<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
  /X/    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
         SECURITIES EXCHANGE ACT OF 1934
 
                    FOR THE FISCAL YEAR ENDED MARCH 31, 1998
                          COMMISSION FILE NO. 0-20970
                             VISION-SCIENCES, INC.
             (Exact name of Registrant as specified in its charter)
 
                            ------------------------
 
                  DELAWARE                             13-3430173
      (State or other jurisdiction of        (I.R.S. Employer Identification
       incorporation or organization)                    Number)
 
             6 STRATHMORE ROAD                            01760
           NATICK, MASSACHUSETTS                       (Zip Code)
  (Address of principal executive offices)
 
       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 650-9971
 
                            ------------------------
 
        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                          COMMON STOCK, PAR VALUE $.01
 
                            ------------------------
 
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
requirements for the past 90 days. Yes_X_ No__
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
 

<TABLE>
<S>                                                                              <C>
Aggregate market value of Common Stock held by non-affiliates of the Registrant
as of May 29, 1998 based upon the last sale price of the Common Stock on the
Nasdaq SmallCap Market as reported by Nasdaq:                                    $18,930,551
                                                                                 ----------
 
Number of shares outstanding of the Registrant's Common Stock as of May 29,
1998                                                                             16,650,021
                                                                                 ----------
</TABLE>

 
Documents incorporated by reference: Portions of the Proxy Statement for the
1998 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K.
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

                                     PART I
 

ITEM 1. BUSINESS
 
    This Annual Report on Form 10-K contains forward-looking statements,
including statements about new product introductions, expectations as to future
sales of the Company's products, the availability of supplies, the sufficiency
of the Company's capital resources to meet anticipated capital requirements, the
Company's intentions to expand its indirect sales force and the Company's
expectations as to future expenditures, including research and development
expenditures. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes", "anticipates", "plans",
"expects", and similar expressions are intended to identify forward-looking
statements. These forward-looking statements involve risks and uncertainties,
and the Company's actual results may differ significantly from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to the availability of capital
resources, the availability of third-party reimbursement, government regulation,
commercialization and technological difficulties, general economic conditions
and other risks detailed below. See "Certain Factors That May Affect the
Company's Future Operating Results."
 
    Vision-Sciences, Inc. (the "Company") develops, manufactures and markets
products for endoscopy which have infection control advantages over conventional
flexible endoscopes. The Company has developed, and is marketing, proprietary
flexible endoscope systems designed to eliminate the risk of cross-contamination
to patients and health-care professionals which results from the reuse of
conventional flexible endoscopes. The Company's systems consist of two main
components--a proprietary sterile disposable sheath, known as an EndoSheath
System (EndoSheath) and a reusable flexible endoscope incorporating the
Company's proprietary design. The EndoSheath is designed to cover all surfaces
of the endoscope that come in contact with the patient and contains the air,
water, suction and accessory channels that are a part of conventional flexible
endoscopes, thus providing a contamination-free instrument and substantially
reducing the burdensome cleaning required of conventional flexible endoscopes.
The Company has developed a family of disposable EndoSheath/reusable flexible
endoscope systems for gastrointestinal endoscopy and began commercial shipments
of its first such system, a fiberoptic sigmoidoscope, in April 1993.
 
    The Company also manufactures and sells disposable EndoSheaths for use with
certain conventional flexible endoscopes currently sold by the Company and other
manufacturers. In December 1992 the Company began commercial shipments of its
first such EndoSheath, for use with one of its nasopharyngo-laryngoscopes ("ENT
endoscopes"). In January 1993 the Company received clearance from the U.S. Food
and Drug Administration (the "FDA") to market four additional disposable
EndoSheaths for use with certain other ENT endoscopes. In February 1994 the
Company received clearance from the FDA to market its black and white CCD video
sigmoidoscope and EndoSheath system. In February 1995 the Company received
clearance from the FDA to market its 130 cm length fiberoptic colonoscope and
EndoSheath system and its fiberoptic gastroscope and EndoSheath system. In
December 1995 the Company received clearance from the FDA to market its
fiberoptic ENT scope. In December 1996 the Company received clearance from the
FDA to market its fiberoptic bronchoscope and EndoSheath system. In January 1997
the Company received clearance from the FDA to market its color video
sigmoidoscope.
 
ENDOSCOPY
 
    BACKGROUND
 
    Endoscopy is a minimally invasive technique that is being used with
increased frequency in a growing number of medical applications. Endoscopes are
used for a variety of screening and diagnostic procedures and are also used
therapeutically as an alternative to more traditional surgical procedures.
Endoscopic therapeutic procedures, unlike more traditional "open" surgical
procedures, can be performed without a
 
                                       1

<PAGE>
major incision, in most cases without general anesthesia, and are, therefore,
safer and less expensive than traditional surgical procedures. In addition,
endoscopic procedures are typically performed on an outpatient basis and
generally involve less recovery time and patient discomfort than traditional
surgery. The patient benefits and cost savings associated with endoscopy have
caused many governmental reimbursement programs and private health insurance
plans to encourage the use of endoscopic procedures in a number of medical
applications.
 
    Flexible endoscopes are tubular instruments that enter the body through a
natural orifice and enable physicians to view the interior of a body organ or
cavity remotely and perform various screening, diagnostic, and therapeutic
procedures. Flexible endoscopes generally utilize fiberoptic bundles or video
camera technology for image production. The physician can steer the distal
portion of a flexible endoscope with control knobs on the endoscope's operator
body. By maneuvering the tip of the endoscope, the physician can access body
regions through lengthy and twisted passageways (such as the colon) and perform
a variety of procedures. Most flexible endoscopes contain a series of channels
running the length of the endoscope for delivery of air, water, suction and
accessory devices, such as biopsy forceps and cutting instruments.
 
    Rigid endoscopes generally utilize a stainless steel tube encasing a series
of high resolution lenses to transmit the optical image. Most rigid endoscopes
do not contain the channels that are characteristic of flexible endoscopes.
Rigid endoscopes are currently utilized for diagnostic and surgical procedures
such as arthroscopy, laparoscopy, and urological and gynecological procedures.
While rigid endoscopes for other medical applications, such as bronchoscopes,
sigmoidoscopes, and nasopharyngo-laryngoscopes are still marketed, they have
largely been supplanted by flexible endoscopes, which offer improved patient
comfort and better handling capabilities. The Company does not currently plan to
participate in the rigid endoscope market.
 
APPLICATIONS
 
    Flexible endoscopes are widely used in hospitals, clinics, and physicians'
offices primarily on an outpatient basis. The Company's flexible endoscopes are
designed primarily for screening, diagnostic, and therapeutic procedures in
fields such as gastroenterology, surgery, primary care, otolaryngology
(ear-nose-throat medicine, or "ENT"), and pulmonary medicine. The Company
estimates, based on various industry sources, that approximately 20 million
flexible endoscopic procedures in these fields were performed in the United
States in 1995.
 
    GASTROINTESTINAL ENDOSCOPY.  The Company estimates, based on industry
sources, that over 12 million flexible endoscopic procedures involving the
screening, diagnosis or treatment of the colon, esophagus, stomach and duodenum
were performed in the United States in 1995. Continued growth in such procedures
is expected to result from an increase in sigmoidoscopies performed for the
purpose of detecting cancer of the descending colon, as well as the increased
medical needs associated with an aging population. The American Cancer Society
has recommended that every adult over the age of 50 (currently approximately 60
million Americans) receive a screening sigmoidoscopy every three to five years.
 
    The most common flexible endoscopes used in gastrointestinal endoscopy are
as follows:
 
    - Sigmoidoscopes are used for viewing the sigmoid colon and descending colon
      for screening and diagnostic purposes, such as screening for colon cancer.
      An estimated 4.7 million procedures were performed in the United States in
      1995 by gastroenterologists, family practitioners, and general and
      colon-rectal surgeons in hospitals, clinics, and physicians' offices
      primarily on an outpatient basis.
 
    - Colonoscopes are used for viewing the complete colon for screening,
      diagnostic and therapeutic purposes, such as removing polyps. Colonoscopy
      is often performed following sigmoidoscopy. An estimated 3.6 million
      procedures were performed in the United States in 1995, primarily by
      gastroenterologists and colon-rectal surgeons in hospitals and clinics.
 
                                       2

<PAGE>
    - Gastroscopes are used for viewing the esophagus and the stomach for
      diagnostic and therapeutic purposes, such as detecting and cauterizing
      ulcers. An estimated 4.2 million procedures were performed in the United
      States in 1995 by gastroenterologists in hospitals and clinics.
 
    - Duodenoscopes are used for viewing and intubating the biliary and
      pancreatic ducts from the duodenum for diagnostic and therapeutic
      purposes, such as detecting gallstones. An estimated 400,000 procedures
      were performed in the United States in 1995 by gastroenterologists in a
      hospital setting.
 
    - ENT Endoscopes. These endoscopes are used for viewing the ears, nose,
      throat and larynx for diagnostic purposes, such as testing for throat
      cancer. The Company estimates, based on industry sources, that
      approximately 4 million such procedures were performed in the United
      States in 1995, generally by otolaryngologists and allergists in
      hospitals, clinics, and physicians' offices.
 
    - Pulmonary Endoscopes. A bronchoscope and an intubation endoscope are
      flexible endoscopes used for viewing the trachea, bronchi and lungs for
      diagnostic and therapeutic purposes, generally by pulmonary specialists
      and anesthesiologists in a clinic or hospital setting. The Company
      estimates, based on industry sources, that approximately 1 million
      procedures using flexible bronchoscopes were performed in the United
      States in 1995. Because pneumonia is common in persons infected with the
      HIV virus, and because bronchoscopy is often used to make this diagnosis,
      there has been increased usage of bronchoscopes for this purpose, as well
      as greater recognition of the need to perform bronchoscopies in a
      contamination-free manner to protect both the HIV positive patients (who
      have weakened immune systems) and subsequent patients on whom the
      bronchoscope is used.
 
PROBLEMS WITH CONVENTIONAL FLEXIBLE ENDOSCOPES
 
    While endoscopy represents a significant advance in the field of clinical
medicine, conventional flexible endoscopes present a number of health risks and
problems to both patients and medical personnel. Conventional flexible
endoscopes are intended for repeated use in hundreds of procedures and, with
each use, come in contact with some combination of the patient's blood, tissue,
mucus, saliva and stool. Therefore, a conventional flexible endoscope must be
meticulously manually cleaned and disinfected after each procedure. However, the
design of conventional flexible endoscopes makes it difficult to attain high-
level disinfection after cleaning. As a result, the repeated use of conventional
flexible endoscopes and the difficulty in thoroughly cleaning and disinfecting
them after each use create the following problems:
 
    - Patients, and to a lesser degree the physician using the flexible
      endoscope and the nurse assistant cleaning it, are exposed to the risk of
      infection from contaminated endoscopes that results from their repeated
      use.
 
    - The nurses or other medical personnel who clean the endoscope face health
      risks from exposure to toxic disinfecting agents used in the cleaning
      process.
 
    - The proper cleaning of a flexible endoscope is relatively expensive,
      time-consuming and arduous.
 
    - The repeated cleaning of a flexible endoscope subjects it to wear and
      tear, reduces its useful life, and impairs the quality of its optics; in
      addition, improper cleaning can cause blocked channels, which require
      expensive endoscope repairs.
 
    - The time needed to clean a flexible endoscope after each use results in a
      period of "down time" during which the endoscope cannot be used and may
      require users to buy and maintain multiple endoscopes.
 
    DIFFICULTY OF PROPER CLEANING.  The problems associated with cleaning
conventional flexible endoscopes can be better understood by examining the
cleaning procedures they require. The cleaning of endoscopes is generally the
responsibility of the nurse or endoscopic assistant. The Society of
Gastroenterology Nurses and Associates, Inc., in 1990 published Recommended
Guidelines for Infection Control in
 
                                       3

<PAGE>
Gastrointestinal Endoscopy Settings (the "SGNA Guidelines"). Although cleaning
procedures for endoscopes vary widely, the following is a summary of the
principal steps in the cleaning procedures that are called for by the SGNA
Guidelines.
 
    - Inspection--Endoscopes should be tested for leaks and inspected for
      damage. Even small leaks can lead to costly fiberoptic or video component
      damage or contamination of the endoscope.
 
    - Cleaning--After gross cleaning to remove patient material, endoscopes
      should be thoroughly rinsed, the detachable parts should be removed and
      cleaned and exteriors should be sponge-cleaned. All internal channels that
      are accessible should be scrubbed with brushes, while unreachable air and
      water channels should be rinsed clear of residual patient organic matter,
      as the presence of such matter diminishes the effectiveness of the
      disinfecting agents used. The endoscope should then be washed in a
      detergent and enzyme solution, with such cleaning agents drawn through
      internal channels. The endoscope should then be rinsed, with excess water
      removed, since residual water can dilute disinfectants.
 
    - Disinfection--Endoscopes should be disinfected using recommended chemical
      agents or an automated cleaner. Disinfectants must also be drawn through
      internal channels during this process. Although certain sterilization
      methods are available for flexible endoscopes, conventional heat
      sterilization will destroy flexible endoscopes.
 
    - Rinsing--To ensure that patients are not exposed to toxic disinfectants,
      endoscopes should be thoroughly rinsed using either tap water or sterile
      water, followed by a final rinse in an alcohol solution.
 
    - Drying--Endoscopes and channels should be dried using forced air, then
      flushed with an alcohol solution, prior to storage.
 
    - Storage--Endoscopes should be hung vertically in well-ventilated cabinets
      to prevent recontamination or damage between uses.
 
