
      StatementsConsolidated
      Balance Sheets
                      3Consolidated
      Statements of Operations
                      4Consolidated
      Statement of Stockholders’ Equity
                      5Consolidated
      Statements of Cash Flows
                      6Notes
      to Consolidated Financial Statements
                      7Item 2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      12Item 3.
                      Quantitative
      and Qualitative Disclosures about Market Risk
                      17Item 4.
                      Controls
      and Procedures
                      17Item 4T.
                      Controls
      and Procedures
                      17Part II.
                      Other
      InformationItem 1.
                      Legal
      Proceedings
                      18Item 1A.
                      Risk
      Factors
                      18Item 2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      18Item 3.
                      Defaults
      Upon Senior Securities
                      18Item 4.
                      Submission
      of Matters to a Vote of Stockholders
                      18Item 5.
                      Other
      Information
                      18Item 6.
                      Exhibits
                      19Signatures
                      20




2


PART
I—FINANCIAL INFORMATION


Item 1:
Financial Statements




Vision-Sciences, Inc.
and Subsidiaries


Condensed
Consolidated Balance Sheets


(In
thousands except per share amounts)




June
      30
                                      
                                      
                                      March
      31,2009
                                      
                                      
                                      2009ASSETS
                                      
                                      (
      unaudited )Current
      assets:Cash
      and cash equivalents
                                      
                                      $
                                      36
                                      
                                      
                                      $
                                      1,975Short
      term investments
                                      
                                      
                                      6,936
                                      
                                      
                                      
                                      7,948Accounts
      receivable, net of allowance for doubtful accounts of $293and
      $283, respectively
                                      
                                      
                                      2,503
                                      
                                      
                                      
                                      1,818Inventories,
      net
                                      
                                      
                                      5,523
                                      
                                      
                                      
                                      5,486Prepaid
      expenses and deposits
                                      
                                      
                                      356
                                      
                                      
                                      
                                      397Current
      assets of discontinued operations
                                      
                                      
                                      -
                                      
                                      
                                      
                                      9Total
      current assets
                                      
                                      
                                      15,354
                                      
                                      
                                      
                                      17,633Property
      and equipment, at cost:Machinery
      and equipment
                                      
                                      
                                      3,041
                                      
                                      
                                      
                                      3,069Furniture
      and fixtures
                                      
                                      
                                      278
                                      
                                      
                                      
                                      132Leasehold
      improvements
                                      
                                      
                                      228
                                      
                                      
                                      
                                      1633,547
                                      
                                      
                                      
                                      3,364Less—Accumulated
      depreciation and amortization
                                      
                                      
                                      1,717
                                      
                                      
                                      
                                      1,576Total
      property and equipment, net
                                      
                                      
                                      1,830
                                      
                                      
                                      
                                      1,788Other
      assets, net of accumulated amortization of $80 and $76,respectively
                                      
                                      
                                      71
                                      
                                      
                                      
                                      65Total
      assets
                                      
                                      $
                                      17,255
                                      
                                      
                                      $
                                      19,486LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Capital
      lease obligations
                                      
                                      $
                                      52
                                      
                                      
                                      $
                                      61Accounts
      payable
                                      
                                      
                                      1,151
                                      
                                      
                                      
                                      1,014Accrued
      expenses
                                      
                                      
                                      1,700
                                      
                                      
                                      
                                      1,966Current
      liabilities of discontinued operations
                                      
                                      
                                      19
                                      
                                      
                                      
                                      6Total
      current liabilities
                                      
                                      
                                      2,922
                                      
                                      
                                      
                                      3,047Capital
      lease obligations, net of current portion
                                      
                                      
                                      28
                                      
                                      
                                      
                                      28Total
      liabilities
                                      
                                      
                                      2,950
                                      
                                      
                                      
                                      3,075Commitments
      and ContingenciesStockholders’
      equity:Preferred
      stock, $.01 par value—Authorized—5,000
      sharesissued
      and outstanding—none
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Common
      stock, $.01 par value—Authorized—50,000
      sharesissued
      and outstanding—36,854 shares and 36,818shares
      at June 30, 2009 and March 31, 2009, respectively
                                      
                                      
                                      369
                                      
                                      
                                      
                                      368Additional
      paid-in capital
                                      
                                      
                                      80,392
                                      
                                      
                                      
                                      80,031Accumulated
      deficit
                                      
                                      
                                      (66,456
                                      )
                                      
                                      
                                      (63,988
                                      )Total
      stockholders’ equity
                                      
                                      
                                      14,305
                                      
                                      
                                      
                                      16,411Total
      liabilities and stockholders’ equity
                                      
                                      $
                                      17,255
                                      
                                      
                                      $
                                      19,486




See
accompanying notes to consolidated financial statements




3




Vision-Sciences, Inc.
and Subsidiaries


Condensed
Consolidated Statements of Operations


(In
thousands except per share)


(Unaudited)




Three
      Months EndedJune
      30,2009
                                
                                
                                
                                2008*Net
      sales
                                
                                $
                                3,318
                                
                                
                                $
                                2,696Cost
      of sales
                                
                                
                                2,530
                                
                                
                                
                                2,047Gross
      profit
                                
                                
                                788
                                
                                
                                
                                649Selling,
      general and administrative expenses
                                
                                
                                2,482
                                
                                
                                
                                2,691Research
      and development expense
                                
                                
                                786
                                
                                
                                
                                1,171Restructuring
      charge
                                
                                
                                -
                                
                                
                                
                                28Loss
      from operations
                                
                                
                                (2,480
                                )
                                
                                
                                (3,241
                                )Interest
      income
                                
                                
                                50
                                
                                
                                
                                79Interest
      expense
                                
                                
                                -
                                
                                
                                
                                (14
                                )Gain
      on sale of product line, net of direct costs
                                
                                
                                -
                                
                                
                                
                                3,230Loss
      on equity investment
                                
                                
                                (28
                                )
                                
                                
                                -(Loss)/income
      before provision for income taxes
                                
                                
                                (2,458
                                )
                                
                                
                                54Provision
      for income taxes
                                
                                
                                10
                                
                                
                                
                                9(Loss)/income
      before discontinued operations
                                
                                
                                (2,468
                                )
                                
                                
                                45Loss
      from discontinued operations, includingloss
      on disposal of BEST DMS
                                
                                
                                -
                                
                                
                                
                                (188
                                )Net
      loss
                                
                                $
                                (2,468
                                )
                                
                                $
                                (143
                                )Basic
      and diluted loss per common share:From
      continuing operations
                                
                                $
                                (0.07
                                )
                                
                                $
                                -From
      discontinued operations
                                
                                
                                -
                                
                                
                                
                                -Net
      loss per common share - basic and diluted
                                
                                $
                                (0.07
                                )
                                
                                $
                                -Shares
      used in computing net lossper
      common share
                                
                                
                                36,854,001
                                
                                
                                
                                36,661,899




*  The
quarter ending June 2008 results were adjusted to reflect discontinued
operations of our former health services segment




See
accompanying notes to consolidated financial statements.




4




Vision-Sciences, Inc.
and Subsidiaries


Condensed
Consolidated Statements of Stockholders’ Equity


(In
thousands, Unaudited)





Preferred Stock
                                                                                
                                                                                
                                                                                Common Stock
                                                                                
                                                                                
                                                                                Additional
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                TotalNumber
                                                                                
                                                                                
                                                                                $0.01
                                                                                
                                                                                
                                                                                Number
                                                                                
                                                                                
                                                                                $0.01
                                                                                
                                                                                
                                                                                Paid-in
                                                                                
                                                                                
                                                                                Accumulated
                                                                                
                                                                                
                                                                                Stockholders’of Shares
                                                                                
                                                                                
                                                                                Par Value
                                                                                
                                                                                
                                                                                of Shares
                                                                                
                                                                                
                                                                                Par Value
                                                                                
                                                                                
                                                                                Capital
                                                                                
                                                                                
                                                                                Deficit
                                                                                
                                                                                
                                                                                EquityBalance,
      March 31, 2008
                                                                                5,000
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                
                                                                                35,648
                                                                                
                                                                                $
                                                                                356
                                                                                
                                                                                $
                                                                                77,478
                                                                                
                                                                                $
                                                                                (55,763)
                                                                                
                                                                                $
                                                                                22,071Exercise
      of stock options
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,170
                                                                                
                                                                                
                                                                                12
                                                                                
                                                                                
                                                                                1,587
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                1,599Stock
      based compensationexpense
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                966
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                966Net
      loss
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                (8,225)
                                                                                
                                                                                
                                                                                (8,225)Balance,
      March 31, 2009
                                                                                5,000
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                36,818
                                                                                
                                                                                
                                                                                368
                                                                                
                                                                                
                                                                                80,031
                                                                                
                                                                                
                                                                                (63,988)
                                                                                
                                                                                
                                                                                16,411Exercise
      of stock options
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                36
                                                                                
                                                                                
                                                                                1
                                                                                
                                                                                
                                                                                40
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                41Stock
      based compensationexpense
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                321
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                321Net
      loss
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                -
                                                                                
                                                                                
                                                                                (2,468)
                                                                                
                                                                                
                                                                                (2,468)Balance,
      June 30, 2009
                                                                                5,000
                                                                                
                                                                                $
                                                                                -
                                                                                
                                                                                
                                                                                36,854
                                                                                
                                                                                $
                                                                                369
                                                                                
                                                                                $
                                                                                80,392
                                                                                
                                                                                $
                                                                                (66,456)
                                                                                
                                                                                $
                                                                                14,305


See
accompanying notes to consolidated financial statements.


