<PAGE>
 
                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


    For the Quarter ended September 30, 1996 Commission file number 0-28492
                          ------------------                               
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                            INNOVASIVE DEVICES, INC.
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             (Exact name of registrant as specified in its charter)


            Massachusetts                           04-3132641
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  (State or other jurisdiction of               (I.R.S. Employer
  incorporation or organization)               Identification No.)

                   734 Forest Street,  Marlborough  MA  01752
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                    (Address of principal executive offices)

        Registrant's telephone number, including area code  508/460-8229
                                                            ------------

                                      N/A
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             Former name, former address and former fiscal year, 
                         if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months 9or 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 
                                  ---    ---     

The number of shares outstanding of the registrant's common stock as of November
14, 1996 was 7,260,408.

                                       1
<PAGE>
 
                            INNOVASIVE DEVICES, INC.

                                     INDEX
<TABLE> 
<CAPTION>
                                                                Page
                                                                ----
<S>                                                             <C>
Part I: Financial Information

  Item 1.  Condensed Financial Statements

             Condensed Balance Sheet at September 
             30, 1996 (unaudited) and December 31, 1995            3
 
             Condensed Statement of Operations (unaudited) 
             for the Three Months and Nine Months Ended 
             September 30, 1996 and September 30, 1995             4
 
             Condensed Statements of Cash Flows (unaudited) 
             for the Nine Months Ended September 30, 1996 
             and September 30, 1995                                5
 
             Notes to unaudited Condensed Financial
             Statements                                            6
 
  Item 2.  Management's Discussion and Analysis of Financial 
           Condition and Results of Operations                     8
 
 
PART II.  Other Information                                       11
 
Signatures                                                        12
 
Exhibit Index                                                     13
 
</TABLE>

                                       2
<PAGE>
 
                        Part I - Financial Information
 
                         Item 1.  Financial Statements
 
                           INNOVASIVE DEVICES, INC.
                            Condensed Balance Sheet
                                (in thousands)

<TABLE> 
<CAPTION> 
ASSETS                                                September 30,         December 31,
                                                           1996                1995
                                                     ---------------      ---------------
                                                       (unaudited)
<S>                                                   <C>                  <C>
Current assets:
     Cash and cash equivalents                         $  23,985            $  5,052
     Accounts receivable, less allowance                     709                 283
        of $59 at September 30, 1996 and $51 at
        December 31, 1995
     Inventories                                             701                 405
     Prepaid expenses                                        119                  48
                                                       ---------           --------- 
         Total current assets                             25,514               5,788
     Fixed assets, net                                       687                 599
     Other assets, net                                        25                  12
                                                       ---------           --------- 
                                                       $  26,226            $  6,399
                                                       =========           ========= 
LIABILITIES, REDEEMABLE PREFERRED STOCK,
AND STOCKHOLDERS' EQUITY (DEFICIT)
 
Current liabilities:
     Accounts payable                                  $     215            $    459
     Related party payables                                  528                 265
     Other current liabilities                               752                 206
                                                       ---------           --------- 
         Total current liabilities                         1,495                 930

Mandatorily redeemable convertible
   preferred stock                                             -              13,970
                                                       ---------           --------- 
Stockholders' equity (deficit):
     Common stock                                              1                   1
     Additional paid in capital                           39,803               3,459
     Accumulated deficit                                 (15,073)            (11,936)
                                                       ---------           --------- 
                                                          24,731              (8,476)
     Less: common stock held in treasury                       -                  25
                                                       ---------           --------- 
         Total stockholders' equity (deficit)             24,731              (8,501)
                                                       ---------           --------- 
                                                       $  26,226            $  6,399
                                                       =========           =========
</TABLE> 
 
The accompanying notes are an integral part of these unaudited condensed
 financial statements.
 