    Proper cleaning of conventional flexible endoscopes, even when done in
compliance with the SGNA Guidelines, is difficult to achieve for a number of
reasons. Firstly, the design of conventional flexible endoscopes, which includes
channels, joints and crevices, makes it difficult to reach and clean all parts
of the endoscope. As the SGNA Guidelines state, an endoscope's "complex and
fragile structure presents problems in cleaning/disinfecting/sterilizing".
Secondly, the Company believes the most important step in the cleaning process
is the manual removal of organic material, and therefore, the opportunity for
human error is always present, even if optimal cleaning procedures are followed.
Finally, there are questions concerning the efficiency of some disinfecting
agents used in the endoscope cleaning process. For example, in 1991 the FDA
recommended that the medical profession cease the use of Sporicidin, a
widely-used endoscope disinfectant, based upon the FDA's conclusion that this
disinfectant does not work. The FDA has also required that the manufacturers of
chemical glutaraldehyde-based disinfectants change the recommended soak time on
their instructions for use from 20 minutes to 45 minutes, and increased the
temperature from 20 degrees Celsius to 25 degrees Celsius. This longer soak time
means slower turnaround on conventional scopes, and the increased temperature of
the glutaraldehyde is hazardous due to increased caustic vapors released during
heating.
 
    HEALTH RISKS.  Because flexible endoscopes are difficult to clean properly,
sterilization (the complete elimination of microbial life) is virtually
impossible to achieve. Therefore, "high-level disinfection" (the elimination of
all microbial life other than the most highly resistant spores) is the standard
for flexible endoscope cleaning currently recommended by the Centers for Disease
Control. However, studies indicate that high-level disinfection is often not
attained and that cross-contamination remains a risk to patients and medical
personnel.
 
                                       4

<PAGE>
    An FDA-sponsored study published in THE AMERICAN JOURNAL OF MEDICINE in
March 1992, reported that 23.9% of the gastrointestinal endoscopes tested
produced 100,000 or more bacterial colonies after all cleaning and disinfection
procedures had been completed, and the endoscopes were deemed ready for use on
the next patient. This study concluded that "actual disinfection/sterilization
procedures for endoscopes are not always optimal, and high-level disinfection of
gastrointestinal endoscopes is not always achieved." Numerous infectious agents,
including tuberculosis and salmonella, have been reported in the medical
literature as having been transmitted through the use of contaminated
endoscopes. Concern about the risk of endoscopic cross-contamination has also
been heightened by the increasing prevalence of the HIV and hepatitis viruses.
 
    The cleaning procedures required for endoscopes also subject medical
personnel to health risks (such as severe eye, nose and throat irritation,
nausea, headaches, asthma and skin rashes) from exposure to toxic disinfecting
agents. The Occupational Safety and Health Administration has classified
glutaraldehyde, a key ingredient in many endoscope disinfecting agents, as a
highly toxic material and requires hospitals, clinics, and physicians' offices
to reduce the level of emissions to .2 parts per million wherever glutaraldehyde
is used. In addition, toxic disinfectants must be disposed of in compliance with
applicable environmental laws.
 
    OTHER PROBLEMS.  In addition to the health problems posed by the use and
cleaning of conventional flexible endoscopes, the required cleaning of these
products is relatively expensive, time-consuming and arduous. The Company
estimates, based upon its own experience, that the cleaning and disinfection
procedure required following each use of a flexible endoscope, if done in
compliance with the FDA recommendations, would take 60 minutes. The repeated
cleaning in harsh chemical disinfectants also subjects a flexible endoscope to
wear and tear, reducing its useful life and impairing the quality of its optics.
Moreover, the failure to clean all organic materials from a flexible endoscope's
channels is a common cause of blocked channels, which require expensive
endoscope repairs as well as a back-up inventory of endoscopes. In addition, the
need to properly clean a flexible endoscope after each use requires that each
doctor performing endoscopies must either have access to a number of endoscopes
or be forced to wait an estimated 60 minutes between each endoscopic procedure
(assuming the endoscope is cleaned in compliance with FDA Guidelines).
 
COMPANY STRATEGY
 
    The Company's primary business strategy is to develop, manufacture and
market products for endoscopy which have infection-control advantages over
conventional flexible endoscopes. To implement this strategy, the Company has
developed, and is marketing and selling, a proprietary flexible endoscope system
which consists of two main components--a proprietary sterile disposable sheath,
known as an EndoSheath, and a reusable flexible endoscope incorporating the
Company's proprietary design. In particular, the Company has developed, and is
marketing and selling, a family of disposable EndoSheath/ reusable flexible
endoscope systems for gastrointestinal endoscopy and pulmonary endoscopy. The
Company has also developed EndoSheaths for use with certain conventional
flexible endoscopes (such as ENT endoscopes) currently sold by the Company and
other manufacturers.
 
    The Company believes that its EndoSheath technology offers the following
advantages over conventional reusable flexible endoscopes:
 
    - It represents the only known effective technology designed to eliminate
      the risk of cross-contamination from prior use of a flexible endoscope.
 
    - It is designed to substantially reduce the health risks to nurses and
      other medical personnel resulting from exposure to toxic disinfecting
      agents used in the cleaning process.
 
    - It significantly reduces the time and effort involved in the cleaning and
      disinfection of conventional flexible endoscopes by hospital staff.
 
                                       5

<PAGE>
    - It will reduce endoscope wear and tear resulting from repeated cleaning
      and reduces endoscope repair costs, as the air, water, suction and
      accessory channels that are the source of a majority of repairs have been
      made part of the disposable EndoSheath.
 
    - It reduces endoscope "down time" and thereby allows hospitals and clinics
      to stock a smaller number of flexible endoscopes, since there is little
      delay before an endoscope is ready for use in the next procedure.
 
    - It increases the number of patients physicians can examine because of the
      reduced delay in endoscope processing between procedures.
 
    During the fiscal year ended March 31, 1998, the Company has also pursued a
strategy of exploring diversification toward the development of improved
endoscopes and related imaging devices. Included in these exploratory areas have
been the following: - The use of advanced CMOS sensors in video endoscopes, in
order to reduce their cost and size over traditional CCD sensored video
endoscopes. - The use of 3-Dimensional visualization enhancements to improve the
perception of endoscopic images for both medical and industrial markets. - The
development of a new line of fiberoptic ENT endoscopes.
 
    These and other areas of exploration have been undertaken with appropriate
third-party assistance, where applicable. The goal of these investigations has
been to analyze opportunities to further leverage the Company's core
competencies in its current markets, while at the same time analyzing new
technologies the Company may develop or acquire to enhance its offerings. As of
the date of this filing, there are no firm commitments to pursue any of these
strategic directions.
 
PRODUCTS AND PRODUCT DEVELOPMENT PROGRAMS
 
    The Company's primary products include proprietary flexible endoscopes,
EndoSheaths, and related products for a variety of medical applications. In
addition, the Company currently manufactures and sells ENT endoscopes,
borescopes (endoscope-like devices for industrial applications), and related
products.
 
ENDOSHEATH/ENDOSCOPE SYSTEMS
 
    The Company has developed a family of proprietary flexible endoscope systems
consisting of two main components--proprietary sterile disposable sheaths, known
as EndoSheaths and reusable flexible endoscopes incorporating the Company's
propriety design. The EndoSheaths and endoscopes included in this system are
functional only when used together.
 
    Conventional flexible endoscopes generally include fiberoptic bundles or
video cameras for image production, a series of channels for delivery of air,
water, suction, and accessory devices and an operator body containing user
control knobs. The Company's proprietary design separates these features between
the disposable EndoSheath and the reusable endoscope. The Company's proprietary
flexible endoscopes include the lighting, imaging and operator control features
necessary to perform the intended medical procedures. The endoscopes also
include microswitches instead of valves, and control knobs that may be removed
for sterilization. The EndoSheaths, which are designed to cover all surfaces of
the endoscope that come in contact with the patient, contain the air, water,
suction, and accessory channels that are a part of conventional flexible
endoscopes, thus eliminating the need to clean these channels. The Company
believes, based upon its own quality assurance testing of this product and
physicians who have purchased and are using the system, that this product
functions clinically in essentially the same manner as conventional flexible
endoscopes, requiring no retraining of personnel or changes in procedural
techniques.
 
    Installation of the EndoSheath onto the reusable endoscope can be performed
in a matter of minutes and is accomplished by inflating the sterile EndoSheath
with air, allowing the endoscope to be easily inserted into the EndoSheath.
After an endoscopic procedure, the disposable EndoSheath is then re-inflated,
and the flexible endoscope is removed from the EndoSheath. The EndoSheath and
packaging are
 
                                       6

<PAGE>
then discarded, and the reusable endoscope is ready for use with a new
EndoSheath in the next procedure. This process takes 4 to 5 minutes, as compared
to the 60 minutes estimated for the proper cleaning of a conventional flexible
endoscope.
 
    Due to the fact that the Company believes that sigmoidoscopy is one of the
most frequently performed endoscopic procedures, a fiberoptic sigmoidoscope was
the Company's first disposable EndoSheath/reusable flexible endoscope system.
The Company received FDA clearance of its 510(k) Pre-market Notification for
this product in October 1992 and began commercial shipments of this product in
April 1993. The Company also received FDA clearance of its 510(k) Pre-market
Notification for its black and white CCD video sigmoidoscope and EndoSheath
system in February 1994, its 130 cm length fiberoptic colonoscope and EndoSheath
system in February 1995, its fiberoptic gastroscope and EndoSheath system in
February 1995, and its fiberoptic ENT scope in December 1995. In December 1996
the Company received clearance from the FDA to market its fiberoptic
bronchoscope and EndoSheath system. In January 1997 the Company received
clearance from the FDA to market its color video sigmoidoscope.
 
ENT ENDOSHEATHS
 
    The Company has developed EndoSheaths for use with ENT endoscopes. ENT
endoscopes do not contain air, water, suction, or accessory channels and,
therefore, do not require the Company's proprietary flexible endoscope design in
order to be used with an EndoSheath. In addition, because ENT endoscopes do not
contain channels, the EndoSheath covers the distal end of the endoscope thus
making these EndoSheaths a simpler and less expensive product. The Company
received FDA clearance of its 510(k) Pre-market Notification for its first ENT
EndoSheath in October 1992 and began commercial shipments of this product in
December 1992. In January 1993, the Company received FDA clearance of its 510(k)
Pre-market Notification covering four additional disposable EndoSheaths for use
with the Company's other ENT endoscope, two ENT endoscopes sold by Pentax
Precision Instrument Corporation ("Pentax"), and an ENT endoscope sold by
Olympus Optical Co., Ltd. ("Olympus"). The Company began shipping its EndoSheath
for use with an endoscope sold by Olympus in March 1993 and began shipments of
the three other EndoSheaths during fiscal 1994. In December 1995 the Company
received clearance from the FDA to market its own fiberoptic ENT scope, and in
December 1996 the Company received clearance from the FDA to market its
fiberoptic bronchoscope and EndoSheath barrier. Other Products
 
    Under the Machida name, the Company designs, manufactures and markets
flexible borescopes, which are similar in design to endoscopes and are used for
inspection and quality-control functions in industrial applications, such as the
inspection of aircraft engines and nuclear power plants. Through Machida, the
Company was the first to offer a flexible borescope with a grinding attachment
that allows users to "blend", or smooth small cracks, in small turbine blades of
jet engines without disassembling the engine, which would involve significant
expense and delay. The Company also offers a variety of ancillary products for
use with flexible endoscopes and borescopes, such as light sources, cameras,
adapters, accessories and imaging systems. Sales of these non-medical and
ancillary products were approximately $3.6 million, or 45%, of the Company's net
sales in fiscal 1998. The Company expects that net sales of these products over
the next several years will remain relatively constant and will constitute a
continually decreasing percentage of the Company's total business.
 
SALES AND MARKETING
 
    The Company expects that the customers for its disposable EndoSheaths,
flexible endoscopes and related products will be Gastroenterologists, Colon and
Rectal Surgeons, Otolaryngologists, Pulmonologists, Primary Care Physicians, and
high-volume users in hospitals, medical clinics, and physicians' offices. As of
May 31, 1998, the Company had three marketing employees, and utilized
independent sales representatives, distributors and/or dealers in both North
America and Europe, and intends to expand this indirect sales force over the
next year.
 
                                       7

<PAGE>
    Although the Company has no specific plans or commitments in this regard,
the Company may also license to one or more third parties rights to manufacture
and sell reusable flexible endoscopes incorporating the Company's proprietary
design features, while retaining the rights to manufacture and sell the
EndoSheaths used with these endoscopes.
 
    The Company sold its ENT endoscopes, disposable ENT EndoSheaths, and related
ancillary ENT products through an exclusive five-year distribution agreement,
which commenced in March 1994, with the ENT Division of Smith & Nephew, Inc.
("Smith & Nephew"). In March 1998 the Company and Smith & Nephew replaced this
agreement with a new agreement expiring in March 1999, and a firm,
non-cancelable purchase order for the supply of 200,000 ENT EndoSheaths during
fiscal year 1999. The new agreement does not include any provision for the
supply of ENT endoscopes to Smith & Nephew by the Company, although the Company
expects to supply such endoscopes according to individual orders placed by Smith
& Nephew during the fiscal year.
 
    The Company's borescopes are sold both directly by its Machida subsidiary
and through independent sales representatives.
 
    In the fiscal year ended March 31, 1998, sales to foreign customers
accounted for approximately 8% of the Company's annual net sales. The Company
currently sells certain models of its borescopes and endoscopes outside of the
United States. Although the Company expects to continue to sell such products
outside of the United States, the Company expects that the substantial majority
of the sales of its new EndoSheaths and proprietary flexible endoscopes will be
made to customers within the United States.
 
    Sales to unaffiliated customers outside of the United States were
approximately $675,000, $718,000 and $652,000 for the fiscal years ended March
31, 1996, 1997 and 1998, respectively.
 
    In the fiscal year ended March 31, 1996, Smith & Nephew accounted for 15% of
net sales and Kelly Air Force Base accounted for 10% of net sales. For the
fiscal year ended March 31, 1997, Smith & Nephew accounted for 36% of net sales.
For the fiscal year ended March 31, 1998, Smith & Nephew accounted for 35% of
net sales.
 
MANUFACTURING AND SUPPLIERS
 
    The Company produces its EndoSheaths at its Natick, Massachusetts facility
using molded and extruded components purchased from independent vendors, some of
which are manufactured to the Company's specifications. Most purchased
components are available from multiple sources. With the exception of its supply
agreement with Asahi Optical Co., Ltd. ("Asahi") and Applied Fiberoptics, Inc.
discussed below, the Company has no agreements with any of its vendors or
suppliers and purchases its required components and supplies on a purchase-order
basis. The Company contracts with third parties for the sterilization of the
EndoSheaths.
 