5


Vision-Sciences, Inc.
and Subsidiaries


Condensed
Consolidated Statements of Cash Flows


(In
thousands except per share)


(Unaudited)




Three
      Months EndedJune
      30,2009
                                
                                
                                2008Cash
      flows from operating activities:Net
      loss
                                
                                $
                                (2,468
                                )
                                
                                $
                                (143
                                )Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                                
                                
                                150
                                
                                
                                
                                100Gain
      on sale of product line
                                
                                
                                -
                                
                                
                                
                                (3,230
                                )Stock-based
      compensation
                                
                                
                                321
                                
                                
                                
                                169Changes
      in assets and liabilities:Accrued
      interest receivable
                                
                                
                                3
                                
                                
                                
                                (21
                                )Accounts
      receivable
                                
                                
                                (685
                                )
                                
                                
                                (930
                                )Inventories
                                
                                
                                (37
                                )
                                
                                
                                (1,621
                                )Prepaid
      expenses and deposits
                                
                                
                                41
                                
                                
                                
                                193Other
      assets
                                
                                
                                (3
                                )
                                
                                
                                -Accounts
      payable
                                
                                
                                150
                                
                                
                                
                                (780
                                )Accrued
      expenses
                                
                                
                                (266
                                )
                                
                                
                                (94
                                )Net
      cash used in operating activities
                                
                                
                                (2,794
                                )
                                
                                
                                (6,357
                                )Cash
      flows from investing activities:Purchase
      of short term investments
                                
                                
                                -
                                
                                
                                
                                (11,167
                                )Sale
      of short term investments
                                
                                
                                1,009
                                
                                
                                
                                5,835Purchase
      of property and equipment
                                
                                
                                (183
                                )
                                
                                
                                (413
                                )Net
      proceeds from sale of product line
                                
                                
                                -
                                
                                
                                
                                3,230Net
      cash provided by (used in) investing activities
                                
                                
                                826
                                
                                
                                
                                (2,515
                                )Cash
      flows from financing activities:Payments
      on capital leases
                                
                                
                                (9
                                )
                                
                                
                                (14
                                )Exercise
      of stock options
                                
                                
                                41
                                
                                
                                
                                1,478Net
      cash provided by financing activities
                                
                                
                                32
                                
                                
                                
                                1,464Net
      decrease in cash and cash equivalents
                                
                                
                                (1,936
                                )
                                
                                
                                (7,408
                                )Cash
      and cash equivalents from continuing operations, beginning
      period
                                
                                $
                                1,975
                                
                                
                                $
                                10,655Cash
      and cash equivalents from discontinued operations, beginning of
      period
                                
                                $
                                8
                                
                                
                                $
                                -Cash  and
      cash equivalents from discontinued operations, end of
    period
                                
                                $
                                (11
                                )
                                
                                $
                                -Cash
      and cash equivalents from continued operations, end of
    period
                                
                                $
                                36
                                
                                
                                $
                                3,247Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
                                
                                $
                                -
                                
                                
                                $
                                (14
                                )




See
accompanying notes to consolidated financial statements.




6




VISION-SCIENCES, INC.
AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)


Note
1.  Basis of Presentation




Vision-Sciences, Inc.
and subsidiaries (the Company or we) have prepared the consolidated financial
statements included herein accordance with generally accepted accounting
principles in the United States of America, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC) and
include, in the opinion of management, all adjustments that we consider
necessary for a fair presentation of such information.  We have
condensed or omitted certain information and footnote disclosures normally
included in financial statements pursuant to such rules and regulations. We
believe, however, that our disclosures are adequate to make the information
presented not misleading. The results for the interim periods presented are not
necessarily indicative of results to be expected for the full fiscal year. Our
fiscal year-end is on March 31 of each year. The year ended March 31,
2010 is our current fiscal year (FY 10). Q1 10 refers to the period from April
1, 2009 to June 30, 2009, our current fiscal quarter, and Q1 08 refers to
the period from April 1, 2008 to June 30, 2008.  These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2009 (FY
09).  Events subsequent to June 30, 2009 were evaluated until the time
of the Form 10Q filing with the SEC on August 14, 2009.





All
amounts in the financial notes except for share and per-share data are reported
in ($000’s), unless otherwise indicated.





Note
2.  Summary of Significant Accounting Policies





Our
consolidated financial statements are prepared in accordance with U.S. generally
accepted accounting principles (GAAP). These accounting principles require us to
make certain estimates, judgments and assumptions. We believe that the
estimates, judgments and assumptions upon which we rely are reasonable based
upon information available to us at the time that these estimates, judgments and
assumptions are made. These estimates, judgments and assumptions can affect the
reported amounts of assets and liabilities as of the date of the financial
statements as well as the reported amounts of revenues and expenses during the
periods presented. To the extent there are any differences (other than nominal
differences) between these estimates, judgments or assumptions and actual
results, our financial statements will be affected. The accounting policies that
reflect our more significant estimates, judgments and assumptions and which we
believe are the most critical to aid in fully understanding and evaluating our
reported financial results include the following:





• Revenue
Recognition


•
Accounting for Income Taxes


• Other
Contingencies


•
Stock-Based Compensation


•
Allowances for Doubtful Accounts


•
Inventory obsolescence reserves





The
accompanying consolidated financial statements reflect the accounts of the
Company and its wholly-owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.





In many
cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management’s judgment in its application.
There are also areas in which management’s judgment in selecting among available
alternatives would not produce a materially different result. Our senior
management has reviewed these critical accounting policies and related
disclosures with the Audit Committee of the Board of Directors (the
Board).




During
the first three months of fiscal 2010, there were no significant changes in our
critical accounting policies and estimates. You should refer to Critical Accounting Policies and
Estimates in Part IV, Page F-6 of our Annual Report on
Form 10-K for our fiscal year ended March 31, 2009 for a more complete
discussion of our critical accounting policies and estimates.





Note
3.  Inventories




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




June
      30,
                          
                          
                          March
      31,2009
                          
                          
                          2009Raw
      materials
                          
                          $
                          4,334
                          
                          
                          $
                          4,253Work-in-process
                          
                          
                          545
                          
                          
                          
                          369Finished
      goods
                          
                          
                          644
                          
                          
                          
                          864$
                          5,523
                          
                          
                          $
                          5,486






7




Raw
materials include components purchased from independent suppliers. Most
purchased components are available from multiple sources. However, some
components are available only from a limited number of suppliers, and several
key components are supplied to us by single source suppliers, with whom we have
long term supply agreements.




Note
4.  Short Term Investments





We
classify investments with original maturities of greater than 90 days in
government securities and high grade commercial paper as short term investments.
We intend to hold these investments to maturity. The following table summarizes
theses securities classified as held to maturity.




