<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 March 31, 1998 Commission file number 0-28492
                            --------------                               

                           INNOVASIVE DEVICES, INC.
            (Exact name of registrant as specified in its charter)


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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.

                            (1)  YES __X__    NO______
                            (2)  YES _____    NO__X___

The number of shares outstanding of the registrant's common stock as of May 14,
1998 was 9,178,010.
<PAGE>
 
                           INNOVASIVE DEVICES, INC.

                                     INDEX

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

     Item 1.   Condensed Consolidated Financial Statements

               Condensed Consolidated Balance Sheet at March 31, 1998
               (unaudited) and December 31, 1997                            3
 
               Condensed Consolidated Statement of Operations (unaudited) 
               for the Three Months Ended March 31, 1998 and 1997           4
 
               Condensed Consolidated Statement of Cash Flows (unaudited) 
               for the Three Months Ended March 31, 1998 and 1997           5
 
               Notes to Unaudited Condensed Consolidated 
               Financial Statements                                         6
 
     Item 2.   Management's Discussion and Analysis of Financial 
               Condition and Results of Operations                          7
 
 
PART II.  Other Information                                                 9

Signatures                                                                 10
  
</TABLE>

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

<TABLE>
<CAPTION>
 
                                                                    March 31,                December 31,
                                                                      1998                       1997
                                                             --------------------       --------------------
<S>                                                            <C>                        <C>
                                                                  (unaudited)
ASSETS

Current assets:
     Cash and cash equivalents                                           $  7,148                   $  2,916
     Marketable securities                                                  4,049                     10,604
     Accounts receivable, net of allowance for
        doubtful accounts of $129 at March 31, 1998
        and $121 at December 31, 1997                                       1,870                      1,625
     Inventories                                                            3,360                      2,947
     Prepaid expenses                                                         100                        116
                                                             --------------------       --------------------
         Total current assets                                              16,527                     18,208
 
     Fixed assets, net                                                      1,998                      1,960
     Other assets, net                                                      1,216                      1,352
                                                             --------------------       -------------------- 
                                                                         $ 19,741                   $ 21,520
                                                             ====================       ====================
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current liabilities:
     Accounts payable                                                    $    854                   $    809
     Accounts payable to related party                                        160                        392
     Other current liabilities                                              1,180                      1,122
                                                             --------------------       --------------------
         Total current liabilities                                          2,194                      2,323
 
Stockholders' equity:
     Common stock                                                               1                          1
     Additional paid-in capital                                            54,883                     54,702
     Accumulated deficit                                                  (36,936)                   (35,156)
     Deferred compensation                                                   (401)                      (350)
                                                             --------------------       --------------------
                                                                           17,547                     19,197
                                                             --------------------       --------------------
                                                                         $ 19,741                   $ 21,520
                                                             ====================       ====================
</TABLE>


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

                                       3
<PAGE>
 
                           INNOVASIVE DEVICES, INC.
                Condensed Consolidated Statement of Operations
               (In thousands, except per share data; unaudited)
 
<TABLE>
<CAPTION>
                                                                                      Three months ended
                                                                                           March 31,
                                                                          -----------------------------------------
                                                                                       1998                    1997
                                                                                    -------                 -------
<S>                                                                         <C>                    <C>
 
Net sales                                                                           $ 2,558                 $ 1,663
 
Cost of sales                                                                           715                     510
                                                                          -----------------      ------------------
 
     Gross profit                                                                     1,843                   1,153
 
Selling, general and  administrative
   expenses                                                                           2,722                   1,495
Research and development                                                              1,096                     830
                                                                          -----------------      ------------------
 
     Loss from operations                                                            (1,975)                 (1,172)
 
Interest income                                                                         195                     299
                                                                          -----------------      ------------------
 
     Net loss                                                                       $(1,780)                $  (873)
                                                                          =================      ==================
 
 
      Basic and diluted net loss per share                                           $(0.19)                 $(0.12)
                                                                          =================      ==================
      Shares used in computing basic and
           diluted net loss per share                                                 9,167                 7 ,261
                                                                          =================     ==================
</TABLE>

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

                                       4
<PAGE>
 
                           INNOVASIVE DEVICES, INC.
                Condensed Consolidated Statement of Cash Flows
                           (In thousands; unaudited)
 