    The Company assembles its flexible endoscopes designed for use with its
EndoSheaths at its Orangeburg, New York facility using purchased components and
subassemblies, as well as certain proprietary components produced by the
Company. Most purchased components and subassemblies are available from more
than one supplier. However, certain critical components, such as image bundles
and operator control bodies are currently being purchased solely from Asahi,
which is the parent company of a competitor of the Company. These components are
being purchased pursuant to a supply agreement, which expires in March 1999,
subject to earlier termination by mutual consent or upon breach or bankruptcy
and which may be extended with the consent of both parties. The Company believes
that while substitute components, which are currently produced by sources other
than Asahi, would be available, such substitute components may be more expensive
and of a lower quality and may require a redesign of the Company's endoscope and
additional regulatory clearances. Moreover, such substitute components may not
be immediately available in quantities needed by the Company. The Company's
inability to obtain a sufficient quantity of such critical components on
favorable terms could materially adversely affect the
 
                                       8

<PAGE>
Company's business. To date, the Company has encountered no significant
difficulties or delays in obtaining a sufficient quantity of such critical
components or subassemblies for the Company's proprietary flexible endoscopes
designed for use with its EndoSheaths. However, there can be no assurance that
no difficulties or delays will be experienced in the future as the Company
increases its manufacturing operations.
 
    The Company has entered into a manufacturing agreement, which expires in
February 2001, with Applied Fiberoptics of Sturbridge, Massachusetts, to supply
a fiberoptic ENT scope. Subsequent to March 31, 1998, the Company entered into
negotiations with Applied Fiberoptics to amend the terms of the agreement to
allow for each party to design, manufacture and sell its own ENT endoscope.
 
    The Company's borescopes are assembled using components and sub-assemblies
purchased from independent vendors. While most components and sub-assemblies are
currently available from more than one supplier, certain critical components are
currently purchased only from Machida Endoscope Company, Ltd., an unaffiliated
Japanese company. The failure of the Company to obtain a sufficient quantity of
such components on favorable terms could materially adversely affect the
Company's business.
 
    The Company's light sources, camera, adapters, accessories and imaging
systems for non-medical applications are generally purchased by the Company from
a variety of vendors.
 
    The Company has negotiated the worldwide, royalty-free exclusive right from
a third party to use polymer technology for manufacturing optically clear
windows to be included in its EndoSheaths for use with ENT endoscopes. The
Company has also negotiated a license to include the same technology in its
EndoSheaths for use with intubation endoscopes and bronchoscopes.
 
COMPETITION
 
    The Company believes that the primary competitive factors in the flexible
endoscope market are the safety and effectiveness (including optical quality) of
the products offered, ease of product use, product reliability, price, physician
familiarity with the manufacturer and its products and third-party reimbursement
policies. In its non-medical markets, the Company believes that product
effectiveness, ease of product use, product reliability and price are the
principal competitive factors. The Company's ability to compete in its markets
is affected by its product development and innovation capabilities, its ability
to obtain required regulatory clearances, its ability to protect the proprietary
technology included in its products, its manufacturing and marketing skills and
its ability to attract and retain skilled employees.
 
    The flexible endoscopes and related products currently sold and under
development by the Company face competition primarily from medical products
companies such as Olympus and Pentax, a subsidiary of Asahi. In addition, any
company that is able to significantly redesign conventional flexible endoscopes
to simplify the cleaning process, or significantly improve the current methods
of cleaning flexible endoscopes, would provide competition for the Company's
products. The principal competitors for the Company's non-medical products are
Olympus and Welch Allyn, Inc.
 
    Many of the Company's competitors and potential competitors have greater
financial resources, research and development personnel, and manufacturing and
marketing capabilities than the Company. In addition, it is possible that other
large health care companies may enter the flexible endoscope market in the
future.
 
PATENTS AND PROPRIETARY RIGHTS
 
    The Company's success depends in part on its ability to maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of third parties. The Company's
strategy regarding the protection of its proprietary rights and innovations is
to seek patents on those portions of its technology that it believes are
patentable, and to protect as trade secrets other confidential and proprietary
information.
 
                                       9

<PAGE>
    The Company and its subsidiaries currently hold 20 U.S. and 18 foreign
patents and have 2 U.S. patent applications and 4 foreign patent applications
pending, all of which relate to its disposable EndoSheaths and reusable flexible
endoscopes. These issued patents will expire on various dates in the years 2005
through 2016. There can be no assurance that the Company's pending patent
applications will result in patents being issued or that competitors of the
Company will not circumvent, or challenge the validity of, any patents issued to
the Company. In addition, in the event that another party infringes the
Company's patent rights, the enforcement of such rights is at the option of the
Company and can be a lengthy and costly process, with no guarantee of success.
 
    Some of the technology used in, and that may be important to, the Company's
products is not covered by any patent or patent application of the Company. The
Company seeks to maintain the confidentiality of its proprietary technology by
requiring all employees who work with proprietary information to sign
confidentiality agreements and by limiting access by parties outside the Company
to such confidential information. However, there can be no assurance that these
measures will prevent the unauthorized disclosure or use of this information, or
that others will not be able to independently develop such information.
Moreover, as is the case with the Company's patent rights, the enforcement by
the Company of its trade secret rights can be lengthy and costly, with no
guarantee of success.
 
    To date, no claims have been brought against the Company alleging that its
technology or products infringe intellectual property rights of others. However,
there can be no assurance that such claims will not be brought against the
Company in the future or that any such claims will not be successful.
 
GOVERNMENT REGULATION
 
    The medical products currently marketed and under development by the Company
are regulated as medical devices by the FDA under the federal Food, Drug and
Cosmetic Act (the "FDC Act") and require regulatory clearance prior to
commercialization in the United States. Under the FDC Act, the FDA regulates
clinical testing, manufacturing, labeling, distribution and promotion of medical
devices in the United States. Various states and other countries in which the
Company's products may be sold in the future may impose additional regulatory
requirements.
 
    Following the enactment of the Medical Device Amendments to the FDC Act in
May 1976, the FDA classified medical devices in commercial distribution into one
of three classes, Class I, II, or III. This classification is based on the
controls necessary to reasonably ensure the safety and effectiveness of the
medical device. Class I devices are those devices whose safety and effectiveness
can reasonably be ensured through general controls, such as adequate labeling,
pre-market notification, and adherence to the FDA's GMP (Good Manufacturing
Practices) regulations. Some Class I devices are further exempted from some of
the general controls. Class II devices are those devices whose safety and
effectiveness can reasonably be ensured through the use of special controls,
such as performance standards, post-market surveillance, patient registries and
FDA guidelines. Class III devices are devices which must receive pre-market
approval by the FDA to ensure their safety and effectiveness. Generally, Class
III devices are limited to life-sustaining, life-supporting or implantable
devices.
 
    If a manufacturer or distributor of medical devices can establish that a new
device is "substantially equivalent" to a legally marketed Class I or Class II
medical device or to a Class III medical device for which the FDA has not
required pre-market approval, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) Pre-market Notification.
The 510(k) Pre-market Notification and the claim of substantial equivalence may
have to be supported by various types of information indicating that the device
is as safe and effective for its intended use as a legally marketed predicate
device.
 
    Following submission of the 510(k) Pre-market Notification, the manufacturer
or distributor may not place the device into commercial distribution until an
order is issued by the FDA. By regulation, the FDA has no specific time limit by
which it must respond to a 510(k) Pre-market Notification. At this time, the
 
                                       10

<PAGE>
FDA typically responds to the submission of a 510(k) Pre-market Notification
within approximately 90 days. The FDA may declare that the device is
"substantially equivalent" to another legally marketed device and allow the
proposed device to be marketed in the United States. The FDA may, however,
determine that the proposed device is not substantially equivalent, or may
require further information, such as additional test data, before the FDA is
able to make a determination regarding substantial equivalence. Such
determination or request for additional information could delay the Company's
market introduction of its products and could have a material adverse effect on
the Company.
 
    If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent, the manufacturer or distributor
will have to seek pre-market approval ("PMA") or reclassification of the new
device. A PMA application would have to be submitted and be supported by
extensive data, including pre-clinical and clinical trial data, to demonstrate
the safety and efficacy of the device. Upon receipt, the FDA will conduct a
preliminary review of the PMA application to determine whether the submission is
sufficiently complete to permit a substantive review. If sufficiently complete,
the submission is declared fileable by the FDA. By regulation, the FDA has 180
days to review a PMA application once it is determined to be fileable. While the
FDA has responded to PMA applications within the allotted time period, PMA
reviews more often occur over a significantly protracted time period and
generally take approximately two years or more from the date of filing to
complete. A number of devices for which FDA marketing clearance has been sought
have never been cleared for marketing.
 
    If human clinical trials of a proposed device are required and the device
presents "significant risk", the manufacturer or distributor of the device will
have to file an investigational device exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, typically including the results of animal and mechanical
testing. If the IDE application is approved, human clinical trials may begin at
the specific number of investigational sites and could include the number of
patients approved by the FDA.
 
    Flexible endoscopes, EndoSheaths, and accessory products have been
classified by the FDA as Class II devices, and a Section 510(k) Pre-market
Notification must be submitted to and cleared by the FDA before such devices can
be sold. The Company has received FDA clearance of its 510(k) Pre-market
Notifications for the following products as of the dates noted. The Company
expects that it will be required
 
                                       11

<PAGE>
to obtain 510(k) clearance for each additional disposable EndoSheath/reusable
flexible endoscope system that it develops in the future.
 

<TABLE>
<CAPTION>
DATE OF CLEARANCE                                              PRODUCT
- ---------------------------------------  ----------------------------------------------------
<S>                                      <C>
October 1992...........................  EndoSheath/reusable fiberoptic sigmoidoscope system
 
October 1992...........................  EndoSheath for use with the Company's flexible ENT
                                         endoscope
 
January 1993...........................  Four models of EndoSheaths for use with certain
                                         other ENT endoscopes
 
February 1994..........................  EndoSheath/reusable black and white CCD video
                                         sigmoidoscope system
 
February 1995..........................  EndoSheath/reusable fiberoptic 130 cm length
                                         colonoscope system
 
February 1995..........................  EndoSheath/reusable fiberoptic gastroscope system
 
December 1995..........................  Fiberoptic ENT scope
 
July 1996..............................  EndoSheath for use with the Company's reusable
                                         fiberoptic ENT endoscope
 
August 1996............................  Vacuum ENT EndoSheath barrier
 
November 1996..........................  EndoSheath barrier for use with the Company's
                                         fiberoptic sigmoidoscope
 
December 1996..........................  EndoSheath barrier for use with the Company's
                                         fiber/video sigmoidoscopes
 
December 1996..........................  EndoSheath barrier/reusable fiberoptic bronchoscope
                                         system
 
January 1997...........................  EndoSheath barrier/reusable color video
                                         sigmoidoscope system
</TABLE>

 
    The Natick, Massachusetts and Orangeburg, New York facilities are registered
with the FDA as medical device manufacturers. As a result, these facilities are
subject to the FDA's "Good Manufacturing Practices" ("GMP") regulations, which
regulate their manufacturing, testing, quality control and documentation
procedures. The Company is also required to comply with the FDA's labeling
requirements, as well as its information reporting regulations. The export of
medical devices is also subject to regulation in certain instances. The
Company's compliance with these various regulatory requirements will be
monitored through periodic inspections by the FDA.
 
    The process of obtaining required regulatory clearances can be lengthy and
expensive, and compliance with the FDA's GMP regulations and regulatory
requirements can be burdensome. Moreover, there can be no assurance that the
required regulatory clearances will be obtained, and those obtained may include
significant limitations on the uses of the product in question. In addition,
changes in existing regulations or the adoption of new regulations could make
regulatory compliance by the Company more difficult in the future. The failure
to obtain the required regulatory clearances or to comply with applicable
regulations may result in fines, delays or suspensions of clearances, seizures,
or recalls of products, operating restrictions and criminal prosecutions, and
could have a material adverse effect on the Company.
 
                                       12

<PAGE>
THIRD-PARTY REIMBURSEMENT
 
    Hospitals, medical clinics and physicians' offices that purchase medical
devices such as the Company's EndoSheaths and flexible endoscopes generally rely
on third-party payors, such as Medicare, Medicaid, and private health insurance
plans to pay for some or all of the costs of the screening, diagnostic and
therapeutic procedures performed with these devices. Whether a particular
procedure qualifies for third-party reimbursement depends upon such factors as
the safety and effectiveness of the procedure, and reimbursement may be denied
if the medical device used is experimental or was used for non-approved
indication. The Company believes, based upon its knowledge of third-party
reimbursement practices, advice from consultants in this area and four years of
selling experience, that third-party reimbursement will be available for most
procedures using its disposable EndoSheath/reusable flexible endoscope systems.
However, the Company's Sigmoidoscope EndoSheath when used in a physician's
office on a Medicare patient has, to date, not received a reimbursement value
from the Health Care Financing Administration.
 
    Third-party payors use a variety of mechanisms to determine reimbursement
amounts for procedures such as endoscopies. In some cases, reimbursement amounts
are based upon the provider's costs associated with the procedure, including
materials costs. In such a situation, the cost of the EndoSheath used in the
procedure would likely be covered by the reimbursement payment. In other cases,
payment is a fixed amount per procedure, per hospital day, or per hospital stay;
such a payment would not cover the cost of materials, such as the EndoSheath,
used in the procedure. However, in some cases where reimbursement is a fixed
amount per procedure, an additional materials reimbursement may be available to
cover the cost of certain supplies used. As endoscopies performed with
conventional flexible endoscopes do not require any significant supplies,
materials reimbursements for the Company's EndoSheaths may become available at
some point in the future.
 
    There can be no assurance that third-party reimbursement will be available
for procedures performed with the Company's products or that the cost of the
Company's EndoSheaths would be covered by such reimbursement in the future. In
addition, reimbursement standards and rates may change. The Company believes
that the failure of users of the Company's products to obtain adequate
reimbursement from third-party payors could have a materially adverse effect on
the Company.
 