June
      30, 2009
                                                          
                                                          
                                                          March 31,
      2009Held
      to maturity less than one year:
                                                          
                                                          Fair
      Value
                                                          
                                                          Cost
                                                          
                                                          
                                                          Fair
      Value
                                                          
                                                          CostGovernment
      securities
                                                          
                                                          $
                                                          4,353
                                                          
                                                          $
                                                          4,356
                                                          
                                                          
                                                          $
                                                          5,036
                                                          
                                                          $
                                                          5,073Commercial
      paper
                                                          
                                                          
                                                          2,530
                                                          
                                                          
                                                          2,580
                                                          
                                                          
                                                          
                                                          2,768
                                                          
                                                          
                                                          2,875Total
      short term investments
                                                          
                                                          $
                                                          6,883
                                                          
                                                          $
                                                          6,936
                                                          
                                                          
                                                          $
                                                          7,804
                                                          
                                                          $
                                                          7,948





Note
5.  Stock-Based Compensation & Stock Option Plans





Stock-based
Compensation





We are
required to estimate the stock awards that we ultimately expect to vest and to
reduce stock-based compensation expense for the effects of estimated forfeitures
of awards over the expense recognition period. Although we estimate forfeitures
based on historical experience, actual forfeitures in the future may differ. In
addition, to the extent our actual forfeitures are different than our estimates,
we record a true-up for the difference in the period that the awards vest, and
such true-ups could materially affect our operating results.





Compensation
cost associated with stock options includes: (i) amortization related to
the remaining unvested portion of all stock options outstanding at
March 31, 2006, based on the fair value determined on the grant date in
accordance with the original provisions of SFAS 123, and
(ii) amortization related to all stock option awards granted subsequent to
March 31, 2006, based upon the fair value estimated in accordance with
SFAS 123R. We recognize stock-based compensation expense on a straight-line
uniform basis over the service period of the award, which is generally four
years for employees.





We
account for equity instruments issued to consultants in accordance with the
provisions of SFAS No. 123 and Emerging Issues Task Force Abstract
No. 96-18, Accounting for
Equity Instruments that are Issued to Other than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services EITF 96-18. Options
granted to consultants are periodically revalued as the options vest, and are
recognized as an expense over the related period of service or the vesting
period, whichever is longer.





In
determining whether an award is expected to vest, we use an estimated,
forward-looking forfeiture rate based upon our historical forfeiture rates.
Stock-based compensation expense recorded using an estimated forfeiture rate is
updated for actual forfeitures quarterly. We also consider, each quarter,
whether there have been any significant changes in facts and circumstances that
would affect our forfeiture rate.





We
estimate the fair value of employee stock options using a Black-Scholes
valuation model. The fair value of an award is affected by our stock price on
the date of grant as well as other assumptions including the estimated
volatility of our stock price over the term of the awards and the estimated
period of time that we expect employees to hold their stock options. The
risk-free interest rate assumption we use is based upon United States Treasury
interest rates appropriate for the expected life of the awards. In order to
determine the estimated period of time that we expect employees, consultants and
directors to hold their stock options, we have used historical rates based on
two group classifications, (i) employees and consultants and (ii) outside
directors. Our expected dividend rate is zero since we do not currently pay cash
dividends on our common stock and do not anticipate doing so in the foreseeable
future. The aforementioned inputs entered into the option valuation model we use
to fair value our stock awards are subjective estimates and changes to these
estimates will cause the fair value of our stock awards and related stock-based
compensation expense we record to vary.





Stock Option Plans





Our first
stock option plan (the 1990 Plan) allowed us to grant key employees and
consultants incentive and non-statutory stock options at the fair value of the
stock on the date of grant. Options became exercisable at varying dates ranging
up to five years from the date of grant. Our Board had authorized the issuance
of options for the purchase of up to 4,375,000 shares of common stock under the
1990 Plan. This plan expired in 2001 and was replaced with the 2000 Plan. The
terms of the 2000 Plan are substantially the same as the 1990 Plan. Under the
2000 Plan, our Board and stockholders authorized the issuance of options for the
purchase of up to 4,500,000 shares of common stock of which 72,833 shares remain
available for future grants. We do not grant any new options under the 1990
Plan.




In August
2007, our stockholders approved our 2007 Stock Incentive Plan (the 2007 Plan).
Under the 2007 Plan, we are authorized to issue options for the purchase of up
to 4,000,000 shares of common stock. The terms of the 2007 Plan are
substantially the same as the 2000 Plan. As of June 30, 2009, there remain
1,429,502 shares available for future grants under the 2007 Plan. In the 2007
Plan, we grant options to both employees and consultants, with vesting periods
ranging from immediate to six years. We recognize stock-based compensation
expense on a straight-line uniform basis over the service period of the award,
which is generally four years.





8


In Q1 10,
we recorded stock based compensation expenses of $321, or $0.01 per diluted
share. In Q1 09, we recorded expenses of $169, or $0.00 per diluted share. This
compensation expense was recorded in Q1 10 and Q1 09, as follows:




Three
      Months EndedJune
      30,2009
                                
                                
                                2008Cost
      of Goods Sold
                                
                                $
                                73
                                
                                
                                $
                                13SG&A
                                
                                
                                180
                                
                                
                                
                                117R&D
      Expense
                                
                                
                                68
                                
                                
                                
                                39Total
      Stock Based Compensation
                                
                                $
                                321
                                
                                
                                $
                                169





In the
three months ended June 30, 2009, we granted options to purchase a total of
502,136 shares of our common stock to employees and consultants. The fair value
of these options measured at the option grant date was approximately $605,
determined using the Black-Scholes option pricing model. This amount is reduced
by an estimated forfeiture rate and is being recorded as an expense over the
vesting period. The assumptions we used in the Black-Scholes option pricing
model in the period were as follows:




Three
      Month EndedJune
      30, 2009Risk-free
      interest rate
                                            
                                            
                                            1.95%-3.01%Expected
      dividend yield
                                            
                                            
                                            —Expected
      life
                                            
                                            6.25
      yearsExpected
      volatility
                                            
                                            
                                            87%Weighted
      average fair value grant per share
                                            
                                            $
                                            0.88Intrinsic
      value of options exercised
                                            
                                            $
                                            6Intrinsic
      value of options exercisable
                                            
                                            $
                                            5Intrinsic
      value of options outstanding, vested and expected to vest
                                            
                                            $
                                            5




At June
30, 2009, the total unamortized stock-based compensation for the 1990, 2000 and
2007 plans is approximately $2,573, which will be expensed through the period
ending June 30, 2013. We do not expect to realize any tax benefits from future
disqualifying dispositions, if any, because we currently have a full valuation
allowance against our deferred tax assets.





A summary
of the 2007, 2000 and 1990 plans activity for employees and consultants is as
follows:




Weighted
      Avg.RemainingNumber
                                                                            
                                                                            Exercise
                                                                            
                                                                            Weighted
      Avg.
                                                                            
                                                                            Contractual
      Lifeof
      Shares
                                                                            
                                                                            Price
      Range
                                                                            
                                                                            Exercise
      Price
                                                                            
                                                                            in
      YearsOutstanding
      March 31, 2009
                                                                            
                                                                            
                                                                            5,802,694
                                                                            
                                                                            $
                                                                            0.79–$
      5.10
                                                                            
                                                                            $
                                                                            2.03
                                                                            
                                                                            
                                                                            6.55Granted
                                                                            
                                                                            
                                                                            502,136
                                                                            
                                                                            $
                                                                            0.93
      - $ 1.28
                                                                            
                                                                            
                                                                            1.20
                                                                            
                                                                            
                                                                            6.24Exercised
                                                                            
                                                                            
                                                                            (36,060
                                                                            )
                                                                            $
                                                                            1.12
      - $ 1.12
                                                                            
                                                                            
                                                                            1.12Canceled
                                                                            
                                                                            
                                                                            (172,900
                                                                            )
                                                                            $
                                                                            1.12
      - $ 3.73
                                                                            
                                                                            
                                                                            1.43Outstanding
      June 30,  2009
                                                                            
                                                                            
                                                                            6,095,870
                                                                            
                                                                            $
                                                                            0.79–$
      5.10
                                                                            
                                                                            $
                                                                            1.99
                                                                            
                                                                            
                                                                            6.78Exercisable,
      June 30, 2009
                                                                            
                                                                            
                                                                            3,286,819
                                                                            
                                                                            $
                                                                            0.79–$
      5.10
                                                                            
                                                                            $
                                                                            1.53
                                                                            
                                                                            
                                                                            4.94


In July
2003, we adopted, and our stockholders approved, the 2003 Director Option Plan,
which was amended in August 2008 (the Amended 2003 Plan). The Amended 2003 Plan
increased the annual automatic grant from 4,000 options to 10,000 options per
outside director per year, and increased the maximum number of options available
under the Amended 2003 Plan from 200,000 to 450,000. During our 2008 annual
meeting, 10,000 options were granted to each of our then five outside directors.
In May and June 2009 two outside directors resigned for personal reasons and
were replaced by two new outside directors.