                                       3
<PAGE>
 
                           INNOVASIVE DEVICES, INC.
                       Condensed Statement of Operations
               (In thousands, except per share data; unaudited)

<TABLE> 
<CAPTION> 
                                          Three months ended       Nine months ended
                                             September 30,            September 30,
                                         --------------------    ---------------------
                                            1996      1995          1996       1995
                                          -------   -------       -------    -------
<S>                                       <C>       <C>           <C>        <C> 
Net sales                                 $ 1,106   $   303       $ 2,996    $   765
                                                                            
Cost of sales                                 399       290         1,151        694
                                          -------   -------       -------    -------
     Gross profit                             707        13         1,845         71
                                                                            
Selling, general and  administrative      
   expenses                                 1,374       557         3,622      1,639
Research and development                      662       408         1,840      1,110
                                          -------   -------       -------    -------
     Loss from operations                  (1,329)     (952)       (3,617)    (2,678)
                                                                            
Interest income (expense), net                310        (9)          484         15
                                          -------   -------       -------    -------
     Net loss                             $(1,019)  $  (961)      $(3,133)    (2,663)
                                          =======   =======       =======    =======
Net loss per share                                                  
Unaudited proforma net loss per share     $( 0.14)  $( 0.20)      $( 0.51)   $( 0.55)
                                          =======   =======       =======    =======
  Shares used in computing net loss      
    per share                               7,260     4,820         6,200      4,820
                                          =======   =======       =======    =======
 
</TABLE>



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

                                       4
<PAGE>
 
                           INNOVASIVE DEVICES, INC.
                       Condensed Statement of Cash Flows
                           (In thousands; unaudited)
 
<TABLE> 
<CAPTION> 
                                          Nine months ended
                                            September 30,
                                          ------------------
                                            1996      1995
                                          --------  --------
<S>                                       <C>       <C>
Cash flows from operating activities
     Net loss                             $(3,133)  $(2,663)
     Adjustments to reconcile net loss
      to net cash provided by 
      (used for) operating activities:
        Depreciation and amortization         206       135
        Changes in assets and
         liabilities:
           Accounts receivable, net          (426)     (151)
           Inventories                       (296)      (35)
           Prepaid expenses                   (71)      (30)
           Other assets                       (13)        5
           Accounts payable                  (244)      115
           Related party payables             263       113
           Other current liabilities          546       110
                                          -------   -------
Net cash used for operating activities     (3,168)   (2,401)
                                          -------   -------
 
Cash flows from investing activities
     Purchases of fixed assets               (294)     (136)
                                          -------   -------
 
Cash flows from financing activities
     Proceeds from issuance of
      preferred stock, net of 
      issuance costs                          926         -
     Proceeds from issuance of common
      stock, net of issuance costs         21,469         -
     Principal payments on note payable                (464)
     Proceeds from issuance of          
      convertible notes payable                       1,000
                                          -------   -------
 
Net cash provided by financing          
 activities                                22,395       536
                                          -------   -------
 
Net increase (decrease) in cash and     
 cash equivalents                          18,933    (2,001)
 
Cash and cash equivalents at beginning     
 of period                                  5,052     2,051
                                          -------   -------
Cash and cash equivalents at end of      
 period                                   $23,985   $    50
                                          =======   =======
 
</TABLE>



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

                                       5
<PAGE>
 
                            INNOVASIVE DEVICES, INC.
               NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


1. -- BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements of Innovasive Devices,
Inc. (the "Company") include, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation of the Company's financial position at September 30, 1996 and the
results of operations for the three and nine month periods ended September 30,
1996 and 1995. Interim results of operations are not necessarily indicative of
the results to be achieved for the full year.

Pursuant to accounting requirements of the Securities and Exchange Commission
(the "SEC") applicable to quarterly reports on Form 10-Q , the accompanying
unaudited condensed financial statements and these notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the financial statements and accompanying notes contained in
the Company's Registration Statement on Form S-1 (Registration No. 333-3368)
filed with the SEC on April 11, 1996, as amended by filings on May 17, 1996 and
May 30, 1996.


2.  Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
                       September 30,   December 31,
                           1996           1995
                       -------------   ------------
                        (unaudited)
<S>                   <C>             <C>
Raw materials              $ 154          $ 157
Work-in-process               67             68
Finished goods               480            180
                       -------------   ------------
Totals                     $ 701          $ 405
                       =============   ============
 
</TABLE>

3.  Common Stock Issuance (unaudited)

In June 1996, the Company sold and issued 1,900,000 shares of its common stock
pursuant to an initial public offering ("IPO").  Net proceeds to the Company
from the offering were approximately $21 million.  Upon completion of the
offering, all outstanding shares of Preferred Stock were converted into 3.5
million shares of common stock.