PRODUCT LIABILITY AND INSURANCE
 
    The nature of the Company's products exposes the Company to significant
product liability risks. The Company maintains product liability insurance with
coverage limits of $2,000,000 per year. The Company believes that this level of
coverage is adequate, given its past sales levels and its anticipated sales
levels for the fiscal year ending March 31, 1999. The Company will reevaluate
the adequacy of this coverage when and if its sales levels substantially
increase. No product liability claims have been brought against the Company to
date. However, there can be no assurance that product liability insurance will
continue to be available to the Company on acceptable terms, or that product
liability claims in excess of the Company's insurance coverage, if any, will not
be successfully asserted against the Company in the future.
 
RESEARCH AND DEVELOPMENT
 
    The Company believes that its future success depends in part upon its
ability to develop new products and enhance its existing products. In the past
the Company has devoted significant funds and efforts to research and
development. In order to lower expenses in the year ended March 31, 1998, the
Company reduced its efforts in the development of new products. The Company
expects to incur lower costs for research and development in fiscal 1999,
compared to amounts incurred in fiscal 1998.
 
    The Company's research and development efforts in fiscal 1996 focused on the
130 cm length fiberoptic colonoscope and EndoSheath system, the fiberoptic
gastroscope and EndoSheath system, the fiberoptic bronchoscope and EndoSheath
system, the vacuum ENT EndoSheath, the fiberoptic ENT EndoSheath and the color
CCD video sigmoidoscope and EndoSheath system. During fiscal 1997, the
 
                                       13

<PAGE>
research and development efforts focused on the fiberoptic bronchoscope and
EndoSheath system, the vacuum ENT EndoSheath, the color CCD video sigmoidoscope
and EndoSheath system as well as refinement and cost reduction of existing
products. During fiscal 1998, the research and development efforts focused on
image-guided surgical applications using third-party surgical navigation
technology combined with EndoSheath technology and refinement and cost reduction
of existing products. The Company's research and development expenses in fiscal
years 1996, 1997, and 1998 were $2,399,000, $2,289,000 and $763,000,
respectively. The Company's research and development efforts in fiscal 1999 are
expected to be concentrated primarily on continuing enhancements of, and
additions to, the fiberoptic sigmoidoscope and EndoSheath system and, subject to
the outcome of negotiations with Applied Fiberoptics, the development of a new
ENT scope. During fiscal 1999 the Company also expects to expend efforts in
areas related to advanced endoscopic imaging technology, including CMOS sensors
and 3-Dimensional imaging systems. These efforts will be undertaken primarily
through relationships which are currently being developed.
 
EMPLOYEES
 
    As of April 30, 1998, the Company had 71 employees. No Company employees are
represented by a labor union. The Company believes that its employee relations
are good. The Company's success will depend in large part upon its ability to
attract and retain highly qualified scientific, management, sales and marketing
personnel.
 

I
TEM 2. PROPERTIES
 
    The Company's principal executive offices and medical research and
development facilities currently occupy approximately 20,000 square feet of
space in Natick, Massachusetts under a lease which expires in November 2000. The
Company's EndoSheath products are manufactured in a 20,000 square foot facility
in the same industrial park in Natick under a lease which expires in November
2003. The operations of the Company's Machida subsidiary are located in
Orangeburg, New York under a lease for approximately 25,000 square feet which
expires in August 2000. As part of its plans to continue to reduce expenses in
fiscal 1999, the Company plans to consolidate its operations in Natick into one
facility.
 
    The Company's currently occupied Natick facilities and the Orangeburg
facility are registered with the FDA as medical device manufacturing facilities
and are, therefore, subject to the FDA's GMP regulations regarding
manufacturing, testing, quality control and documentation procedures. The
Company believes that the physical characteristics and layouts of these
facilities are adequate to manufacture its products in compliance with
applicable FDA regulations.
 

ITEM 3. LEGAL PROCEEDINGS
 
    As of March 31, 1998, there were no material legal proceedings to which the
Company or any of its subsidiaries is a party, or of which any of their
properties is subject.
 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    No matters were submitted to a vote of the Company's security holders during
the last quarter of the fiscal year ended March 31, 1998.
 
EXECUTIVE OFFICERS OF THE COMPANY
 
    Katsumi Oneda, a co-founder of the Company, has been President, Chief
Executive Officer, and Chairman of the Board of Directors of the Company since
October 1993. He served as Vice-Chairman of the Board of Directors of the
Company from May 1992 to October 1993, as Honorary Chairman of the Board of
Directors from October 1991 to October 1993, and as Chairman of the Board of
Directors from September 1990 to October 1991. From 1979 to December 1990, he
was President and Chief Executive
 
                                       14

<PAGE>
Officer of Pentax Precision Instrument Corporation. Mr. Oneda is a director of
several private companies. He has been a director of the Company since 1987.
 
    Lewis C. Pell, a co-founder of the Company, has been Vice-Chairman of the
Board of Directors of the Company since May 1992. Mr. Pell has served as a
director of Heart Technology, Inc., a publicly-held medical device company. Mr.
Pell is a founder or co-founder of a number of other privately-held medical
device companies, including Biosense, Inc., Influence, Inc., Flexiclave, Inc.,
iSight, Inc., Vitality Biotechnologies, Inc. Mr. Pell was co-founder and a
director of Versaflex Delivery Systems, Inc. and InStent, Inc., which were sold
in 1988 and 1996, respectively, to Medtronic, Inc. In 1983, Mr. Pell co-founded
American Endoscopy, Inc. and served as a director until it was sold in 1986 to
C.R. Bard, Inc. In September 1979, he co-founded Pentax Precision Instrument
Corporation and served as Executive Vice President and director until December
1990, when it was sold to Asahi Optical Company.
 
    Gerald B. Lichtenberger, Ph.D., joined the Company in January 1997 as
Executive Vice President, Chief Operating Officer, Acting Chief Financial
Officer and Secretary. Prior to joining the Company, Dr. Lichtenberger served
since 1990 as President and a Director of iSight, Inc., a developer and
manufacturer of digital video cameras and components. Dr. Lichtenberger was Vice
President of Strategic Planning and Vice President of Operations of Pentax
Precision Instrument Corporation from 1986 until 1990, and was President, Chief
Executive Officer and Chairman of the Board of Directors of Systems of the
Future, Inc. from 1979 until 1986.
 
    James A. Tracy joined the Company in July 1997 and was elected Vice
President Finance in August 1997. From 1994 to 1996, Mr. Tracy was the Vice
President Finance at ORS Environmental Systems, a manufacturer of environmental
equipment and sensor instrumentation. From 1990 to 1994 he was Vice President
Finance at Sigma Designs, Inc., a publisher of CAD software. From 1986 to 1990
he was Vice President Finance for Aegis, Inc., a manufacturer of microcircuit
packages. Prior to 1986 he worked for other manufacturing companies. Mr. Tracy
received a CPA certificate in 1975.
 
    E. Paul Harhen joined the Company in September 1993 as Manager of
Manufacturing Engineering and was elected Vice President of Operations in
November 1995. Prior to joining the Company, Mr. Harhen worked from March 1993
until September 1993 as a manufacturing consultant helping companies to find
ways to automate production of high volume products. Mr. Harhen held various
engineering and operations positions at Johnson & Johnson, a medical products
company, from April 1981 until March 1993. Mr. Harhen has resigned from the
Company effective May 31, 1998.
 
    Officers are elected on an annual basis and serve at the discretion of the
Board of Directors.
 
                                       15

<PAGE>

                                    PART II
 

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
 
    From December 15, 1992 to October 29, 1997, the Company's Common Stock was
quoted on the Nasdaq National Market, and since October 30, 1997, the Company's
Common Stock has been traded on the Nasdaq SmallCap Market under the symbol
VSCI. The following table sets forth the high and low sale prices for the Common
Stock on the Nasdaq National Market, or the Nasdaq SmallCap Market, as the case
may be, as reported by Nasdaq during the periods indicated.

<TABLE>
<CAPTION>
                             FISCAL YEAR ENDED
                               MARCH 31, 1998                                    HIGH         LOW
- ----------------------------------------------------------------------------     -----        ---
<S>                                                                           <C>          <C>
1st Quarter.................................................................       1 5/8   7/8
2nd Quarter.................................................................      3 9/16   3 1/32
3rd Quarter.................................................................       3 1/8   1 1/8
4th Quarter.................................................................       2 1/8   1 9/32
 
<CAPTION>
 
                             FISCAL YEAR ENDED
                               MARCH 31, 1997                                    HIGH         LOW
- ----------------------------------------------------------------------------     -----        ---
<S>                                                                           <C>          <C>
1st Quarter.................................................................       4 1/8   1 3/4
2nd Quarter.................................................................       3 1/4   1 3/4
3rd Quarter.................................................................       2 1/4   1 3/16
4th Quarter.................................................................       2 1/2   1 1/8
</TABLE>

 
    Such over-the-counter market quotations reflect inter-dealer prices without
retail mark-up, mark-down, or commission and may not necessarily represent
actual transactions.
 
    As of May 29, 1998, there were 16,650,021 outstanding shares of Common Stock
held by 256 stockholders of record, in addition to which there were
approximately 2,250 beneficial stockholders.
 
    The Company has never paid cash dividends on its Common Stock, and the
Company does not expect to pay any cash dividends on its Common Stock in the
foreseeable future. In accordance with a demand line-of-credit agreement that
the Company has with a bank, the Company is prevented from paying cash dividends
on its Common Stock.
 

ITEM 6. SELECTED FINANCIAL DATA
 
    The following table summarizes certain selected financial data and should be
read in conjunction with the financial statements and related notes on Appendix
A to this report.
 

<TABLE>
<CAPTION>
                                                                               YEAR ENDED MARCH 31
                                                              -----------------------------------------------------
                                                                1994       1995       1996       1997       1998
                                                              ---------  ---------  ---------  ---------  ---------
<S>                                                           <C>        <C>        <C>        <C>        <C>
                                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Net sales...................................................  $   6,828  $   7,702  $   6,222  $   8,330  $   7,998
Gross profit (loss).........................................       (116)       193       (978)       736      1,419
Net loss from operations....................................     (8,670)    (8,727)    (9,736)    (6,453)    (2,902)
Net loss per share..........................................       (.79)      (.83)      (.84)      (.46)      (.17)
 
Balance Sheet Data:
 
Cash, cash equivalents and marketable securities............     14,650      6,421      5,866      2,681      2,891
Total assets................................................     21,549     12,837     11,076      6,850      6,172
Total liabilities...........................................      2,400      2,020      2,579      2,461      2,355
Stockholders' equity........................................     19,149     10,817      8,497      4,389      3,817
</TABLE>

 
                                       16

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONS
 
BACKGROUND
 
    Vision-Sciences, Inc. develops, manufactures and markets unique flexible
endoscope products utilizing disposable sheaths which provide the users quick,
efficient product turnover while ensuring the patient a contaminant-free
product.
 
RESULTS OF OPERATIONS
 
FISCAL YEARS ENDED MARCH 31, 1998 AND 1997
 
    Net sales for the fiscal year ended March 31, 1998 were $7,998,000, a
decrease of $332,000, or 4%, compared to the prior fiscal year. The decrease in
net sales was primarily attributable to medical sales decreasing $238,000, or
5%, and industrial sales decreasing $94,000, or 3%, compared to the prior fiscal
year ended March 31, 1997.
 
    The decrease in medical sales resulted primarily from a decline in the sales
of scopes of $605,000, or 29%, offset by an increase in the sales of the
Company's proprietary EndoSheath-Registered Trademark- product of $319,000, or
15%. The decrease in sales of scopes was due primarily to lower demand for
scopes that use the Company's proprietary EndoSheath technology. In addition,
the Company had an increase in the sales of certain medical devices of $138,000.
The Company does not expect to continue to sell these devices in fiscal 1999,
but will concentrate on penetrating the market for EndoSheaths, especially the
ENT market. Sales of the Company's ENT sheath increased by $278,000, or 28%,
compared to the sales in fiscal 1997, due primarily to the fact that the ENT
sheaths are less expensive, and can be utilized on scopes manufactured by other
companies. In March 1998 the Company received a firm order for ENT sheaths which
will result in a minimum sales increase of $269,000, or 21%, compared to sales
in fiscal 1998. The decrease in industrial sales for the fiscal year ended March
31, 1998, compared to the prior fiscal year, resulted primarily from reduced
demand from the defense market.
 
    Gross profit for the fiscal year ended March 31, 1998 increased $683,000, or
93%, to $1,419,000. The increase in gross profit was due primarily to an
improved sales mix oriented towards sheaths, which have a higher gross margin
than scopes. In addition, the Company incurred significantly lower costs for
scrap and manufacturing overhead, and was able to increase its utilization of
manufacturing capacity, as compared to the prior fiscal year.
 
    Selling, general, and administrative expenses for the fiscal year ended
March 31, 1998 decreased $1,341,000, or 27%, to $3,559,000, compared to the
prior fiscal year and represented 44% of net sales versus 59% in the prior
fiscal year. The decrease resulted primarily from sales and marketing expenses
decreasing $1,296,000, or 46%, versus the prior fiscal year, primarily due to
reduced headcount, and general and administrative expenses decreasing $45,000,
or 2%, versus the prior fiscal year, primarily due to lower expenses for
business insurance and other costs.
 
    Research and development expenses for the fiscal year ended March 31, 1998
decreased $1,527,000, or 67%, versus the prior fiscal year and represented 10%
of net sales in the current year versus 27% of net sales in the prior fiscal
year. These lower expenses were due primarily to reduced headcount and lower
spending for new products. In fiscal 1999 the Company plans to continue to
reduce spending for research and development for new products, and concentrate
on making improvements to its existing products.
 
    Interest income, net, for the fiscal year ended March 31, 1998 decreased
$27,000, or 16%, to $147,000, compared to the prior fiscal year due to lower
levels of cash equivalents and marketable securities.
 
    Other income, net for the fiscal year ended March 31, 1998 increased
$86,000, or 95% over the prior fiscal year, primarily due to increased royalty
income from new and existing agreements, including an initial license fee of
$50,000 received in the three months ended June 30, 1997. The agreement which
was
 
                                       17

<PAGE>
the primary source of royalties for fiscal 1997 expired in July 1997. The
Company does not expect to derive significant income from royalties in fiscal
1999.
 