<TABLE>
<CAPTION>
                                                                                     Three months ended
                                                                                         March 31,
                                                                      ---------------------------------------------
                                                                               1998                     1997
                                                                        -------------------      -------------------
<S>                                                                     <C>                      <C>
Cash flows from operating activities
     Net loss                                                                      $(1,780)                 $  (873)
     Adjustments to reconcile net loss to net cash
        provided by (used for) operating activities:
        Depreciation and amortization                                                  322                       75
        Changes in assets and liabilities:
               Accounts receivable, net                                               (245)                    (223)
               Inventories                                                            (413)                     (13)
               Prepaid expenses                                                         16                     (240)
               Other assets                                                            110                        -
               Accounts payable                                                         45                       50
               Accounts payable to related party                                      (232)                     222
               Other current liabilities                                                58                     (150)
                                                                      --------------------     --------------------
 
Net cash used for operating activities                                              (2,119)                  (1,152)
                                                                      --------------------     --------------------
 
Cash flows from investing activities
     Purchases of fixed assets                                                        (225)                    (157)
     Purchases of marketable securities                                             (4,919)                  (6,411)
     Redemption of marketable securities                                            11,474                        -
                                                                      --------------------     --------------------
Net cash provided by (used for) investing activities                                 6,330                   (6,568)
                                                                      --------------------     --------------------
 
Cash flows from financing activities
     Proceeds from issuance of common stock,
          net of issuance costs                                                         21                       21
                                                                      --------------------     --------------------
 
 
Net increase (decrease) in cash and cash equivalents                                 4,232                   (7,699)
 
Cash and cash equivalents at beginning of period                                     2,916                   12,825
                                                                      --------------------     --------------------
 
Cash and cash equivalents at end of period                                         $ 7,148                  $ 5,126
                                                                      ====================     ====================
</TABLE>

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

                                       5
<PAGE>
 
                            INNOVASIVE DEVICES, INC.
         Notes to Unaudited Condensed Consolidated Financial Statements

                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

                                        
1.  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated 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 as of
March 31, 1998 and the results of its operations for the three month period
ended March 31, 1998 and 1997.  Results of operations for interim periods are
not necessarily indicative of those 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 consolidated 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 Annual Report on Form 10-K for the year ended December 31, 1997
filed with the SEC on March 31, 1998.


2.  Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                     March 31,               December 31,
                                                                       1998                      1997
                                                              --------------------      --------------------
<S>                                                             <C>                       <C>
                                                                   (unaudited)
 
Raw materials                                                               $1,271                    $1,360
Work-in-process                                                                452                       329
Finished goods                                                               1,637                     1,258
                                                              --------------------      --------------------
 
Totals                                                                      $3,360                    $2,947
                                                              ====================      ====================
</TABLE>



3.  Net loss per share (unaudited)

Basic earnings per share is computed by dividing the income available to common
stockholders by the weighted average number of common shares outstanding  for
the period.  For purposes of calculating diluted earnings per share, the
denominator includes both the weighted average number of common shares
outstanding and potential dilutive common shares outstanding for the period.  
For each of the periods presented, basic and diluted earnings per share are the 
same due to the antidilutive effect of potential common shares outstanding.  

                                       6
<PAGE>
 
                            INNOVASIVE DEVICES, INC.
                                        
   Item 2.   Management's Discussion and Analysis of Financial Condition and
                             Results of Operations
                                        
OVERVIEW

Innovasive Devices, Inc. (the "Company") is 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. Although the Company's sales
have been principally derived from the sale of its family of shoulder related
products, the Company now markets four product platforms:  suture fasteners,
suture systems, cartilage repair products and anterior cruciate ligament ("ACL")
reconstruction products.  The Company broadened its product portfolio with the
June 27, 1997 acquisition of  MedicineLodge, Inc. ("MLI"),  a company which
designs develops and manufactures orthopaedic medical devices - particularly
implants and related instrumentation used in minimally invasive arthroscopic
procedures to repair injuries to the knee.

The following information should be read in conjunction with the unaudited
condensed consolidated 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 Annual Report on Form 10-K filed with the SEC on March 31, 1998.

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.  These risks include the receipt of regulatory
approvals, progress of product development programs, clinical efficacy of and
market demand for the products.  Certain of such risks and uncertainties are
described in Exhibit 99 of the Company's Annual Report on

Form 10-K filed with the Securities and Exchange Commission on March 31, 1998.


RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997

Net sales for the first quarter of 1998 of $2,558,000 represents an increase of
$895,000 from $1,663,000 for the same period in the prior year.  The increase
resulted primarily from sales of the Company's knee repair products with both
ACL reconstruction products ,introduced in the fourth quarter of 1997, and the
COR system, used to repair osteochondral defects in the knee, contributing to
the increase.  Sales of the Company's shoulder repair products, which include
ROC suture fasteners and suture systems, also increased over the prior year.
Domestic sales  increased in the first quarter of 1998 over the same quarter in
the prior year as a result of increased unit sales of the Company's  line of

                                       7
<PAGE>
 
knee and shoulder reconstruction products.  In the first quarter of 1998 the
Company commenced domestic shipments of its BioROC suture anchor, a
bioabsorbable suture anchor which degrades and absorbs into the surrounding bone
and tissue after the repaired tissue has sufficiently healed back to the bone.
International net sales also increased during the first quarter of 1998 from the
first quarter of 1997, primarily due to the addition two new distribution
partners.  The Company announced the appointment of Protek GmbH, a division of
Sulzer Orthopaedics, and Stryker Canada, Inc. as distributors for the Company's
products in Germany and Canada, respectively.

Gross profit increased to $1,843,000 in the first quarter of 1998 from
$1,153,000 in the first quarter of 1997.  As a percentage of sales, gross profit
increased to 72.0% in the first quarter of 1998 from 69.3% in the first quarter
of 1997.  The increase in gross profit was due primarily to higher sales volumes
which resulted in improved manufacturing efficiencies.

Selling, general and administrative expenses increased to $2,722,000 in the
first quarter of 1998 from $1,495,000 in the first quarter of 1997.  The
increase resulted primarily from higher selling commissions resulting from
higher sales volume, increased advertising costs relating to new product
introductions, increased salary and travel costs related to the expansion of the
domestic direct sales force and incremental administrative costs related to the
operations of MLI, acquired in the second quarter of 1997.

Research and development expenses increased to $1,096,000 in the first quarter
of 1998 from $830,000 in the first quarter of 1997. The increase was primarily
attributable to incremental research and development costs associated with the
operations of MLI, acquired in the second quarter of 1997, and compensation
related to the grant of stock options.

Interest income decreased to $195,000 in the first quarter of 1998 from $299,000
in the first quarter of 1997 primarily as a result of investment returns earned
on lower average cash balances maintained during the first quarter of 1998
compared to the prior year.

As a result of the foregoing, the net loss increased to $1,780,000 in the first
quarter of 1998 from  a loss of $873,000 in the first quarter of 1997.


LIQUIDITY AND CAPITAL RESOURCES
 
As of March 31, 1998, working capital amounted  to $14.3 million as compared to
$15.9 million at December 31, 1997.

Cash used in the Company's operations amounted to $2.1 million for the first
quarter of 1998 and was primarily due to the net loss incurred of $1.8 million.
Changes in working capital included an increase in accounts receivable of
$245,000 resulting from higher sales levels and an increase in inventories of
$413,000 to support new product introductions.

Cash provided by investing activities totaled $6.3 million for the first quarter
of 1998 resulting from  net redemptions of marketable securities totaling $6.5
million partially offset by  capital equipment expenditures totaling $225,000.
The Company invests its excess cash in marketable securities with maturities of
less than two years.

Cash provided by financing activities totaled $21,000 for the first quarter of
1997 resulting primarily from the exercise of common stock options.

                                       8
<PAGE>
 
The Company expects that its balance of cash, cash equivalents and marketable
securities will be adequate to fund the near term cash requirements for
operations, working capital and fixed assets. The Company's future liquidity and
capital requirements will depend upon the establishment of effective sales
channels in the United States and abroad, the extent to which the Company's
products gain market acceptance, the progress of research and development
programs, regulatory requirements and the expansion of its manufacturing
capabilities to satisfy increasing volume requirements. Therefore, the Company
cannot provide assurances that it will not require additional financing in the
future. If additional financing is necessary, the Company would seek to raise
these funds through bank facilities or debt or equity offerings. There can be no
assurance that such funds would be available on terms acceptable to the Company.


                            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
            ---------------------------------

       None

                                       9
<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:    May 14, 1998                By: /s/ Richard D. Randall
                                     ---------------------------------------
                                         RICHARD D. RANDALL
                                         PRESIDENT, CHIEF EXECUTIVE OFFICER
                                         AND DIRECTOR
                                         (PRINCIPAL EXECUTIVE OFFICER)
                                  
Date:     May 14, 1998               By: /s/ James V. Barrile
                                     --------------------------------
                                         JAMES V. BARRILE
                                         EXECUTIVE VICE PRESIDENT OF FINANCE,
                                         CHIEF FINANCIAL OFFICER AND TREASURER
                                         (PRINCIPAL FINANCIAL OFFICER)

                                       10