The
Amended 2003 Plan also provides for granting newly elected outside directors a
one-time grant of 10,000 options. Accordingly, in July 2009 the two new outside
directors were each granted 10,000 options. If the number of outside directors
remains unchanged, we would be required to grant options to purchase an
aggregate of 50,000 shares at each of the annual shareholder’s meetings
scheduled in September 2009 and September 2010. As of June 30, 2009, there
remain 352,000 shares available for future grants under the Amended 2003
Plan.





9


During Q1
10, no shares were granted from our Amended 2003 Directors Plan.




Note
6. Segment Information




As of
November 1, 2008, due to the asset sale of our former health services
segment, we returned to operating in two reportable segments, medical and
industrial.





Our medical
segment designs, manufactures, and sells our advanced line of
endoscopy-based products for a variety of specialties, including our
state-of-the-art flexible endoscopes and our Slide-On EndoSheath
technology.





Our industrial
segment, through our wholly-owned subsidiary, Machida, Inc. (Machida),
designs, manufactures and sells borescopes to a variety of users, primarily in
the aircraft engine-manufacturing and aircraft engine-maintenance industries. A
borescope is an instrument that uses optical fibers for the visual inspection of
narrow cavities.





Our former health
services segment consisted of our wholly-owned subsidiary BEST-DMS, which
was established in October 2007. BEST-DMS was a service-based segment,
providing the Bedside Endoscopic Swallowing Test (BEST) to nursing homes,
rehabilitation centers, and assisted living facilities. In Q3 FY 09 we sold the
assets of BEST-DMS, and the net assets were classified as discontinued
operations as of December 31, 2008. As part of the asset sale agreement we
changed the subsidiary name to VSI Services Inc. Please refer to “Note 5,
Discontinued Operations and Asset Sale” below.





Our two
current reportable segments follow the accounting policies described in the
Critical Accounting Policies
and Estimatessection of our form 10-K for FY 09, on page F-6. We
evaluate segment performance based upon operating income. Identifiable assets
are those used directly in the operations of each segment and general corporate
assets, such as cash and short term investments are allocated to each
segment.





10





The
following table presents key financial highlights, by reportable
segments:




TotalPrior
      to
                                  
                                  
                                  DiscontinuedThree
      months Ended June 30,
                                  
                                  Medical
                                  
                                  
                                  Industrial
                                  
                                  
                                  Adjustments
      *
                                  
                                  
                                  Disc.
      Ops.
                                  
                                  
                                  Operations
                                  
                                  
                                  Total2009Sales
      to external customers
                                  
                                  $
                                  2,605
                                  
                                  
                                  $
                                  713
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  3,318
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  3,318Gross
      Profit
                                  
                                  
                                  440
                                  
                                  
                                  
                                  348
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  788
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  788Operating
      (loss)
                                  
                                  
                                  (2,616
                                  )
                                  
                                  
                                  136
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,480
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,480
                                  )Interest
      income
                                  
                                  
                                  50
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  50
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  50Depreciation
      and amortization
                                  
                                  
                                  145
                                  
                                  
                                  
                                  5
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  150
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  150Stock-based
      compensation
                                  
                                  
                                  307
                                  
                                  
                                  
                                  14
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  321
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  321Total
      assets
                                  
                                  
                                  18,207
                                  
                                  
                                  
                                  2,272
                                  
                                  
                                  
                                  (3,224
                                  )
                                  
                                  
                                  17,255
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  17,255Expenditures
      for fixed assets
                                  
                                  
                                  183
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  183
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1832008Sales
      to external customers
                                  
                                  $
                                  2,000
                                  
                                  
                                  $
                                  696
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  2,696
                                  
                                  
                                  $
                                  233
                                  
                                  
                                  $
                                  2,929Gross
      Profit
                                  
                                  
                                  478
                                  
                                  
                                  
                                  171
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  649
                                  
                                  
                                  
                                  40
                                  
                                  
                                  
                                  689Operating
      (loss)
                                  
                                  
                                  (3,199
                                  )
                                  
                                  
                                  (42
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (3,241
                                  )
                                  
                                  
                                  (188
                                  )
                                  
                                  
                                  (3,429
                                  )Interest
      income
                                  
                                  
                                  79
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  79
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  79Depreciation
      and amortization
                                  
                                  
                                  82
                                  
                                  
                                  
                                  9
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  91
                                  
                                  
                                  
                                  9
                                  
                                  
                                  
                                  100Stock-based
      compensation
                                  
                                  
                                  169
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  169
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  169Total
      assets
                                  
                                  
                                  27,625
                                  
                                  
                                  
                                  2,473
                                  
                                  
                                  
                                  (3,651
                                  )
                                  
                                  
                                  26,447
                                  
                                  
                                  
                                  587
                                  
                                  
                                  
                                  27,034Expenditures
      for fixed assets
                                  
                                  
                                  393
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  393
                                  
                                  
                                  
                                  20
                                  
                                  
                                  
                                  413




Three
      Months EndedJune
      30,*
      Adjustments
                                  
                                  2009
                                  
                                  
                                  2008Intercompany
      eliminations
                                  
                                  
                                  (1,810
                                  )
                                  
                                  
                                  (2,237
                                  )Investment
      in subs
                                  
                                  
                                  (1,414
                                  )
                                  
                                  
                                  (1,414
                                  )Total
      assets
                                  
                                  $
                                  (3,224
                                  )
                                  
                                  $
                                  (3,651
                                  )




Note
7.  Discontinued Operations and Asset Sale




Sale
of non-core health services segment




After
careful evaluation, we sold the assets of the health services segment (the
BEST-DMS assets) to Ghiglieri Winchester Inc., the successor to Best Dysphasia
Management Services, Inc. This transaction was signed on November 7,
2008, closed on November 10, 2008 and was effective October 28,
2008.




Consistent
with the provisions of Statement 144, Accounting for the Impairment or
Disposal of Long-lived Assets (Statement 144), we classified the BEST-DMS
assets that were sold as discontinued operations for all periods presented.
Accordingly, depreciation and amortization associated with these assets was
discontinued. Additionally, since all assets were part of the health services
segment, we determined that these assets comprised operations and cash flows
that can be clearly distinguished, operationally and for financial reporting
purposes, from the rest of our operations.





As a
result of the BEST-DMS asset sale, we recorded in FY 09 a loss of $800 as a
separate component in our consolidated statement of operations, entitled “Loss
from discontinued operations, net.”  Out of the $800, $188 is
attributable to Q1 09. There is no impact on current fiscal year.





Note
8.  Subsequent Events




None.




11




Item 2.  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations




Executive
Summary




This
Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of The Private Securities Litigation Reform Act of 1995, which are
subject to various risks and uncertainties that could cause our actual results
to differ materially from those expressed or implied in such statements. Such
factors include, but are not limited to, further weakening of economic
conditions that could adversely affect the level of demand for our products;
pricing pressures, including cost-containment measures which could adversely
affect the price of, or demand for, our products; availability of parts on
acceptable terms; our ability to design new products and the success of such new
products, maintaining or renewing our exclusive distribution agreement with
Medtronic Xomed, Inc. on acceptable terms, changes in foreign exchange markets;
changes in financial markets and changes in the competitive environment. Other
examples of forward-looking statements include statements about expectations
about future financial results, future products and future sales of new and
existing products, future expenditures, and capital resources to meet
anticipated requirements. Generally, words such as “expect” “believe”,
“anticipate”, “may”, “will”, “plan”, “intend”, “estimate”, “could”, and other
similar expressions are intended to identify forward-looking statements. The
forward-looking statements are based on our future plans, strategies,
projections and predictions and involve risks and uncertainties, and our actual
results may differ significantly from those discussed in the forward-looking
statements. Factors that might cause such a difference could include the
availability of capital resources; the availability of third-party
reimbursement; government regulation; the availability of raw material
components; our dependence on certain distributors and customers; competition;
technological difficulties; general economic conditions and other risks detailed
in this Annual Report on Form 10-K and any subsequent periodic filings we
make with the Securities and Exchange Commission (SEC). While we believe the
assumptions underlying such forward-looking statements are reasonable, there can
be no assurance that future events or developments will not cause such
statements to be inaccurate. All forward-looking statements contained in this
report are qualified in their entirety by this cautionary statement. We do not
undertake an obligation to update our forward-looking statements to reflect
future events or circumstances.