FISCAL YEARS ENDED MARCH 31, 1997 AND 1996
 
    Net sales for the fiscal year ended March 31, 1997 increased $2,108,000, or
34%, compared to the prior fiscal year. The increase in net sales was primarily
attributable to medical sales increasing $2,210,000, or 85%, partially offset by
a decrease in industrial sales of $102,000, or 3%, compared to the prior fiscal
year ended March 31, 1996.
 
    The increase in medical sales primarily resulted from the Company being
allowed to market the ENT EndoSheath product, which received FDA 510(k)
clearance to market during December 1995, throughout the entire fiscal year,
together with growing shipments of the sigmoidoscope EndoSheath system during
the year. The decrease in industrial sales for the fiscal year ended March 31,
1997, compared to the prior fiscal year, resulted primarily from the fact that
non-recurring revenue of $634,000 was recognized during the third quarter of the
prior fiscal year upon completion of a government contract.
 
    Gross profit for the fiscal year ended March 31, 1997 increased $1,714,000
to $736,000. The increase in gross profit was primarily a result of increased
sales volume, which allowed better utilization of manufacturing capacity and
higher absorption of manufacturing overhead, as compared to the prior fiscal
year.
 
    Selling, general, and administrative expenses for the fiscal year ended
March 31, 1997 decreased $1,458,000, or 23%, compared to the prior fiscal year
and represented 59% of net sales versus 102% in the prior fiscal year. The
decrease resulted primarily from general and administrative expenses decreasing
$890,000, or 30%, versus the prior fiscal year, primarily due to reduced
headcount, and selling and marketing expenses decreasing $568,000, or 17%,
versus the prior fiscal year, primarily due to the restructuring of the
Company's sales and marketing organization, wherein sales activities are to be
performed by independent sales representatives rather than a direct sales force.
 
    Research and development expenses for the fiscal year ended March 31, 1997
decreased $110,000, or 5%, versus the prior fiscal year and represented 27% of
net sales in the current year versus 39% of net sales in the prior fiscal year.
These expenses were primarily due to the Company focusing its research and
development efforts on bringing its bronchoscope EndoSheath System to market, as
well as ongoing improvements in its other products. The bronchoscope EndoSheath
System received FDA 510(k) clearance to market in January 1997, and initial
orders for the system were received during the fiscal year ended March 31, 1997.
 
    Interest income, net, for the fiscal year ended March 31, 1997 decreased
$135,000, or 44%, over the prior fiscal year due to lower levels of cash
equivalents and marketable securities.
 
    Other income (expense) for the fiscal year ended March 31, 1997 increased
$72,000, or 389% over the prior fiscal year, primarily due to increased royalty
income.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    In the fiscal years ended March 31, 1996, 1997 and 1998 the amount of cash
used in the Company's operation was $6,953,000, $4,964,000 and $1,624,000,
respectively. Cash used in operations during fiscal years 1996, 1997 and 1998
was primarily devoted to manufacturing, marketing and research and development.
 
    Accounts receivable declined $410,000 in the year ended March 31, 1998, due
primarily to improved collections compared to the prior year. Days sales
outstanding improved to 44, compared to 79 at March 31, 1997.
 
                                       18

<PAGE>
    The Company's inventories decreased from $706,000 at March 31, 1997 to
$681,000 at March 31, 1998. The decrease was primarily due to reductions of raw
materials and finished goods inventories due to increased sales volume of
sheaths, appropriate substitutions of raw materials and adjustments to record
excess/obsolete inventory.
 
    The Company currently plans to spend no more than $250,000 on capital
purchases in fiscal year 1999. These capital expenditures are expected to relate
primarily to manufacturing equipment, tooling, molds and, to a lesser extent,
computer equipment and software, leasehold improvements, demonstration
equipment, and furniture and fixtures. The Company has no material commitments
for capital expenditures. The Company anticipates a negative cash flow during at
least the first three quarters of fiscal 1999.
 
    On December 23, 1997, the Company completed a $2.0 million private equity
placement of the Company's common stock with Mr. Katsumi Oneda, Chairman, CEO
and President, and Mr. Lewis C. Pell, Vice Chairman. Mr. Oneda and Mr. Pell each
purchased 970,874 shares of common stock at a price of $1.03 per share, which
represented 80% of the average closing price of the common stock during the five
trading days ended December 22, 1997. After this transaction, Mr. Oneda and Mr.
Pell beneficially own approximately 26.5% and 25.8%, respectively, of the
outstanding shares of common stock of the Company
 
    At March 31, 1998 the Company's principal sources of liquidity included an
aggregation of $2.9 million in cash and cash equivalents and marketable
securities. In addition, the company has a demand bank line of credit under
which the Company may borrow up to $250,000 in cash, net of any outstanding
letters of credit. At March 31, 1998, the Company had acceptances payable
totaling $52,000 maturing in April and May 1999. The Company has pledged
$250,000 to secure the bank line of credit. The line is subject to renewal in
February 2002.
 
    The Company has incurred losses since its inception, and losses are expected
to continue through the fiscal year ending March 31, 1999. The Company has
funded the losses principally with the proceeds from public and private equity
financings. The Company has reduced its operating losses significantly in the
year ended March 31, 1998, compared to the year ended March 31, 1997, and
expects the loss in fiscal 1999 will be less than in fiscal 1998. In April 1998
the management implemented plans to further reduce the funds required to operate
the business, and believes the Company, as restructured, will not require
additional outside funding during fiscal 1999. The plans implemented include a
reduction in headcount in April 1998 and consolidating the Natick facility into
one building during the first quarter of fiscal 1999. The management expects
these plans, along with other cost reductions, will result in annualized savings
of over $1,000,000 in fiscal 1999. However, there can be no assurances that
additional funding will not be necessary, and management may be required to
obtain additional financing or an alternative means of support during fiscal
year 1999.
 
CERTAIN FACTORS THAT MAY AFFECT THE COMPANY'S FUTURE OPERATING RESULTS
 
    Factors that may affect the Company's future operating results include,
without limitation, the following:
 
    The Company has incurred substantial losses since its inception, and there
can be no assurance that the Company will achieve a profitable level of
operations in the future. The Company anticipates a negative cash flow during at
least the first three quarters of fiscal 1999. The Company may be required to
obtain additional financing in order to continue to operate as a going concern.
There can be no assurance that such financing will be available on terms
acceptable to the Company, if at all. Therefore, there is substantial doubt
concerning the Company's ability to continue as a going concern.
 
    There can be no assurance that third-party reimbursement will be available
for procedures performed with the Company's products or that the cost of the
Company's EndoSheaths would be covered by such reimbursement in the future. In
addition, reimbursement standards and rates may change. The Company
 
                                       19

<PAGE>
believes that the failure of users of the Company's products to obtain adequate
reimbursement from third-party payors could have a materially adverse effect on
the Company.
 
    The Company's products and its manufacturing practices are subject to
regulation by the FDA and by other state and foreign regulatory agencies. The
process of obtaining required regulatory clearances can be lengthy and
expensive, and compliance with the FDA's GMP regulations and regulatory
requirements can be burdensome. Moreover, there can be no assurance that the
required regulatory clearances will be obtained, and those obtained may include
significant limitations on the uses of the product in question. In addition,
changes in existing regulations or the adoption of new regulations could make
regulatory compliance by the Company more difficult in the future. The failure
to obtain the required regulatory clearances or to comply with applicable
regulations may result in fines, delays or suspensions of clearances, seizures,
or recalls of products, operating restrictions and criminal prosecutions, and
could have a material adverse effect on the Company.
 
    Certain critical components of the Company's products, such as image bundles
and operator control bodies are currently being purchased solely from Asahi
Optical Co., Ltd., which is the parent company of a competitor of the Company.
These components are being purchased pursuant to a supply agreement, which
expires in March 1999, subject to earlier termination by mutual consent or upon
breach or bankruptcy and which may be extended with the consent of both parties.
The Company believes that while substitute components, which are currently
produced by sources other than Asahi, would be available, such substitute
components may be more expensive and of a lower quality and may require a
redesign of the Company's endoscope and additional regulatory clearances.
Moreover, such substitute components may not be immediately available in
quantities needed by the Company. The Company's inability to obtain a sufficient
quantity of such critical components on favorable terms could materially
adversely affect the Company's business. In addition, the Company's borescopes
are assembled using components and sub-assemblies purchased from independent
vendors. While most components and sub-assemblies are currently available from
more than one supplier, certain critical components are currently purchased only
from Machida Endoscope Company, Ltd. The failure of the Company to obtain a
sufficient quantity of such components on favorable terms could materially
adversely affect the Company's business.
 
    The Company's ability to compete in its markets is affected by its product
development and innovation capabilities, its ability to obtain required
regulatory clearances, its ability to protect the proprietary technology
included in its products, its manufacturing and marketing skills and its ability
to attract and retain skilled employees. The flexible endoscopes and related
products currently sold and under development by the Company face competition
primarily from medical products companies such as Olympus and Pentax, a
subsidiary of Asahi. In addition, any company that is able to significantly
redesign conventional flexible endoscopes to simplify the cleaning process, or
significantly improve the current methods of cleaning flexible endoscopes, would
provide competition for the Company's products. The principal competitors for
the Company's non-medical products are Olympus and Welch Allyn, Inc. Many of the
Company's competitors and potential competitors have greater financial
resources, research and development personnel, and manufacturing and marketing
capabilities than the Company. In addition, it is possible that other large
health care companies may enter the flexible endoscope market in the future.
 
    The Company's success depends in part on its ability to maintain patent
protection for its products, to preserve its trade secrets and to operate
without infringing the proprietary rights of third parties. There can be no
assurance that the Company's pending patent applications will result in patents
being issued or that competitors of the Company will not circumvent, or
challenge the validity of, any patents issued to the Company. There can be no
assurance that measures taken by the Company to protect its proprietary
information will prevent the unauthorized disclosure or use of this information,
or that others will not be able to independently develop such information. In
addition, in the event that another party infringes the Company's patent rights
or other proprietary rights, the enforcement of such rights is at the option of
the Company and can be a lengthy and costly process, with no guarantee of
success. Moreover, there can be no
 
                                       20

<PAGE>
assurance that claims alleging infringement by the Company of other's
proprietary rights will not be brought against the Company in the future or that
any such claims will not be successful.
 
    The nature of the Company's products exposes the Company to significant
product liability risks. The Company maintains product liability insurance with
coverage limits of $2,000,000 per year. The Company believes that this level of
coverage is adequate, given its past sales levels and its anticipated sales
levels for the fiscal year ending March 31, 1999. The Company will reevaluate
the adequacy of this coverage when and if its sales levels substantially
increase. No product liability claims have been brought against the Company to
date. However, there can be no assurance that product liability insurance will
continue to be available to the Company on acceptable terms, or that product
liability claims in excess of the Company's insurance coverage, if any, will not
be successfully asserted against the Company in the future.
 
    The Company is currently in the process of evaluating its information
technology infrastructure to assess its exposure to the "Year 2000" computer
problem. Based upon its work to date, the Company believes that no critical
software systems will be impacted by this situation. Systems currently used by
the Company are already "Year 2000" compliant. The Company does not currently
have information regarding the "Year 2000" compliance status of its customers or
suppliers, and there can be no assurance that that the Company's customers and
suppliers will not be adversely affected by the "Year 2000" problem.
Nonetheless, the Company believes that the "Year 2000" problem will not have a
material impact on the Company's business operations or financial condition.
 

I
TEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
    The information required by this Item is attached as Appendix A.
 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE
 
    Not applicable.
 
                                       21

<PAGE>

                                    PART III
 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
    The information required by this Item is contained in (1) the table
appearing under the heading "Election of Directors" in the Company's Proxy
Statement for its 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement"), which table is incorporated herein by reference, and (2) Part I
hereof under the caption "Executive Officers of the Company."
 

ITEM 11. EXECUTIVE COMPENSATION
 
    The information required by this Item appears under the headings "Election
of Directors--Director Compensation; Executive Compensation; and Agreements with
Senior Executives in the 1998 Proxy Statement, which sections are incorporated
herein by reference.
 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
    The information required by this Item appears under the heading "Stock
Ownership of Certain Beneficial Owners and Managers" in the 1998 Proxy
Statement, which section is incorporated herein by reference.
 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
    The information required by this Item appears under the heading "Certain
Relationships and Related Transactions" in the 1998 Proxy Statement, which
section is incorporated herein by reference.
 

                                    PART IV
 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) Index to Consolidated Financial Statements.
 
    1. FINANCIAL STATEMENTS. The following financial statements and schedule of
       Vision-Sciences, Inc. are included as Appendix A of this Report:
 
      Consolidated Balance Sheets--March 31, 1997 and 1998.
 
      Consolidated Statements of Operations--For the years ended March 31, 1996,
      1997 and 1998.
 
      Consolidated Statements of Stockholders' Equity--For the years ended March
      31, 1996, 1997, 1998.
 
      Consolidated Statements of Cash Flows--For the years ended March 31, 1996,
      1997, and 1998.
 
      Notes to Consolidated Financial Statements.
 
    2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
       statement schedule is included on page S-1.
 
      Schedule II--Valuation and Qualifying Accounts
 
      All other schedules for which provision is made in the applicable
      accounting regulations of the Securities and Exchange Commission are not
      required under the related instructions or are not applicable and,
      therefore, have been omitted.
 
    3. EXHIBITS. The exhibits which are filed with this report or which are
       incorporated herein by reference, are set forth in the Exhibit Index on
       page E-1.
 
(b) Reports on Form 8-K.
 
    Not applicable.
 
                                       22

<PAGE>

                                   SIGNATURES
 
    Pursuant to the requirements of Sections 13 or 15(d) 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.
 

<TABLE>
<S>                             <C>  <C>
                                VISION-SCIENCES, INC.
 