                                       6
<PAGE>
 
                            INNOVASIVE DEVICES, INC.
               NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


4.  Net Loss Per Share (unaudited)

Net loss per share is determined by dividing the net loss by the weighted
average number of common stock and common stock equivalents outstanding during
the period.  The weighted average number of common stock and common stock
equivalents outstanding during the period prior to and including the Company's
initial IPO on June 5, 1996 includes the effect of the assumed conversion of all
convertible preferred stock prior to the actual conversion which occurred upon
the closing of the Company's IPO.  Accordingly, net loss per share for these
periods is presented on a pro forma basis.

Pursuant to SEC Staff Accounting Bulletin 83,  common stock equivalents,
although anti-dilutive, issued at prices below the offering price per share
during the twelve months preceding the initial public offering of the Company's
common stock have been included in the calculation of net loss per share using
the treasury stock method as if outstanding since the beginning of each period
presented through March 31, 1996.

                                       7
<PAGE>
 
                            INNOVASIVE DEVICES, INC.

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

OVERVIEW

Since its inception, Innovasive Devices, Inc.(the "Company") has been primarily
engaged in the development, manufacture and marketing of proprietary devices and
instrumentation which facilitate the reattachment of soft tissue structures,
such as ligaments and tendons, to bones and other tissues. The Company has a
limited operating history and has expended significant resources to fund
research and development, the establishment of its manufacturing capabilities
and the expansion of its marketing and sales organization. The Company plans to
continue investing aggressively in these areas. The Company's sales are
principally derived from the sale of  its family of ROC tissue fasteners and
related surgical instrumentation. The Company commenced commercial shipments of
its first ROC fastener during 1994 and expanded its product offering during
1995,  to include the IDeal Arthroscopic Suture Fastener System.

The following information should be read in conjunction with the unaudited
condensed financial statements and notes thereto included in this Quarterly
Report and with the Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's Registration Statement on Form S-1 (Registration No. 333-3368) filed
with the SEC on April 11, 1996, as amended by filings on May 17, 1996 and May
30, 1996.

Any statements in this report expressing the beliefs and expectations of
management regarding the Company's future results and performance are forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995.  Such forward-looking statements are based on current
expectations that involve a number of risks and uncertainties.  The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made.  Such forward looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected.  Certain of such risks and uncertainties are described
in the Company's Report on Form 8-K filed with the Securities and Exchange
Commission on July 23, 1996.


RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995

Net sales increased $803,000 to $1,106,000 in the third quarter of 1996 from
$303,000 in the third quarter of 1995. This increase was primarily due to the
introduction of additional ROC suture fasteners and the expansion of the
domestic direct sales force and the international distributor network. The
Company ships and invoices direct to customers within the domestic market,
however, internationally the Company sells through its distributors.

Gross profit increased to $707,000 in the third quarter of 1996 from $13,000 in
the third quarter of 1995. As a percentage of sales, gross profit increased to
63.9% in the third quarter of 1996 from 4.3% in the third quarter of 1995. The
increase in gross profit was due primarily to increased volumes of ROC suture
fasteners manufactured and sold.  The higher volumes resulted in improved
manufacturing efficiencies.

                                       8
<PAGE>
 
Selling, general and administrative expenses increased to $1,374,000 in the
third quarter of 1996 from $557,000 in the third quarter of 1995. The increase
resulted primarily from the expansion of the domestic direct sales force,
increased salary and travel costs, higher aggregate selling commissions
resulting from higher sales volume, increased sample expenses and the increased
costs associated with operating as a public company.

Research and development expenses increased to $662,000 in the third quarter of
1996 from $408,000 in the third quarter of 1995. The increase was primarily
attributable to an increase in expenses related to the collaborative development
effort with Collagen Corporation, other product development costs, patent
preparation and filing costs associated with the development programs.

Net interest income increased to $310,000 in the third quarter of 1996 from
$(9,000) in the second quarter of 1995. The primary reason for the increase was
the interest received on the investment of the proceeds of the initial public
offering closed during the second quarter of 1996.

As a result of the foregoing, the net loss increased to $1,019,000 in the third
quarter of 1996 from a loss of $961,000 in the third quarter of 1995.


NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 1995

Net sales increased $2,231,000 to $2,996,000 for the first nine months of 1996
from $765,000 for the first nine months of 1995. The increase was primarily
attributable to the introduction of additional ROC suture fasteners and the
expansion of the domestic direct sales force and the international distributor
network.

Gross profit increased to $1,845,000 for the first nine months of 1996 from
$71,,000 for the first nine months of 1995. As a percentage of sales, gross
profit increased to 61.6% for the first nine months of 1996 from 9.3% for the
first nine months of 1995. The increase in gross profit was due primarily to
increased volumes of ROC suture fasteners manufactured and sold.  The higher
volumes resulted in improved manufacturing efficiencies.

Selling, general and administrative expenses increased to $3,622,000 for the
first nine months of 1996 from $1,639,000 for the first nine months of 1995. The
increase resulted primarily from the expansion of the domestic direct sales
force, increased salary and travel costs, higher aggregate selling commissions
resulting from higher sales volume, increased sample expenses and the increased
costs associated with operating as a public company. In addition, the Company
recorded a charge of $128,000 in the first quarter of 1996 associated with a
facility under lease through May 1997, which it vacated in March 1996.

Research and development expenses increased to $1,840,000 for the first nine
months of 1996 from $1,110,000 for the first nine months of 1995. The increase
was primarily attributable to an increase in expenses related to the
collaborative development effort with Collagen Corporation, other product
development costs, patent preparation and filing and salary related costs
associated with the development programs.

Net interest income increased to $484,000 for the first nine months of 1996 from
$15,000 for the first nine months of 1995. The primary reason for the increase
is due to the interest received on the investment of the proceeds of the initial
public offering closed during the second quarter of 1996.

                                       9
<PAGE>
 
As a result of the foregoing, the net loss increased to $3,133,000 for the first
nine months of 1996 from $2,663,000 for the first nine months of 1995.


LIQUIDITY AND CAPITAL RESOURCES
 
As of September 30, 1996 the Company had cash and cash equivalents of $24.0
million as compared to a balance of $5.1 million on December 31, 1995. The
increase in the balance is primarily a result of the proceeds of $21.5 million
from the Company's initial public offering of 1,900,000 shares of common stock
completed in June 1996.

Cash used in the Company's operations increased to $3.2 million for the first
nine months of 1996 from $2.4 million for the first nine months of 1995. The
increase in cash used for operations resulted from a higher net loss, an
increase in accounts receivable due to the higher sales level, and the build up
of inventories to support a broader product offering and higher sales levels.
Cash provided from operations included an increase in related party payables and
other current liabilities.

The Company expects that its balance of cash and cash equivalents will be
adequate to fund the near term cash requirements for operations, working capital
and fixed assets.

                                       10
<PAGE>
 
                            INNOVASIVE DEVICES, INC.

                          PART II -- OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS
         -----------------

         None

ITEM 2.  CHANGES IN SECURITIES
         ---------------------

         None

Item 3.  Defaults Upon Senior Securities
         -------------------------------

         None

Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

         None

Item 5.  Other Information
         -----------------

         None

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         a.  See Exhibit Index, Page  13

         b.  Reports on Form 8-K

             1)  Form 8-K, filed July 23, 1996 describing certain cautionary
                 statements

                                       11
<PAGE>
 
SIGNATURES

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

INNOVASIVE DEVICES, INC,

DATE:     NOVEMBER 12, 1996    BY:  /S/ RICHARD D. RANDALL
                               ---------------------------------------
          RICHARD D. RANDALL
          PRESIDENT, CHIEF EXECUTIVE OFFICER
          AND DIRECTOR
          (PRINCIPAL EXECUTIVE OFFICER)

DATE:     NOVEMBER 12, 1996    BY:  /S/ JAMES V. BARRILE
                               --------------------------
          JAMES V. BARRILE
          EXECUTIVE VICE PRESIDENT OF FINANCE,
          CHIEF FINANCIAL OFFICER AND TREASURER
          (PRINCIPAL FINANCIAL OFFICER)

                                       12
<PAGE>
 
                            INNOVASIVE DEVICES, INC.
                                 EXHIBIT INDEX
                                        
EXHIBIT                                                                   PAGE

 11      STATEMENT REGARDING COMPUTATION OF PRO FORMA NET LOSS PER SHARE   14

 27      FINANCIAL DATA SCHEDULE                                           15

                                       13