We
design, develop, manufacture and market products for endoscopy - the science of
using an instrument, known as an endoscope - to provide minimally invasive
access to areas not readily visible to the human eye. We operate in two
segments, medical and industrial. Our medical segment designs, manufactures, and
sells our advanced line of endoscopy-based products for a variety of
specialties, including our state-of-the-art flexible fiber and video endoscopes
and our Slide-On EndoSheath technology. Our industrial segment, through
our wholly-owned subsidiary, Machida, designs, manufactures and sells borescopes
to a variety of users, primarily in the aircraft engine-manufacturing and
aircraft engine-maintenance industries. A borescope is an instrument that uses
optical fibers for the visual inspection of narrow cavities.




We
believe that our medical segment’s endoscopes are the only ones which do not
contain difficult-to-clean operating channels associated with endoscopes from
other manufacturers. Instead, our endoscopes are used in combination with our
EndoSheath disposables, which covers the entire scope and prevents any contact
between the patient and the scope’s insertion tube.




Within
our medical segment we target four main areas for our fiber and video endoscopes
and our EndoSheath technology: ENT (ear, nose and throat), urology,
gastroenterology (GI) and pulmonology. Within the ENT area, we manufacture ENT
endoscopes and sell these scopes exclusively to Medtronic Xomed, Inc., the ENT
subsidiary of Medtronic, Inc. (Medtronic) for use by ENT
physicians.  In March 2007, we completed the sale to Medtronic of
our ENT EndoSheath product line, which Medtronic now manufactures and
distributes along with our ENT endoscopes. Our TNE (trans-nasal esophagoscopy)
endoscopes are manufactured by us, and are marketed to ENT and GI physicians.
The TNE endoscopes which are sold to the ENT physicians are marketed and
distributed by Medtronic.  Within the urology area, we manufacture,
market and sell our cystoscopes and EndoSheath technology to urologists and
other urology-gynecology related physicians.  Within the GI area, we
manufacture, market and sell our TNE scopes and EndoSheath technology to GI
physicians, primary care physicians and others with a GI focus as part of their
practice. We manufacture, market and sell our recently released bronchoscope (an
endoscope that allows detailed viewing of the lungs) and EndoSheath technology
for bronchoscopy to pulmonologists, oncologists, thoracic surgeons and other
pulmonology-related physicians.




Registered
Trademarks, Trademarks and Service Marks
  Vision-Sciences, Inc.
owns the registered trademarks Vision Sciences®,
Slide-On®,
EndoSheath®, and The
Vision System®. Not all
products referenced in this report are approved or cleared for sale,
distribution or use.


New
Product Release




During
the months of March and April 2009, we received clearance from the FDA, and the
Canadian and European regulatory agencies to market our newly developed line of
ENT 4000. We then started manufacturing this new ENT 4000 line of products,
which includes fiberscopes that will replace the ENT-2000, a standard scope for
office and hospital based laryngen care, and the ENT-3000, a portable
laryngoscope utilizing a battery-powered LED light source.




12


In Q1 10
we started marketing and selling of our BRS-5000, our new advanced digital,
video-based flexible bronchoscope (an endoscope which allows detailed viewing of
the lungs) which is utilized with our EndoSheath technology. The BRS-5000 is a
CCD-based video imaging endoscopy system, which includes an integrated built-in
LED light source and operates with our streamlined, multi-functional 5000-Series
processor.  This streamlined video-based system eliminates the need
for a separate camera head, light source and video monitor. It is marketed to
pulmonologists, oncologists, thoracic surgeons and other pulmonology related
physicians.




Results
of Operations




Three
months ended June 30, 2009 (Q1 10) compared to the three months ended
June 30, 2008 (Q1 09), in (000’s)




Net
Sales




Net sales
for Q1 10 were $3,318, an increase of $622, or 23%, compared to the sales of
$2,696 for Q1 09. During Q1 10 our medical segment’s net sales of $2,605
increased by $605, or 30%, and our industrial segment’s net sales of $713,
increased by $17, or 2%.





In the
medical segment, we track sales of endoscopes and EndoSheath disposables by
market. We also track sales of peripherals and accessories which can be sold to
more than one market. Sales by segment, market and by category in Q1 10 and Q1
09 were as follows:





Three
      Months EndedJune
      30,Market/Category
                            
                            2009
                            
                            
                            2008
                            
                            
                            Difference
                            
                            
                            PercentageENT
      and TNE
                            
                            $
                            1,187
                            
                            
                            $
                            695
                            
                            
                            $
                            492
                            
                            
                            
                            71
                            %Urology
                            
                            
                            738
                            
                            
                            
                            698
                            
                            
                            
                            40
                            
                            
                            
                            6
                            %Bronchoscopy
                            
                            
                            196
                            
                            
                            
                            -
                            
                            
                            
                            196
                            
                            
                            
                            100
                            %Repairs
                            
                            
                            147
                            
                            
                            
                            499
                            
                            
                            
                            (352
                            )
                            
                            
                            -71
                            %Peripherals
      and accessories
                            
                            
                            337
                            
                            
                            
                            108
                            
                            
                            
                            229
                            
                            
                            
                            212
                            %Total
      Medical
                            
                            $
                            2,605
                            
                            
                            $
                            2,000
                            
                            
                            $
                            605
                            
                            
                            
                            30
                            %Borescopes
                            
                            
                            560
                            
                            
                            
                            459
                            
                            
                            
                            101
                            
                            
                            
                            22
                            %Repairs
                            
                            
                            153
                            
                            
                            
                            237
                            
                            
                            
                            (84
                            )
                            
                            
                            -35
                            %Total
      Industrial
                            
                            $
                            713
                            
                            
                            $
                            696
                            
                            
                            $
                            17
                            
                            
                            
                            2
                            %Total
    Sales
                            
                            $
                            3,318
                            
                            
                            $
                            2,696
                            
                            
                            $
                            622
                            
                            
                            
                            23
                            %





Medical
      Segment




Medical
      Segment - ENT and TNE Markets




Sales to
the ENT and TNE market include both our ENT and TNE endoscopes and EndoSheath
disposables, as follows:





Three
      Months EndedJune
      30,ENT/TNE
      Market
                            
                            2009
                            
                            
                            2008
                            
                            
                            Difference
                            
                            
                            PercentageEndoscopes
                            
                            $
                            1,158
                            
                            
                            $
                            690
                            
                            
                            $
                            468
                            
                            
                            
                            68
                            %Slide-On
      EndoSheaths
                            
                            
                            29
                            
                            
                            
                            5
                            
                            
                            
                            24
                            
                            
                            
                            480
                            %Total
      ENT/TNE
                            
                            $
                            1,187
                            
                            
                            $
                            695
                            
                            
                            $
                            492
                            
                            
                            
                            71
                            %




ENT/TNE
net sales in Q1 10 were $1,187, an increase of $492, or 71%, over Q1 09 sales of
$695. The increase in net sales is mainly due to a higher sales volume of
fiberscopes and the positive impact of our videoscope product line which
commands a higher price per unit. In Q 1 09, we had limited sales of videoscopes
as they were introduced only by the end of the quarter.


13
 
 Medical
Segment - Urology Market
  Sales to
the urology market include urology endoscopes and EndoSheath disposables, as
follows:
  Three
      Months EndedJune
      30,Urology
      Market
                                
                                2009
                                
                                
                                2008
                                
                                
                                Difference
                                
                                
                                PercentageEndoscopes
                                
                                $
                                372
                                
                                
                                $
                                487
                                
                                
                                $
                                (115
                                )
                                
                                
                                -24
                                %Slide-On
      EndoSheaths
                                
                                
                                366
                                
                                
                                
                                211
                                
                                
                                
                                155
                                
                                
                                
                                73
                                %Total Urology Market
                                
                                $
                                738
                                
                                
                                $
                                698
                                
                                
                                $
                                40
                                
                                
                                
                                6
                                %
 
 Net sales
to the urology market in Q1 10 were $738, an increase of $40, or 6%, over Q1 09
net sales of $698. Our urology endoscope sales decrease of $115, or 24%, was
offset by an increase in EndoSheath disposable net sales of $155, or
73%.  The increase of EndoSheath disposable sales was mainly due to an
initial order of $100 from a European distributor.
 Medical
Segment – Bronchoscopy Market


Three
      Months EndedJune
      30,Bronchoscopy
      Market
                            
                            2009
                            
                            
                            2008Endoscopes
                            
                            $
                            182
                            
                            
                            $
                            -Slide-On
      EndoSheaths
                            
                            
                            14
                            
                            
                            
                            -Total Bronchoscopy
      Market
                            
                            $
                            196
                            
                            
                            $
                            -


In Q1 10,
we launched our video bronchoscope (an endoscope that allows detailed viewing of
the lungs) and EndoSheath technology for bronchoscopy to pulmonologists,
oncologists, thoracic surgeons and other pulmonology-related physicians. Net
sales were $196, of which $182 was from endoscopes sales and $14 was from
EndoSheath disposable sales.