                                By:              /s/ KATSUMI ONEDA
                                     -----------------------------------------
                                                   Katsumi Oneda
                                             PRESIDENT, CHIEF EXECUTIVE
                                              OFFICER AND CHAIRMAN OF
                                               THE BOARD OF DIRECTORS
</TABLE>

 
Date: June 16, 1998
 
    Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
 

<TABLE>
<CAPTION>
                     SIGNATURE                                          TITLE                          DATE
- ---------------------------------------------------  -------------------------------------------  ---------------
<C>                                                  <S>                                          <C>
 
                 /s/ KATSUMI ONEDA                   President, Chief Executive Officer and        June 16, 1998
     ----------------------------------------          Chairman of the Board of Directors
                   Katsumi Oneda                       (Principal Executive Officer
 
            /s/ GERALD B. LICHTENBERGER              Executive Vice President, Chief Operating     June 16, 1998
     ----------------------------------------          Officer, and Secretary
              Gerald B. Lichtenberger
 
                /s/ JAMES A. TRACY                   Vice President Finance, Chief Financial and   June 17, 1998
     ----------------------------------------          Accounting Officer (Principal Financial
                  James A. Tracy                       and Accounting Officer
 
                /s/ KENNETH ANSTEY                   Director                                      June 5, 1998
     ----------------------------------------
                  Kenneth Anstey
 
                 /s/ LEWIS C. PELL                   Director                                      June 16, 1998
     ----------------------------------------
                   Lewis C. Pell
 
              /s/ FRED E. SILVERSTEIN                Director                                      June 5, 1998
     ----------------------------------------
                Fred E. Silverstein
</TABLE>

 
                                       23

<PAGE>
                                   APPENDIX A
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
                         Consolidated Financial Statements
                         as of March 31, 1997 and 1998
                         Together with Auditors' Report

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

<TABLE>
<CAPTION>
                                                                                                                PAGE
                                                                                                                -----
<S>                                                                                                          <C>
 
Report of Independent Public Accountants...................................................................         F-1
 
Consolidated Balance Sheets................................................................................         F-2
 
Consolidated Statements of Operations......................................................................         F-3
 
Consolidated Statements of Stockholders' Equity............................................................         F-4
 
Consolidated Statements of Cash Flows......................................................................         F-5
 
Notes to Consolidated Financial Statements.................................................................         F-6
 
Schedule II--Valuation and Qualifying Accounts.............................................................         S-1
</TABLE>


<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Vision-Sciences, Inc.:
 
    We have audited the accompanying consolidated balance sheets of
Vision-Sciences, Inc. (a Delaware corporation) and subsidiaries as of March 31,
1997 and 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
    We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vision-Sciences, Inc. and
subsidiaries as of March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.
 
    The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
incurred substantial losses for the years ended March 31, 1996, 1997 and 1998,
and losses are expected to continue at least through 1999. The Company may be
required to obtain additional funding or alternative means of financial support
in order to continue to operate as a going concern. Given these factors, there
is substantial doubt concerning the Company's ability to continue as a going
concern. Management's plans in regard to these matters are discussed in Note 1.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
    Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
 
Boston, Massachusetts
May 1, 1998 (except for the matter discussed in Note 11, as to which the date is
May 9, 1998)

 
                                      F-1

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
              CONSOLIDATED BALANCE SHEETS--MARCH 31, 1997 AND 1998
 

<TABLE>
<CAPTION>
                                                                                         1997            1998
                                                                                    --------------  --------------
<S>                                                                                 <C>             <C>
                                      ASSETS
Current Assets:
  Cash and cash equivalents.......................................................  $    2,681,271  $    1,897,905
  Marketable securities...........................................................        --               993,146
  Accounts receivable, net of allowance for doubtful accounts of $127,000 and
    $117,000 in 1997 and 1998, respectively.......................................       1,849,407       1,439,285
  Inventories.....................................................................         706,342         681,106
  Prepaid expenses and deposits...................................................         150,021          86,722
                                                                                    --------------  --------------
    Total current assets..........................................................       5,387,041       5,098,164
                                                                                    --------------  --------------
Property and Equipment, at cost:
  Machinery and equipment.........................................................       2,684,286       2,765,385
  Furniture and fixtures..........................................................         214,626         215,924
  Leasehold improvements..........................................................         304,563         304,563
                                                                                    --------------  --------------
                                                                                         3,203,475       3,285,872
Less--Accumulated depreciation and amortization...................................       1,949,596       2,399,602
                                                                                    --------------  --------------
                                                                                         1,253,879         886,270
                                                                                    --------------  --------------
Other Assets, net of accumulated amortization of $63,000 and $69,000 in 1997 and
  1998, respectively..............................................................         208,913         187,383
                                                                                    --------------  --------------
    Total assets..................................................................  $    6,849,833  $    6,171,817
                                                                                    --------------  --------------
                                                                                    --------------  --------------
                       LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Acceptances payable to a bank...................................................  $       46,251  $       52,383
  Accounts payable................................................................         499,142         525,141
  Accrued expenses................................................................       1,878,638       1,777,775
                                                                                    --------------  --------------
    Total current liabilities.....................................................       2,424,031       2,355,299
Deferred Credit (Note 3)..........................................................          36,558        --
Commitments (Note 6)..............................................................
Stockholders' Equity:
  Preferred stock, $.01 par value--Authorized--5,000,000 shares Issued and
    outstanding--none.............................................................        --              --
  Common stock, $.01 par value--Authorized--25,000,000 shares Issued and
    outstanding--14,696,909 shares and 16,643,071 shares at 1997 and 1998,
    respectively..................................................................         146,968         166,430
  Additional paid-in capital......................................................      46,098,212      48,083,992
  Accumulated deficit.............................................................     (41,855,936)    (44,433,904)
                                                                                    --------------  --------------
    Total stockholders' equity....................................................       4,389,244       3,816,518
                                                                                    --------------  --------------
    Total liabilities and stockholders' equity....................................  $    6,849,833  $    6,171,817
                                                                                    --------------  --------------
                                                                                    --------------  --------------
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-2

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
 

<TABLE>
<CAPTION>
                                                                           1996           1997           1998
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
Net Sales............................................................  $   6,222,053  $   8,329,971  $   7,997,838
Cost of Sales........................................................      7,199,994      7,593,485      6,578,721
                                                                       -------------  -------------  -------------
    Gross profit (loss)..............................................       (977,941)       736,486      1,419,117
Selling, General and Administrative Expenses.........................      6,358,795      4,900,380      3,558,688
Research and Development Expenses....................................      2,399,024      2,289,275        762,558
                                                                       -------------  -------------  -------------
    Loss from operations.............................................     (9,735,760)    (6,453,169)    (2,902,129)
Interest Income, net.................................................        309,204        174,602        147,287
Other Income, net....................................................         18,521         90,520        176,874
                                                                       -------------  -------------  -------------
    Net loss.........................................................  $  (9,408,035) $  (6,188,047) $  (2,577,968)
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
Basic and Diluted Net Loss per Common Share..........................  $        (.84) $        (.46) $        (.17)
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
Shares Used in Computing Basic and Diluted Net Loss per Common
  Share..............................................................     11,236,094     13,456,323     15,224,000
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-3

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
               FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
 

<TABLE>
<CAPTION>
                                                        COMMON STOCK
                                                  ------------------------   ADDITIONAL                        TOTAL
                                                     NUMBER        $.01        PAID-IN      ACCUMULATED    STOCKHOLDERS'
                                                   OF SHARES    PAR VALUE      CAPITAL        DEFICIT         EQUITY
                                                  ------------  ----------  -------------  --------------  -------------
<S>                                               <C>           <C>         <C>            <C>             <C>
Balance, March 31, 1995.........................    10,144,891  $  101,448  $  36,975,428  $  (26,259,854) $  10,817,022
  Sale of common stock..........................     2,615,308      26,153      6,473,847        --            6,500,000
  Compensation expense from stock option
    grants......................................       --           --             98,304        --               98,304
  Exercise of stock options and warrants........       212,500       2,125        487,875        --              490,000
  Net loss......................................       --           --           --            (9,408,035)    (9,408,035)
                                                  ------------  ----------  -------------  --------------  -------------
Balance, March 31, 1996.........................    12,972,699     129,726     44,035,454     (35,667,889)     8,497,291
  Sale of common stock..........................     1,684,210      16,842      1,983,158        --            2,000,000
  Exercise of stock options and warrants........        40,000         400         79,600        --               80,000
  Net loss......................................       --           --           --            (6,188,047)    (6,188,047)
                                                  ------------  ----------  -------------  --------------  -------------
Balance, March 31, 1997.........................    14,696,909     146,968     46,098,212     (41,855,936)     4,389,244
  Sale of common stock..........................     1,941,748      19,417      1,980,583        --            2,000,000
  Exercise of stock options and warrants........         4,414          45          5,197        --                5,242
  Net loss......................................       --           --           --            (2,577,968)    (2,577,968)
                                                  ------------  ----------  -------------  --------------  -------------
Balance, March 31, 1998.........................    16,643,071  $  166,430  $  48,083,992  $  (44,433,904) $   3,816,518
                                                  ------------  ----------  -------------  --------------  -------------
                                                  ------------  ----------  -------------  --------------  -------------
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-4

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
 

<TABLE>
<CAPTION>
                                                                           1996           1997           1998
                                                                       -------------  -------------  -------------
<S>                                                                    <C>            <C>            <C>
Cash Flows from Operating Activities:
  Net loss...........................................................  $  (9,408,035) $  (6,188,047) $  (2,577,968)
  Adjustments to reconcile net loss to net cash used in operating
    activities--
    Depreciation and amortization....................................        573,894        538,801        491,191
    Loss on disposal of property and equipment.......................       --              213,575         75,172
    Compensation expense from stock option grants....................         98,304       --             --
    Amortization of deferred credit..................................        (73,109)       (73,107)       (36,558)
    Changes in current assets and liabilities--
      Accounts receivable............................................       (157,044)      (725,028)       410,122
      Inventories....................................................      1,470,993      1,097,378         25,236
      Prepaid expenses and deposits..................................        (95,396)       135,883         63,299
      Accounts payable...............................................        206,132         81,088         25,999
      Accrued expenses...............................................        572,731        (44,644)      (100,863)
      Accrued restructuring costs....................................       (141,423)      --             --
                                                                       -------------  -------------  -------------
    Net cash used in operating activities............................     (6,952,953)    (4,964,101)    (1,624,370)
                                                                       -------------  -------------  -------------
Cash Flows from Investing Activities:
  Decrease (increase) in marketable securities.......................     (1,235,562)     4,177,322       (993,146)
  Purchase of property and equipment.................................       (512,869)      (235,835)      (192,413)
  Decrease (increase) in other assets................................        (73,792)        16,585         15,189
                                                                       -------------  -------------  -------------
    Net cash provided by (used in) investing activities..............     (1,822,223)     3,958,072     (1,170,370)
                                                                       -------------  -------------  -------------
Cash Flows from Financing Activities:
  Proceeds from (payments of) acceptances payable to a bank..........         (5,208)       (81,351)         6,132
  Proceeds from the sale of common stock.............................      6,500,000      2,000,000      2,000,000
  Proceeds from exercise of stock options and warrants...............        490,000         80,000          5,242
                                                                       -------------  -------------  -------------
    Net cash provided by financing activities........................      6,984,792      1,998,649      2,011,374
                                                                       -------------  -------------  -------------
Net (Decrease) Increase in Cash and Cash Equivalents.................     (1,790,384)       992,620       (783,366)
Cash and Cash Equivalents, beginning of year.........................      3,479,035      1,688,651      2,681,271
                                                                       -------------  -------------  -------------
Cash and Cash Equivalents, end of year...............................  $   1,688,651  $   2,681,271  $   1,897,905
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
Supplemental Disclosure of Cash Flow Information:
  Cash paid during the year for interest.............................  $    --        $    --        $         399
                                                                       -------------  -------------  -------------
                                                                       -------------  -------------  -------------
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-5

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                                 MARCH 31, 1998
 
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
 
    Vision-Sciences, Inc. (the "Company") was organized in 1987 to manufacture
and assemble optical products. The Company's products and accessories, which
provide minimally invasive access to areas not readily visible to the human eye,
are used within one industry segment.
 
    The Company expects to derive a substantial portion of its future revenues
from its disposable EndoSheath/reusable endoscope systems. The Company has
invested substantial funds in this product's development. The Company has
incurred losses for the years ended March 31, 1996, 1997 and 1998, and losses
are expected to continue at least through fiscal 1999. In April 1998, management
implemented plans to reduce the funds required to manage the business, and
believes the Company, as restructured, will not require additional financial
support for the fiscal year 1999. However, there can be no assurance that
additional funding will not be necessary, and management may be required to
obtain additional financing or an alternative means of support during fiscal
1999. The Company is also subject to other risks, including, but not limited to,
the successful marketing of its products, United States Food and Drug
Administration (FDA) clearance and regulation, and dependence on key personnel.
 
    The accompanying consolidated financial statements reflect the application
of certain accounting policies as described below and elsewhere in the notes to
consolidated financial statements. The preparation of the accompanying
consolidated financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results in
the future could differ from those estimates.
 
        (A) PRINCIPLES OF CONSOLIDATION
 
           The accompanying consolidated financial statements reflect the
       accounts of the Company and its wholly owned subsidiaries. All
       significant intercompany accounts and transactions have been eliminated
       in consolidation.
 
        (B) BASIC AND DILUTED NET LOSS PER COMMON SHARE
 
           During the year ended March 31, 1998, the Company adopted Statement
       of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER
       SHARE.Basic net loss per share is based upon the weighted average number
       of common shares outstanding. For the years ended March 31, 1996, 1997
       and 1998 diluted net loss per common share is the same as basic net loss
       per common share as the inclusion of other shares of stock issuable
       pursuant to stock options and warrants would be antidilutive.
 
        (C) DEPRECIATION AND AMORTIZATION
 
           The Company provides for depreciation and amortization using the
       straight-line method in amounts that allocate the cost of the assets over
       their estimated useful lives, as follows:
 

<TABLE>
<CAPTION>
                                                                                     ESTIMATED
ASSET CLASSIFICATION                                                                USEFUL LIFE
- ----------------------------------------------------------------------------------  -----------
<S>                                                                                 <C>
Machinery and equipment...........................................................    5 Years
Furniture and fixtures............................................................    5 Years
</TABLE>

 
                                      F-6

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
           Leasehold improvements are amortized over the shorter of their
       estimated useful lives or the lives of the leases.
 
        (D) REVENUE RECOGNITION
 
           The Company recognizes revenue upon product shipment.
 
        (E) INVENTORIES
 
           Inventories are stated at the lower of cost or market using the
       first-in, first-out (FIFO) method.
 
           The components of inventories are as follows:
 

<TABLE>
<CAPTION>
                                                                              MARCH 31,
                                                                        ----------------------
<S>                                                                     <C>         <C>
                                                                           1997        1998
                                                                        ----------  ----------
Raw materials.........................................................  $  202,833  $  181,125
Work-in-process.......................................................     111,538     178,625
Finished goods........................................................     391,971     321,356
                                                                        ----------  ----------
                                                                        $  706,342  $  681,106
                                                                        ----------  ----------
                                                                        ----------  ----------
</TABLE>

 
           Work-in-process and finished goods inventories consist of materials,
       labor and manufacturing overhead.
 
        (F) OTHER ASSETS
 
           Other assets consist of deposits and patent costs. Patent costs are
       amortized on a straight-line basis over 17 years. The Company follows the
       provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED
       ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires
       that long-lived assets be reviewed for impairment by comparing the fair
       value of the assets with their carrying amount. Any write-downs are to be
       treated as permanent reductions in the carrying value of the assets. The
       Company believes that the carrying values of these assets are realizable
       as of March 31, 1998.
 
        (G) FOREIGN CURRENCY TRANSACTIONS
 
           The Company charges foreign currency exchange gains or losses in
       connection with its purchases of products from vendors in Japan to
       operations in accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION.
       For the three years ended March 31, 1998 these amounts were immaterial
       and have been charged to operations.
 
        (H) CASH AND CASH EQUIVALENTS
 
           The Company classifies investments with original maturities of three
       months or less, consisting of U.S. Government issues and commercial
       paper, as cash equivalents. Cash equivalents are stated at amortized
       cost, which approximates market value.
 
                                      F-7

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
        (I) MARKETABLE SECURITIES
 
           Marketable securities consist of marketable financial instruments
       with original maturities greater than 90 days. The Company has
       established guidelines relative to concentration, maturities and credit
       ratings which maintain safety and liquidity.
 
           The Company has classified its investments in marketable securities
       as available-for-sale securities, in accordance with SFAS No. 115.
       Marketable securities as of March 31, 1998 are recorded at market value,
       which approximates amortized cost.
 
           As of March 31, 1998, the Company held securities of the U.S.
       Government or political subdivisions thereof with a weighted average
       maturity of 58 days.
 
        (J) RESEARCH AND DEVELOPMENT EXPENSES
 
           Research and development expenses are charged to operations as
       incurred.
 
        (K) CONCENTRATION OF CREDIT RISK
 
           SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS
       WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATION
       OF CREDIT RISK, requires disclosure of any significant off-balance-sheet
       and credit risk concentrations. Financial instruments that potentially
       subject the Company to concentration of credit risk are principally cash,
       marketable securities and accounts receivable. The Company places its
       cash in federally insured institutions and invests in marketable
       securities in highly rated investment vehicles. Concentration of credit
       risk with respect to accounts receivable relates to certain domestic and
       international customers to whom the Company makes substantial sales (see
       Note 8). To reduce risk, the Company routinely assesses the financial
       strength of its customers and obtains letters of credit or advance
       payments for most of its international sales; as a consequence, the
       Company believes that its accounts receivable credit risk exposure is
       limited. The Company maintains an allowance for potential credit losses,
       but historically has not experienced any significant credit losses
       related to any individual customer or group of customers in any
       particular industry or geographic area.
 
        (L) DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL
            INSTRUMENTS
 
           The Company does not have any derivative or other financial
       instruments as defined by SFAS No. 119, DISCLOSURE ABOUT DERIVATIVE
       FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS.
 
           SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
       requires disclosure of an estimate of the fair value of certain financial
       instruments. The Company's financial instruments consist of cash
       equivalents, accounts receivable and acceptances payable. The estimated
       fair value of these financial instruments approximates their carrying
       value at March 31, 1997 and 1998. The estimated fair values have been
       determined through information obtained from market sources and
       management estimates.
 
                                      F-8

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(2) DEBT
 
    The Company has a demand line-of-credit agreement with a bank in support of
general working capital needs and the issuance of commercial and standby letters
of credit. Borrowings under the agreement bear interest at the bank's prime rate
(8.5% at March 31, 1998) and are secured by the Company's cash and marketable
securities held by the bank. The Company may borrow up to $250,000 (net of any
letters of credit) under the line of credit, which is subject to renewal by the
bank on February 15, 2002. Under this agreement, the Company is also subject to
certain covenants, including the prohibition of paying cash dividends on its
common stock. At March 31, 1998, the Company had acceptances payable aggregating
$52,383, maturing in April and May 1998.
 
(3) DEFERRED CREDIT
 
    In connection with the organization of Machida Incorporated, a wholly owned
subsidiary, in 1987, the Company acquired substantially all of the assets
subject to related liabilities of Machida America, Inc. The purchase price of
$849,000 consisted of $305,000 in cash, $432,000 in notes payable and $112,000
in Cooper Life Science, Inc. common stock (the ultimate parent entity of Machida
America, Inc.), owned by the founders of Machida Incorporated. In accordance
with Accounting Principles Board Opinion No. 16, BUSINESS COMBINATIONS (APB 16),
the purchase price was allocated based on the estimated fair values of the net
assets acquired and liabilities assumed. The fair value of the current assets,
net of the liabilities assumed, exceeded the purchase price by $731,000. In
accordance with APB 16, this excess was recorded as a deferred credit, which was
amortized to operations over its expected benefit period of 10 years. At March
31, 1998, the deferred credit was fully amortized.
 
(4) INCOME TAXES
 
    The Company accounts for income taxes under the liability method in
accordance with SFAS No. 109, ACCOUNTING FOR INCOME TAXES. Under SFAS No. 109,
deferred tax assets or liabilities are computed based on the differences between
the financial statement and income tax bases of assets and liabilities as
measured by the enacted tax rates.
 
    The components of the net deferred tax asset recognized in the accompanying
consolidated balance sheets with the approximate income tax effect of each type
of temporary difference are as follows:
 

<TABLE>
<CAPTION>
                                                                          MARCH 31,
                                                                 ----------------------------
<S>                                                              <C>            <C>
                                                                     1997           1998
                                                                 -------------  -------------
Net operating loss carryforwards...............................  $  15,050,000  $  16,189,000
Nondeductible reserves.........................................      1,318,000      1,206,000
Research and development credit carryforwards..................        350,000        425,000
Other temporary differences....................................        305,000        304,000
Depreciation...................................................        (31,000)       (95,000)
                                                                 -------------  -------------
 
                                                                    16,992,000     18,029,000
 
Less--Valuation allowance......................................     16,992,000     18,029,000
                                                                 -------------  -------------
    Net deferred tax asset.....................................  $    --        $    --
                                                                 -------------  -------------
                                                                 -------------  -------------
</TABLE>

 
                                      F-9

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(4) INCOME TAXES (CONTINUED)
    The Company has recorded a valuation allowance equal to its net deferred tax
asset due to the uncertainty of realizing the benefit of this asset.
 
    At March 31, 1998, the Company has operating loss carryforwards available to
offset future federal taxable income of approximately $40,500,000. These
operating loss carryforwards expire at various dates through 2012 and are
subject to review and possible adjustment by the Internal Revenue Service.
 
    The Internal Revenue Code limits the amount of net operating loss
carryforwards that companies may use in any one year in the event of cumulative
changes in ownership over a three-year period in excess of 50%.
 
(5) STOCKHOLDERS' EQUITY
 
        (A) SALE OF COMMON STOCK
 
           During fiscal 1997, two of the Company's stockholders/executives
       invested $2,000,000 in the Company's common stock at a price per share
       equal to the closing price of the stock on the Nasdaq National Market on
       December 17, 1996. During fiscal 1998, two of the Company's
       stockholders/executives invested $2,000,000 in the Company's common stock
       at a price per share equal to 80% of the average closing price of the
       stock on the Nasdaq SmallCap Market during the five-day trading period
       ending on December 22, 1997. The proceeds of the common stock sales were
       received directly by the Company in exchange for newly issued shares of
       common stock.
 
        (B) STOCK OPTION PLANS
 
           The Company has a stock option plan (the "1990 Plan") under which it
       may grant key employees and consultants incentive and nonstatutory stock
       options at the fair value of the stock on the date of grant. Options
       become exercisable at varying dates ranging up to five years from the
       date of grant. The Board of Directors has authorized the issuance of
       options for the purchase of up to 2,375,000 shares of common stock under
       the 1990 Plan, of which 442,766 shares remain available for future grant.
 
                                      F-10

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(5) STOCKHOLDERS' EQUITY (CONTINUED)
           A summary of the 1990 Plan activity is as follows:
 

<TABLE>
<CAPTION>
                                                                                       WEIGHTED
                                                           NUMBER       EXERCISE        AVERAGE
                                                         OF SHARES    PRICE RANGE    OPTION PRICE
                                                         ----------  --------------  -------------
<S>                                                      <C>         <C>             <C>
Outstanding, March 31, 1995............................   1,254,905    $2.00--$7.50    $    5.30
  Granted..............................................     271,397     1.88-- 5.44         2.91
  Exercised............................................    (212,500)    2.00-- 4.00         2.31
  Canceled.............................................    (203,430)    3.00-- 7.25         5.42
                                                         ----------  --------------        -----
Outstanding, March 31, 1996............................   1,110,372    $1.88--$7.50    $    5.27
  Granted..............................................     729,000     1.19-- 3.00         1.38
  Exercised............................................     (40,000)      2.00              2.00
  Canceled.............................................    (296,550)    1.88-- 7.25         5.58
                                                         ----------  --------------        -----
Outstanding, March 31, 1997............................   1,502,822    $1.19--$7.50    $    3.41
  Granted..............................................     843,525     1.13-- 1.25         1.18
  Exercised............................................      (4,414)      1.19              1.19
  Canceled.............................................    (734,511)    1.19-- 7.25         3.85
                                                         ----------  --------------        -----
Outstanding, March 31, 1998............................   1,607,422    $1.13--$7.50    $    2.04
                                                         ----------  --------------        -----
                                                         ----------  --------------        -----
Exercisable, March 31, 1998............................     849,422    $1.19--$7.50    $    2.75
                                                         ----------  --------------        -----
                                                         ----------  --------------        -----
</TABLE>

 
           The following table summarizes information about stock options
       outstanding and exercisable at March 31, 1998:
 

<TABLE>
<CAPTION>
                              OUTSTANDING                       EXERCISABLE
                ----------------------------------------  ------------------------
<S>             <C>         <C>              <C>          <C>          <C>
                               WEIGHTED       WEIGHTED                  WEIGHTED
                                AVERAGE        AVERAGE                   AVERAGE
                NUMBER OF      REMAINING      EXERCISE      NUMBER      EXERCISE
EXERCISE PRICE    SHARES     CONTRACT LIFE      PRICE      OF SHARES      PRICE
- --------------  ----------  ---------------  -----------  -----------  -----------
$  1.13-- 1.25   1,336,675          8.14      $    1.20      599,925    $    1.21
 1.88               10,000          7.72           1.88       10,000         1.88
   3.00-- 4.00      46,897          6.21           3.33       30,647         3.45
   5.44-- 7.50     213,850          5.93           7.07      208,850         7.10
                ----------           ---          -----   -----------       -----
                 1,607,422          7.79      $    2.04      849,422    $    2.75
                ----------           ---          -----   -----------       -----
                ----------           ---          -----   -----------       -----
</TABLE>

 
    In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, which requires the measurement
of the fair value of stock-based compensation to be included in the statement of
operations or disclosed in the notes to the financial statements. The Company
has determined that it will continue to account for stock-based compensation for
employees under APB Opinion No. 25 and elects the disclosure-only alternative
under SFAS No. 123 for stock-based compensation awarded in the years ended March
31, 1996, 1997 and 1998 using the Black-Scholes option pricing model prescribed
by SFAS No. 123. The underlying assumptions used are as follows:
 
                                      F-11

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(5) STOCKHOLDERS' EQUITY (CONTINUED)
    (b) Stock Option Plans (Continued)
 

<TABLE>
<CAPTION>
                                                                              MARCH 31,
                                                                         --------------------
<S>                                                                      <C>        <C>
                                                                           1997       1998
                                                                         ---------  ---------
Risk-free interest rate................................................       6.18%      6.57%
Expected dividend yield................................................     --         --
Expected lives.........................................................    5 years    5 years
Expected volatility....................................................         52%        64%
Weighted average value of grants.......................................  $    1.38  $     .72
Weighted average remaining contractual life of options outstanding
  (years)..............................................................       7.09       7.79
</TABLE>

 
    Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, pro forma net loss and net loss per share would
have been:
 

<TABLE>
<CAPTION>
                                                                                MARCH 31,
                                                                           --------------------
<S>                                                                        <C>        <C>
                                                                             1997       1998
                                                                           ---------  ---------
Net loss--
  As reported ($000's)...................................................  $  (6,188) $  (2,578)
  Pro forma ($000's).....................................................     (6,302)    (2,815)
Net loss per share--
  As reported............................................................  $    (.46) $    (.17)
  Pro forma..............................................................       (.47)      (.18)
</TABLE>

 
    Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to March 31, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
 
    Under the 1990 Plan, there remain 2,051,638 shares of common stock reserved
for the exercise of stock options.
 
    On August 16, 1993, the Company adopted another stock option plan (the "1993
Plan") under which it may grant up to 200,000 nonstatutory stock options to
nonemployee directors of the Company at the fair value of the stock on the date
of grant. In the year ended March 31, 1995, options to purchase 20,000 shares at
an exercise price of $5.50 per share were granted, and options to purchase
20,000 shares of common stock at an exercise price of $11.625 were canceled. In
the year ended March 31, 1998, options to purchase 40,000 and 20,000 shares of
common stock at exercise prices of $11.625 and $5.50, respectively, were
canceled. Options become exercisable over a four-year period from the date of
grant. As of March 31, 1998, options to purchase 20,000 shares of common stock
were exercisable under the 1993 Plan. The Company has reserved 200,000 shares of
common stock for the exercise of stock options under the 1993 Plan. As of March
31, 1998, 180,000 shares are available for future grant under the 1993 Plan.
 