Medical
Segment – Repairs


Our
repairs business decreased from $499 in Q1 09 to $147 in Q1 10, representing a
71% decline. Our Q1 09 net sales of $499 included delayed repairs from prior
quarters due to the shortage of Pentax parts we experienced in the second half
of fiscal year ended March 31, 2008 (FY 08).




Medical
Segment—Peripherals and Accessories




Our
peripherals and accessories net sales in Q1 10 were $337, an increase of $229,
or 212%, over Q1 09 net sales of $108. The increase reflects the additional
endoscope sales during Q1 10, which increased demand for our peripherals and
accessories.




Industrial
Segment




Net sales
of industrial products in Q1 10 of $713, increased by $17, or 2% over Q1 09 net
sales of $696. Sales of borescopes increased by $101, or 22%, to $560 in Q1 10
from $459 in Q1 09. Repair revenue decreased by $84, or 35%, to $153 in Q1 10
from $237 in Q1 09. This segment’s products are mature, and therefore we expect
future sales to remain relatively flat.




Gross
Profit




Gross
profit of $788 in Q1 10 increased by $139 compared to gross profit of $649 in Q1
09.




Three
      Months EndedJune
      30,Gross
      Profit
                          
                          2009
                          
                          
                          2008
                          
                          
                          Difference
                          
                          
                          PercentageMedical
                          
                          $
                          440
                          
                          
                          $
                          478
                          
                          
                          $
                          (38
                          )
                          
                          
                          -8
                          %As
      Percentage of Sales
                          
                          
                          17
                          %
                          
                          
                          24
                          %
                          
                          
                          -7
                          %Industrial
                          
                          
                          348
                          
                          
                          
                          171
                          
                          
                          
                          177
                          
                          
                          
                          104
                          %As
      Percentage of Sales
                          
                          
                          49
                          %
                          
                          
                          25
                          %
                          
                          
                          24
                          %Total
      Gross Profit
                          
                          $
                          788
                          
                          
                          $
                          649
                          
                          
                          $
                          139
                          
                          
                          
                          21
                          %As
      Percentage of Sales
                          
                          
                          24
                          %
                          
                          
                          24
                          %
                          
                          
                          0
                          %




For the
current quarter, gross profit was $440 and $348 for the medical and industrial
segments, respectively, as opposed to $478 and $171 in Q1 09.




Our total
gross profit as a percentage of net sales in Q1 10 was unchanged from Q1 09 at
24%. In the medical segment gross profit as percentage of sales decreased by 7%,
from 24% in Q1 09 to 17% in Q1 10 due to product mix – in Q1 09 we had more
fiberscope produced, whereas in Q1 10 we produced more videoscopes, and we are
still in the process of improving manufacturing efficiencies for our videoscope
family of products. In the industrial segment, our gross profit as percentage of
sales increased by 24%, from 25% to 49%, mainly due to manufacturing
efficiencies.




Operating
Expenses




Our Q1 10
total operating expenses of $3,268 decreased by $622, or 16%, from Q1 09. Sales,
General and Administrative (SG&A) expenditures decreased by $209, or 8%, and
Research and development (R&D) expenditures decreased by $385, or
33%.




14





Operating
expenses, by segment, were as follows:




Three
      Months EndedJune
      30,Operating
      Expenses
                              
                              2009
                              
                              
                              2008
                              
                              
                              Difference
                              
                              
                              PercentageSG&AMedical
                              
                              $
                              2,270
                              
                              
                              $
                              2,478
                              
                              
                              $
                              (208
                              )
                              
                              
                              -8
                              %Industrial
                              
                              
                              212
                              
                              
                              
                              213
                              
                              
                              
                              (1
                              )
                              
                              
                              -Total
      SG&A
                              
                              
                              2,482
                              
                              
                              
                              2,691
                              
                              
                              
                              (209
                              )
                              
                              
                              -8
                              %R&D
      Medical
                              
                              
                              786
                              
                              
                              
                              1,171
                              
                              
                              
                              (385
                              )
                              
                              
                              -33
                              %Sub-Total Operating
      Expenses
                              
                              
                              3,268
                              
                              
                              
                              3,862
                              
                              
                              
                              (594
                              )
                              
                              
                              -15
                              %Restructing
      Charge
                              
                              
                              -
                              
                              
                              
                              28
                              
                              
                              
                              (28
                              )
                              
                              
                              100
                              %Total Operating
      Expenses
                              
                              $
                              3,268
                              
                              
                              $
                              3,890
                              
                              
                              $
                              (622
                              )
                              
                              
                              -16
                              %




Following
is a detailed explanation of operating expenses, by categories:





SG&A
– medical segment:





In Q1 10 SG&A decreased by $208
from Q1 09, mainly due to the following expense reductions (i) $100 in
compensation expense; (ii) $41 in consulting expense (iii) $33 on investor
relations and (iv) $30 in sales commissions.




SG&A
– industrial segment





In Q1 10,
SG&A expenditures in the industrial segment were virtually flat at $212 when
compared to Q1 09.





R&D




Q1 09 R&D expenses were down by
$385 from Q1 09, mainly due to (i) reduced expenses on new product development
of $250, (ii) reduced consulting expenses of $65, and (iii) a $30 reduction in
compensation expenses.





Restructuring
charge:





A one-time restructuring charge of $28
in Q1 09 was related to expected severance and other termination expenses due to
the staff reduction and relocation of our Natick, MA facility. This
restructuring charge was reversed in the quarter ending September 30, 2008 (Q2
09).





Other
Income/(Expense)




In Q1 10,
our Other Income was $22 as compared to $3,295 in Q1 09, as
follows:





Three
      Months EndedJune
      30,Other
      Income/(Expense)
                              
                              2009
                              
                              
                              2008
                              
                              
                              Difference
                              
                              
                              PercentageInterest
      income
                              
                              $
                              50
                              
                              
                              $
                              79
                              
                              
                              $
                              (29
                              )
                              
                              
                              -37
                              %Interest
      expense
                              
                              
                              -
                              
                              
                              
                              (14
                              )
                              
                              
                              14
                              
                              
                              
                              -100
                              %Gain
      on sale of product line, net of direct costs
                              
                              
                              -
                              
                              
                              
                              3,230
                              
                              
                              
                              (3,230
                              )
                              
                              
                              -100
                              %Loss
      on investments
                              
                              
                              (28
                              )
                              
                              
                              -
                              
                              
                              
                              (28
                              )
                              
                              
                              -Total
      Other Income/(Expense), Net
                              
                              $
                              22
                              
                              
                              $
                              3,295
                              
                              
                              $
                              (3,273
                              )
                              
                              
                              -99
                              %





Following
is a detailed explanation of other income/(expense), by category:




Interest
Income




Q1
10 interest income decreased from $79 to $50, or 37%, primarily due to lower
cash and short term investment balance.




Gain
on sale of product line, net of direct costs




In
March of 2007, we completed the sale to Medtronic of certain assets with
respect to our ENT EndoSheath technology business. As part of the transaction,
we granted to Medtronic an exclusive, royalty-free worldwide license to certain
of our intellectual property, for use in making and selling EndoSheath
technology products solely within the ENT field.





15


Additionally,
as part of the transaction and under a separate transition agreement, we
transferred our ENT production lines for the ENT EndoSheath disposables from our
Natick facility to a Medtronic facility in Jacksonville, FL. Medtronic
distributes, markets and sells our ENT endoscope products worldwide, on a
co-branded basis, through Medtronic’s dedicated sales force.





Total
payments under this transaction were $34,000, which we received in full. In Q1
09 we received net payments of $3,230 related to the transition
agreement.





Net (Loss)
Income




Our Q1 10
net loss was $2,468, versus a net loss of $143 in Q1 09, an increase in net loss
of $2,325, as follows:




Three
      Months EndedJune
      30,Net
      (loss)/income:
                            
                            2009
                            
                            
                            2008
                            
                            
                            Difference(Loss)/income
      before provision for income taxes
                            
                            $
                            (2,458
                            )
                            
                            $
                            54
                            
                            
                            $
                            (2,512
                            )Provision
      for income taxes
                            
                            
                            10
                            
                            
                            
                            9
                            
                            
                            
                            1(Loss)/income
      before discontinued operations
                            
                            
                            (2,468
                            )
                            
                            
                            45
                            
                            
                            
                            (2,513
                            )Loss
      from discontinued operations, net
                            
                            
                            -
                            
                            
                            
                            (188
                            )
                            
                            
                            188Net
      loss
                            
                            $
                            (2,468
                            )
                            
                            $
                            (143
                            )
                            
                            $
                            (2,325
                            )





(Loss)/income
before provision for income taxes





In Q1 10,
our loss before provision for income taxes was $2,458 versus income of $54, a
$2,512 increased loss. Q1 09 income was a result of the net gain on sale of
product line generated from our transition agreement with Medtronic, for a total
of $3,230.





Provision
for income taxes





Our
provision for taxes in Q1 10 of $10 was slightly higher than that $9 in the same
quarter last year.





(Loss)/Income
before discontinued operations





In Q1 10,
our loss before discontinued operations of BEST DMS was $2,468 versus an income
of $45, a $2,513 increased loss. Q1 09 income was a result of net income
generated from our transition agreement with Medtronic, for a total of
$3,230.





Discontinued
operations





Below are
summarized operating results of discontinued operations, as
follows:





Three
      Months EndedJune
      30,Description
                          
                          2009
                          
                          
                          2008Revenue
                          
                          $
                          -
                          
                          
                          $
                          233Gross
      margin
                          
                          
                          -
                          
                          
                          
                          17.2
                          %Loss
      from discontinued operations
                          
                          $
                          -
                          
                          
                          $
                          (188
                          )(net
      of taxes of zero)


Net
Loss





Our net
loss in Q1 10 was $2,468 versus a loss of $143, a $2,325 increase in loss. Q1 09
net loss was offset by the income generated from our transition agreement with
Medtronic, for a total of $3,230.





Liquidity
and Capital Resources




At
June 30, 2009 our principal source of liquidity was working capital of
approximately $­­­­­­­12,432 including $6,972 in
cash and short term investments.




During Q1
10 we sold $1,009 of short term investments for a net investment of $6,936. Net
cash used in operating activities of ($2,794) included (i) a decrease of
$685 in accounts receivable, mainly due to higher sales volume during the end of
the quarter; (ii) non-cash stock-based compensation of $321 offset by $41 in
cash for exercise of options; and (iii) a net decrease of $116 in accounts
payable and accrued expenses.




16


Our cash
and cash equivalents decreased by approximately $1,936 in Q1 10 as compared to a
decrease of $7,408 in Q1 09. This decrease was mainly due to cash uses in
operating activities of $2,794 and cash provided by investment activities of
$826, and net cash provided by financing of $32.





We have
incurred losses since our inception, and losses are expected to continue through
at least FY 10 and fiscal 2011 (FY 11). We have funded the losses principally
with proceeds from operations, proceeds from public and private equity
financings, payments from Medtronic related to the sale of certain assets
related to our ENT EndoSheath technology business and the sale of other assets.
We believe that our cash and cash equivalents on-hand will be sufficient to fund
our working capital, capital expenditures, and future operating losses until
June 30, 2010.  However, if our performance expectations fall short,
we will need to either secure additional financing or cut costs or a combination
thereof, and in such instance, the failure to do so would have a material
adverse impact on our financial condition.





We have
no off-balance sheet arrangements that have, or are reasonably likely to have, a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.




Item 3.  Quantitative
and Qualitative Disclosures About Market Risk




We are a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act and
are not required to provide the information required by this item.




Item 4.  Controls
and Procedures




Evaluation
of Disclosure Controls and Procedures.




We are a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act and
are not required to provide the information required by this item.




Item 4T.  Controls
and Procedures




(a)
            Disclosure
      Controls and Procedures




We have
evaluated, under the supervision and with the participation of our senior
management, including our Chief Executive Officer and Chief Financial Officer,
the effectiveness of the design and operation of our disclosure controls and
procedures as of June 30, 2009. Based upon the foregoing, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of June 30, 2009.




(b)
              Management’s
      Annual Report on Internal Control over Financial
      Reporting


Management
is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Rule 13a-15(f). Internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and preparation of financial statements for
external purposes in accordance with Generally Accepted Accounting Principles.
Under the supervision and the participation of management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an assessment of the
design and effectiveness of our internal control over financial reporting as of
June 30, 2009 covered by this report based on the framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control-Integrated Framework. Based on this assessment, management concluded
that our internal control over financial reporting was effective as of June 30,
2009.




Changes
      in Internal Controls Over Financial
Reporting




There
have been no changes in our internal controls over financial reporting during
the quarter ended June 30, 2009 that have materially affected, or are reasonably
likely to materially affect our internal controls over financial
reporting.





17




PART
II—OTHER INFORMATION





Item 1.  Legal
Proceedings




None




Item 1A.  Risk
Factors




There
have been no material changes from the information discussed in Part I, Item 1A.
Risk Factors, on page 22 of our Annual Report on Form 10-K for the year ended
March 31, 2009, except for the
information discussed below. You should carefully consider the risks and
uncertainties we discussed on our Form 10-K and the risks described below in
this quarterly report before deciding to invest in, or retain, shares of our
common stock. These are not the only risks and uncertainties that we face.
Additional risks and uncertainties that we do not currently know about or that
we currently believe are immaterial, or that we have not predicted, may also
harm our business operations or adversely affect us. If any of these risks or
uncertainties actually occurs, our business, financial condition, operating
results or liquidity could be materially harmed.





We
have a history of operating losses and we may not achieve or maintain
profitability in the future





We have
incurred substantial operating losses since our inception and there can be no
assurance that we will achieve a profitable level of operations in the future.
We anticipate a negative cash flow during FY 10 and FY 11, because of spending
for research and development, increasing our global network of independent sales
representatives and distributors, investing in a direct sales force for the
North American market, general business operations and capital expenditures. As
of June 30, 2009, we had cash and cash equivalents including short term
investments totaling approximately $7.0 million. We expect that our current
balance of cash and short term investments will be sufficient to fund our
operations until June 30, 2010.  However, if our performance
expectations fall short, we will need to either secure additional financing or
cut costs or a combination thereof, and in such instance, the failure to do so
would have a material adverse impact on our financial
condition.  There can be no assurance that such financing will be
available on terms acceptable to us, if at all.





Item 2.  Unregistered
Sales of Equity Securities and Use of Proceeds




N/A




Item 3.  Defaults
Upon Senior Securities




N/A.




Item 4.  Submission
of Matters to a Vote of Stockholders




Our 2009 Annual Meeting of Stockholders
will be held on September 3, 2009 (the Annual Meeting). Proxies for the Annual
Meeting were solicited pursuant to our proxy statement under Regulation 14A of
the Securities Exchange Act of 1934, as amended, filed with the SEC on July 21,
2009 (the Proxy Statement) and made available electronically to shareholders.
The following matters are submitted to a vote of our security holders: (i) to
elect the Class III Directors and (ii) to ratify the selection of BDO Seidman,
LLP as the independent registered public accountants of Vision-Sciences,
Inc.  On July 24, 2009, we provided access to our Proxy Statement over
the internet at www.proxyvote.com,
and sent a Notice Regarding the Availability of Proxy Materials for the
shareholder meeting to our stockholders of record as of July 10,
2009.




Item 5.  Other
Information




a)
              On
      April 12, 2009, we signed our fourth amendment (the amended lease) to
      extend our lease at 40 Ramland Road South, Orangeburg, NY (the Orangeburg
      facility). The amended lease is for a six year period. Rents range from
      $15.75 per month for the first two years of the lease term, to $16.75 per
      month in the final two years of the amended lease term. As part of the
      amended lease, we will add an additional 5,250 square feet for a total of
      20,500 square feet. The amended lease term will commence upon substantial
      completion of the landlord's renovation of the location, a process we
      expect to be completed by August 2009. We will spend approximately $30 to
      cover the cost of the renovations and approximately $35 on new furniture.
      The balance of the renovations will be covered by the
      landlord.b)
              Our exclusive distribution
      agreement with Medtronic has expired and we are currently negotiating a
      new agreement with them. During the negotiation period, Medtronic has
      continued to market our ENT and TNE products sold to the ENT market, and
      to purchase those products from us on terms acceptable to us and on terms
      substantially similar to those in effect under our agreement with them.
      There can be no assurance that we will be able to renew the agreement on
      satisfactory terms.