(6) COMMITMENTS AND RELATED PARTY TRANSACTIONS
 
    The Company conducts a portion of its operations in certain facilities
leased from a partnership owned in part by certain stockholders. Rental expense
charged to operations for these facilities was
 
                                      F-12

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(6) COMMITMENTS AND RELATED PARTY TRANSACTIONS (CONTINUED)
approximately $299,000, $204,000 and $186,000 for the years ended March 31,
1996, 1997 and 1998, respectively. In addition, the Company leased a vehicle and
other facilities from nonrelated parties under various agreements that expire
through November 2003. Rental expense charged to operations under leases from
nonrelated parties was approximately $281,000, $283,000 and $283,000 for the
years ended March 31, 1996, 1997 and 1998, respectively. Future minimum lease
commitments under all operating leases are approximately as follows:
 

<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
- --------------------------------------------------------------------------------
<S>                                                                               <C>
  1999..........................................................................  $    485,000
  2000..........................................................................       487,000
  2001..........................................................................       309,000
  2002..........................................................................       127,000
  2003..........................................................................       132,000
    Thereafter..................................................................        79,000
                                                                                  ------------
                                                                                  $  1,619,000
                                                                                  ------------
                                                                                  ------------
</TABLE>

 
(7) 401(K) PLAN
 
    The Company has a 401(k) plan (the Plan) whereby employees may contribute a
certain percentage of their annual compensation, up to a defined maximum. The
Company may, but is not obligated to, contribute up to a certain percentage of
each employee's contribution. During the years ended March 31, 1996, 1997 and
1998, the Company recorded expense of approximately $32,000, $31,000 and
$31,000, respectively, relating to the Plan.
 
(8) EXPORT SALES AND SIGNIFICANT CUSTOMERS
 
    Sales to unaffiliated customers outside of the United States were
approximately $675,000, $718,000 and $652,000 for the fiscal years ended March
31, 1996, 1997 and 1998, respectively.
 
    For the fiscal year ended March 31, 1996, one customer accounted for 15% of
net sales, and another customer accounted for 10% of net sales. For the fiscal
years ended March 31, 1997 and 1998, one customer accounted for 36% and 35% of
net sales, respectively.
 
(9) ACCRUED EXPENSES
 
    Accrued expenses consist of the following:
 

<TABLE>
<CAPTION>
                                                                            MARCH 31,
                                                                    --------------------------
<S>                                                                 <C>           <C>
                                                                        1997          1998
                                                                    ------------  ------------
Accrued payroll and related expenses..............................  $    798,477  $    863,542
Accrued other.....................................................     1,080,161       914,233
                                                                    ------------  ------------
                                                                    $  1,878,638  $  1,777,775
                                                                    ------------  ------------
</TABLE>

 
                                      F-13

<PAGE>
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
                                 MARCH 31, 1998
 
(10) NEW ACCOUNTING STANDARDS
 
    In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME.
This statement requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of the balance sheet, and is
effective for the Company's year ended March 31, 1998. The Company's only item
of other comprehensive income relates to foreign currency translation
adjustments, which were immaterial and charged to operations for the years ended
March 31, 1996, 1997, and 1998.
 
    In July 1997, the FASB issued SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION. SFAS No. 131 requires certain financial and
supplementary information to be disclosed on an annual and an interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 31, 1997. Unless impractical, companies would be
required to restate prior period information upon adoption. The Company does not
expect this accounting pronouncement to materially effect its financial
statements.
 
(11) SUBSEQUENT EVENT
 
    In May 1998 the Company signed a non-binding letter of intent (the "Letter")
to acquire 25% of the fully diluted share capital of 3DV Systems Ltd. ("3DV"),
an Israeli company that is a wholly-owned subsidiary of RDC Rafael Development
Corporation Ltd. ("RDC"), an Israeli company, for $3 million in cash. The
Company made a non-refundable advance of $500,000 to 3DV in May 1998. If the
Company enters into a binding agreement with 3DV, this advance will be credited
against the $3 million purchase price; otherwise it will be forfeited.
 
    If the Company enters into a binding agreement and acquires the 25% interest
in 3DV, the Company will also obtain exclusive worldwide rights to commercially
exploit products that incorporate, or use, component parts embodying technology
developed by 3DV. In addition, the Company would obtain the right to acquire the
remaining 75% of the share capital of 3DV in the future, at the then fair market
value, under certain conditions, and 3DV would obtain the right to require the
Company to purchase the remaining 75%, under certain conditions. The Company
will issue 500,000 shares of Vision-Sciences common stock to RDC upon the
execution of a definitive agreement in exchange for the right to purchase the
remaining 75% of 3DV and certain other rights.
 
    In addition, Asahi Optical Co. Ltd. ("Asahi"), a Japanese company, has
expressed its intent to invest $5 million in a private placement of the
Company's common stock. This investment is contingent upon the Company executing
sublicenses with Asahi for certain applications of the 3DV technology and other
technology to be developed by an individual with whom the Company would enter
into a consulting agreement.
 
    The proposed transactions discussed above are subject to the execution of
definitive agreements, and there can be no assurance that any of such
transactions will be consummated on the terms described above, or at all.
 
                                      F-14

<PAGE>
 
                                                                    SCHEDULE II
 
                     VISION-SCIENCES, INC. AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
               FOR THE YEARS ENDED MARCH 31, 1996, 1997 AND 1998
 

<TABLE>
<CAPTION>
                                                                    BALANCE,   CHARGED TO                 BALANCE,
                                                                   BEGINNING    COSTS AND                  END OF
DESCRIPTION                                                         OF YEAR     EXPENSES    WRITE-OFFS      YEAR
- -----------------------------------------------------------------  ----------  -----------  -----------  ----------
<S>                                                                <C>         <C>          <C>          <C>
Deducted from Assets Accounts:
  Allowance for doubtful accounts--
    Year ended March 31, 1996....................................  $   29,567   $  26,537    $   4,104   $   52,000
    Year ended March 31, 1997....................................      52,000      75,000       --          127,000
    Year ended March 31, 1998....................................     127,000      17,000       27,000      117,000
</TABLE>

 
                                      S-1

<PAGE>

                                 EXHIBIT INDEX
 

<TABLE>
<CAPTION>
EXHIBIT                                      DESCRIPTION OF EXHIBIT                                       PAGE
- ---------  -------------------------------------------------------------------------------------------  ---------
<C>        <S>                                                                                          <C>
 
     3.1.(1) Restated Certificate of Incorporation of the Company, as amended to date
 
     3.2.(2) By-laws, as amended to date
 
   *10.1.(4) 1990 Stock Option Plan, as amended
 
   *10.2.(4) 1993 Director Option Plan
 
    10.3.(2) Registration Rights Agreement dated as of February 28, 1992 among the Registrant and the
             persons listed therein
 
   *10.4.(2) Vision-Sciences, Inc. 401(k) Plan, as amended
 
    10.5.(2) Supply Agreement between Machida Incorporated and Steve Onody dated August 29, 1991
 
    10.6.(2) Purchase Agreement between Vascu-Care, Inc. and Steve Onody dated August 29, 1991
 
    10.7.(2) Lease between Paul D. McKeon, Trustee of Six Strathmore Road Trust and V-M Ventures
             Incorporated dated October 24, 1990, as amended by Amendment No. 1 to Lease dated
             September 1, 1990
 
    10.8.(7) Amendment No. 2 to Lease between Paul D. McKeon, Trustee of Six Strathmore Road Trust and
             Vision-Sciences, Inc.
 
    10.9.(7) Amendment No. 3 to Lease between Paul D. McKeon, Trustee of Six Strathmore Road Trust and
             Vision-Sciences, Inc.
 
   10.10.(2) Lease between Machida Incorporated and J&J Associates dated September 1, 1990
 
   10.11.(7) Renewal to Lease between Machida Incorporated and J&J Associates dated September 1, 1995
 
   10.12.(2) Lease between Machida Incorporated and South Bay Club Apartments dated July 12, 1991
 
   10.13.(2) Non-Exclusive License Agreement among Opielab, Inc., O.S. Limited Partnership and Asahi
             Optical Co., Ltd. dated September 28, 1988
 
   10.14.(3) License Agreement between Vision-Sciences, Inc. and Advanced Polymers, Inc. dated June 10,
             1993
 
   10.17.(2) Distributorship Agreement dated January 1, 1991 between Storz Instrument Company and
             Machida Incorporated, as amended
 
  *10.18.(2) Form of Vision-Sciences, Inc. Invention, Non-Disclosure and Non-Competition Agreement for
             employees
 
   10.19.(2) Supply Agreement between the Company and Asahi Optical Co., Ltd. dated March 16, 1992
 
   10.20.(2) Royalty Agreement between Vision-Sciences, Inc. and C.R. Bard, Inc. dated December 12, 1989
 
   10.21.(2) Consulting Agreement between Vision-Sciences, Inc. and Richard Rothstein dated November 1,
             1991
</TABLE>

 
                                      E-1

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT                                      DESCRIPTION OF EXHIBIT                                       PAGE
- ---------  -------------------------------------------------------------------------------------------  ---------
<C>        <S>                                                                                          <C>
   10.22.(2) Agreement, Assumption and Release dated as of September 1, 1992 among Stephen Onody,
             Vascu-Care, Inc., Machida Incorporated and Summit Technologies, Inc.
 
   10.23.(5) Amendment to License Agreement between Vision-Sciences, Inc. and Advanced Polymers, Inc.
             dated April 5, 1994
 
   10.24.(7) Amendment to License Agreement between Vision-Sciences, Inc. and Advanced Polymers, Inc.
             dated April 5, 1995
 
   10.25.(7) Amendment to License Agreement between Vision-Sciences, Inc. and Advanced Polymers, Inc.
             dated February 14, 1996
 
   10.26.(5) Agreement between Vision-Sciences, Inc. and Smith & Nephew Richards, Inc. dated March 28,
             1994
 
   10.27.(6) Commercial Loan Agreement (including Security Agreement and Promissory Note) between
             Vision-Sciences, Inc. and The First National Bank of Boston dated January 24, 1995
 
   10.28.(7) Extension to Commercial Loan Agreement between Vision-Sciences, Inc. and The First National
             Bank of Boston dated November 16, 1995
 
   10.29.(7) Lease between Paul D. McKeon, Trustee of 14 Burr Street Realty Trust and Vision-Sciences,
             Inc. dated April 23, 1993
 
    21.1.(1) Subsidiaries of the Company
 
    23.1.  Consent of Arthur Andersen LLP
 
     27.1  Financial Data Schedule
</TABLE>

 
- ------------------------
 
*   Management contract or compensatory plan or arrangement filed as an exhibit
    to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.
 
(1) Incorporated by reference from the Annual Report on Form 10-K from the
    fiscal year ended March 31, 1993.
 
(2) Incorporated by reference from the Registration Statement on Form S-1 (File
    No. 33-53490).
 
(3) Incorporated by reference to the Quarterly Report on Form 10-Q for the
    quarter ended June 30, 1993.
 
(4) Incorporated by reference from the Annual Report on Form 10-K from the
    fiscal year ended March 31, 1994.
 
(5) Incorporated by reference from the Quarterly Report on Form 10-Q/A for the
    quarter ended June 30, 1994.
 
(6) Incorporated by reference from the Annual Report on Form 10-K from the
    fiscal year ended March 31, 1995.
 
(7) Incorporated by reference from the Annual Report on Form 10-K from the
    fiscal year ended March 31, 1996.
 
                                      E-2





<PAGE>

                                                                    Exhibit 23.1

                     CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of our
report, included in this Form 10K, into Vision-Sciences, Inc.'s previously filed
Registration Statement File Nos. 33-57298, 33-80762 and 33-80764.


                                              /s/ ARTHUR ANDERSEN LLP  
                                              ------------------------
                                                  ARTHUR ANDERSEN LLP

Boston, Massachusetts
June 25, 1998







<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10K FOR
THE YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED> 
<CIK> 0000894237
<NAME> VISION SCIENCES, INC.
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   YEAR                   YEAR
<FISCAL-YEAR-END>                          MAR-31-1998             MAR-31-1997
<PERIOD-START>                             APR-01-1997             APR-01-1996
<PERIOD-END>                               MAR-31-1998             MAR-31-1997
<CASH>                                         1897905                 2681271
<SECURITIES>                                    993146                       0
<RECEIVABLES>                                  1556285                 1976407
<ALLOWANCES>                                    117000                  127000
<INVENTORY>                                     681106                  706342
<CURRENT-ASSETS>                               5098164                 5387041
<PP&E>                                         3285872                 3203475
<DEPRECIATION>                                 2399602                 1949596
<TOTAL-ASSETS>                                 6171817                 6849833
<CURRENT-LIABILITIES>                          2355299                 2424031
<BONDS>                                              0                       0
<PREFERRED-MANDATORY>                                0                       0
<PREFERRED>                                          0                       0
<COMMON>                                        166430                  146968
<OTHER-SE>                                     3650088                 4242276
<TOTAL-LIABILITY-AND-EQUITY>                   6171817                 6849833
<SALES>                                              0                       0
<TOTAL-REVENUES>                               7997838                 8329971
<CGS>                                          6578721                 7593485
<TOTAL-COSTS>                                        0                       0
<OTHER-EXPENSES>                               4321246                 7189655
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                 399                       0
<INCOME-PRETAX>                              (2577968)               (6188047)
<INCOME-TAX>                                         0                       0
<INCOME-CONTINUING>                                  0                       0
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                 (2577968)               (6188047)
<EPS-PRIMARY>                                    (.17)                   (.46)
<EPS-DILUTED>                                    (.17)<F1>               (.46)<F1>
<FN>
<F1> NO RESTATEMENT OF PRIOR YEAR EPS AS RESULTS WOULD BE ANTIDILUTIVE
</FN>
        

</TABLE>