18




Item 6.  Exhibits




Exhibits31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-15(e)/15d-15(e),
      promulgated under the Securities Exchange Act of 1934, as
      amended.31.2
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-15(e)/15d-15(e),
      promulgated under the Securities Exchange Act of 1934, as
      amended.32
            
            Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes
      Oxley Act of 2002.




19


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




VISION-SCIENCES, INC.Date:
      August 14, 2009
                        /s/
      Ron HadaniRon
      Hadani
                          President,
      CEO (Duly Authorized Officer)Date:
      August 14, 2009
                        /s/
      Katherine L. WolfKatherine
      L. Wolf
                          Chief
      Financial Officer
                          (Principal
      Financial Officer and
                          Principal
      Accounting
Officer)







20





VISION-SCIENCES, INC.




EXHIBIT
INDEX




Exhibit
                
                Description
      of Exhibit3.1(1)
                
                Amended
      and Restated Certificate of Incorporation of the Company, as amended to
      date3.2(20)
                
                By-laws,
      as amended to date*10.1(3)
                
                1990
      Stock Option Plan, as amended*10.2(17)
                
                2003
      Director Option Plan, as amended*10.3(4)
                
                2000
      Stock Incentive Plan*10.3.1(12)
                
                2007
      Stock Incentive Plan, as amended*10.5(2)
                
                Form
      of Vision-Sciences, Inc.’s Invention, Non-Disclosure and
      Non-Competition Agreement for employees*10.6(15)
                
                Letter
      Agreement between the Company and Ron Hadani dated January 24,
      200310.9(2)
                
                Registration
      Rights Agreement dated as of February 28, 1992 among the Registrant
      and the persons listed therein10.10(1)
                
                Piggyback
      Registration Rights Agreement, dated January 2, 2001, between the
      Company and the individuals and entities listed therein10.11(9)
                
                Supply
      Agreement dated March 16, 1992 between the Registrant and Pentax
      Corporation (formerly known as Asahi Optical Co., Ltd.) and
      amendment dated October 1, 200210.12(13)
                
                Termination
      Agreement between Pentax Corporation and Vision-Sciences, Inc. dated
      February 12, 200810.14(6)
                
                License
      Agreement between Vision-Sciences, Inc. and Advanced
      Polymers, Inc. dated June 10, 199310.15(7)
                
                Amendment
      to License Agreement between Vision-Sciences, Inc. and Advanced
      Polymers, Inc. dated April 5, 199410.16(8)
                
                Amendment
      to License Agreement between Vision-Sciences, Inc. and Advanced
      Polymers, Inc. dated April 5, 199510.17(8)
                
                Amendment
      to License Agreement between Vision-Sciences, Inc. and Advanced
      Polymers, Inc. dated April 5, 1996**10.19(5)
                
                License
      Agreement dated as of August 6, 1998 between
      Vision-Sciences, Inc. and Pentax Corporation (formerly Asahi
      Optical Co., Ltd.)10.21(4)
                
                Agreement
      of Lease between 30 Ramland Road LLC and Vision-Sciences, Inc.
      dated as of March 23, 2000.10.31(10)
                
                Asset
      Purchase Agreement dated as of January 16, 2007 by and between
      Medtronic Xomed, Inc. and the Company10.32(10)
                
                Amended
      and Restated Exclusive Distribution Agreement dated as of March 26,
      2007 by and between the Company and Medtronic
    Xomed, Inc.10.33(10)
                
                License
      Agreement dated as of March 26, 2007 by and between the Company and
      Medtronic Xomed, Inc.*10.35(15)
                
                Amendment
      dated April 4, 2007 to Employment Letter Agreement of Ron
      Hadani10.36(11)
                
                Merrill
      Lynch Loan Management Account Agreement (the “Agreement”) between
      Vision-Sciences, Inc. and Merrill Lynch Bank USA (“Bank”) and
      accompanying Commitment Letter from the Bank.10.38(15)
                
                Third
      Amendment to Lease between 30 Ramland Road, LLC and the Company
      dated as December 26, 2006.10.39(14)
                
                Development
      and Supply Agreement between Vision-Sciences, Inc. and
      SpineView, Inc. dated June 19, 2008*
      10.40(18)
                
                Employment
      Letter between Katherine L. Wolf and the Company, effective September 16,
      200810.41
      (18)
                
                Consulting
      Agreement between NYC Advisors LLC and the Company, effective October 1,
      200810.42(19)
                
                Surrender
      and Acceptance Agreement between Ramland Realty Associates L.L.C. and the
      Company dated December 31, 2008.10.43(21)
                
                Consulting
      Agreement between Warren Bielke and the company, effective April 7,
      2009.10.44(21)
                
                Fourth
      Amendment to Lease between 30 Ramland Road, LLC and the Company
      dated as April 12, 2009.21.1(21)
                
                Subsidiaries
      of the Company23.1
                
                Consent
      of BDO Seidman, LLP31.1
                
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a), promulgated under the Securities Exchange Act of
      1934, as amended.31.2
                
                Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and
      Rule 15d-14(a), promulgated under the Securities Exchange Act of
      1934, as amended.32
                
                Certification
      of Chief Executive Officer and Chief Financial Officer pursuant to
      18 U.S.C. Section 1350, as adopted pursuant to Section 906
      of the Sarbanes-Oxley Act of
2002.


21


*
            Management
      contract or compensatory plan or arrangement filed as an exhibit to this
      Form pursuant to Items 15(a) and 15(b) of
      Form 10-K.




**
            Confidential
      treatment granted as to certain portions, which portions have been deleted
      and filed separately with the Securities and Exchange
      Commission.




(1)
            Incorporated
      by reference to the Annual Report on Form 10-K for the fiscal year
      ended March 31, 2001.(2)
            Incorporated
      by reference to the Registration Statement on Form S-1 (File
      No. 33-53490).(3)
            Incorporated
      by reference to the Annual Report on Form 10-K for the fiscal year
      ended March 31, 1994.(4)
            Incorporated
      by reference to the Annual Report on Form 10-K for the fiscal year
      ended March 31, 2000.(5)
            Incorporated
      by reference to the Current Report on Form 8-K dated August 20,
      1998.(6)
            Incorporated
      by reference to the Quarterly Report on Form 10-Q for the quarter
      ended June 30, 1993.(7)
            Incorporated
      by reference to the Quarterly Report on Form 10-Q/A for the quarter
      ended June 30, 1994.(8)
            Incorporated
      by reference to the Annual Report on Form 10-K for the fiscal year
      ended March 31, 1996.(9)
            Incorporated
      by reference to the Quarterly Report on Form 10-Q/A for the quarter
      ended December 31, 2002.


(10)
            Incorporated
      by reference to the Proxy Statement dated March 6, 2007 filed with
      the Securities and Exchange Commission on March 7, 2007 on
      Schedule 14A.(11)
            Incorporated
      by reference to the Current Report on Form 8-K filed on
      January 24, 2008.


(12)
            Incorporated
      by reference to the Proxy Statement dated July 30, 2007 filed with
      the Securities and Exchange Commission on July 27, 2007 on
      Schedule 14A.(13)
            Incorporated
      by reference to the current report on Form 8-K filed on
      February 15, 2008.(14)
            Incorporated
      by reference to the current report on Form 8-K filed on June 23,
      2008.(15)
            Incorporated
      by reference to the Annual Report on Form 10-K for the fiscal year ended
      March 31, 2008.(16)
            Incorporated
      by reference to the current report on Form 8-K filed on September 16,
      2008.(17)
            Incorporated
      by reference Registration Statement on Form S-8, filed on October 10,
      2008.(18)
            Incorporated
      by reference to the Quarterly Report on Form 10-Q for the quarter ended
      September 30, 2008.(19)
              (20)
              (21)
            Incorporated
      by reference to the current report on Form 8-K filed on January 6,
      2009.
              Incorporated
      by reference to the current report on Form 8-K filed on July 15,
      2009.
              Incorporated
      by reference to the Annual Report on Form 10-K filed for the fiscal year
      ended March 31, 2009.






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