<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, 1997 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 November
14, 1997 was 9,155,624.
<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 September 30, 1997
             (unaudited) and December 31, 1996                                             3
 
             Condensed Consolidated Statement of Operations (unaudited) for the
             Three and Nine Months Ended September 30, 1997 and 1996                       4
 
             Condensed Consolidated Statement of Cash Flows (unaudited) for the
             Nine Months Ended September 30, 1997 and 1996                                 5
 
             Notes to Unaudited Condensed Consolidated Financial Statements                6
 
  Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                                       8
 
 
PART II.  Other Information                                                               12

Signatures                                                                                13
 
Exhibit Index                                                                             14
</TABLE>

                                       2
<PAGE>
 
                        Part I - Financial Information

                         Item 1. Financial Statements

                           INNOVASIVE DEVICES, INC.
                     Condensed Consolidated Balance Sheet
                                (in thousands)

<TABLE> 
<CAPTION> 

ASSETS                                                 September 30,    December 31,
                                                           1997            1996
                                                       --------------   ------------
                                                        (unaudited)     
<S>                                                    <C>              <C>  
Current assets:
   Cash and cash equivalents                               $  2,161       $ 12,825
   Marketable securities                                     13,620          9,861
   Accounts receivable, net of allowance for                              
     doubtful accounts of $122 at September 30, 1997                      
     and $89 at December 31, 1996                             1,544            759
   Inventories                                                2,285            859
   Prepaid expenses                                             160            112
                                                           --------       --------
     Total current assets                                    19,770         24,416
                                                                          
   Fixed assets, net                                          1,949            922
   Other assets, net                                          1,393             25
                                                           --------       --------
                                                           $ 23,112       $ 25,363
                                                           ========       ========

LIABILITIES AND STOCKHOLDERS' EQUITY                                      
                                                                          
Current liabilities:                                                      
   Accounts payable                                        $    613       $    628
   Accounts payable to related party                            415            170
   Other current liabilities                                    997            777
                                                           --------       --------
     Total current liabilities                                2,025          1,575
                                                                          
Stockholders' equity:                                                     
   Common stock                                                   1              1
   Additional paid-in capital                                55,007         39,789
   Accumulated deficit                                      (33,147)       (16,002)
   Deferred compensation                                       (774)          --
                                                           --------       --------
                                                             21,087         23,788
                                                           --------       --------
                                                           $ 23,112       $ 25,363
                                                           ========       ========
</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                    Nine months ended
                                                              September 30,                         September 30,
                                                       --------------------------           ----------------------------
                                                        1997              1996                 1997               1996
                                                        ----              ----                 ----               ----
<S>                                                    <C>             <C>                  <C>                <C>    
Net sales                                              $   1,985       $    1,106           $   5,399          $   2,996

Cost of sales                                                556              399               1,576              1,151
                                                       ---------       ----------           ----------         ---------

   Gross profit                                            1,429              707               3,823              1,845

Selling, general and administrative
   expenses                                                2,282            1,374               5,633              3,622
Research and development                                   1,052              662               2,809              1,840
Purchased in-process research and
   development                                                 -                -              13,370                  -
                                                     -----------       ----------           ---------          ---------

   Loss from operations                                   (1,905)          (1,329)            (17,989)            (3,617)

Interest income, net                                         260              310                 844                484
                                                     -----------       ----------           ---------          ---------

   Net loss                                            ($  1,645)        ($ 1,019)         ($  17,145)         ($  3,133)
                                                     ===========       ==========           =========          =========


Net loss per share                                       ($ 0.18)         ($ 0.14)            ($ 2.17)           ($ 0.51)
                                                     ===========       ==========           =========          =========
   Shares used in computing net loss
    per share                                              9,154            7,260               7,914              6,200
                                                     ===========       ==========           =========          =========
</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> 
                                                                           Nine months ended
                                                                             September 30,
                                                                 -----------------------------------
                                                                         1997              1996
                                                                         ----              ----
<S>                                                                  <C>               <C> 
Cash flows from operating activities
   Net loss                                                          $  (17,145)       $   (3,133)
   Adjustments to reconcile net loss to net cash
    provided by (used for) operating activities:
     Depreciation and amortization                                          405               206
     Purchased in-process research and development                       13,370                 -
     Changes in assets and liabilities:
       Accounts receivable, net                                            (773)             (426)
       Inventories                                                       (1,191)             (296)
       Prepaid expenses                                                     (37)              (71)
       Other assets                                                           -              ( 13)
       Accounts payable                                                    (159)             (244)
       Accounts payable to related party                                    245               263
       Other current liabilities                                            129               546
                                                                 ----------------   ----------------
Net cash used for operating activities                                   (5,156)           (3,168)
                                                                 ----------------   ----------------

Cash flows from investing activities
   Purchases of fixed assets                                               (647)             (294)
   Purchases of marketable securities                                   (10,181)                -
   Redemption of marketable securities                                    6,422                 -
   Acquisition of business, net of cash acquired                           (544)                -
                                                                 ----------------   ----------------
Net cash used for investing activities                                   (4,950)             (294)
                                                                 ----------------   ----------------

Cash flows from financing activities
   Repayment of note payable                                               (602)                -
   Proceeds from issuance of preferred stock,
     net of issuance costs                                                    -               926
   Proceeds from issuance of common stock,
     net of issuance costs                                                   44            21,469
                                                                 ----------------   ----------------
Net cash provided by (used for) financing activities                       (558)           22,395
                                                                 ----------------   ----------------

Net increase (decrease) in cash and cash equivalents                    (10,664)           18,933

Cash and cash equivalents at beginning of period                         12,825             5,052
                                                                 ----------------   ----------------

Cash and cash equivalents at end of period                          $     2,161         $  23,985
                                                                 ================   ================

</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
September 30, 1997 and the results of operations for the three and nine month
periods ended September 30, 1997 and 1996.  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, 1996
filed with the SEC on March 26, 1997.

2.   Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
                                            September 30,       December 31,
                                                1997               1996
                                          -----------------   ----------------
                                            (unaudited)
<S>                                       <C>                 <C>         
Raw materials                                  $  908              $ 282
Work-in-process                                   370                117
Finished goods                                  1,007                460
                                          -----------------   ----------------
                                          
Totals                                         $2,285              $ 859
                                          =================   ================
</TABLE>

3.   Net Loss Per Share (unaudited)

Net loss per share is determined by dividing the net loss by the weighted
average number of common stock outstanding during the period. The weighted
average number of common stock outstanding during the period prior to and
including the Company's initial public offering ("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 the nine month period ending September 30,
1996 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 also been included in the calculation of net loss per share using the
treasury stock method as if outstanding from January 1, 1996 through March 31,
1996.

                                       6
<PAGE>
 
                           INNOVASIVE DEVICES, INC.
        Notes to Unaudited Condensed Consolidated Financial Statements
                                        
                (In thousands, except share and per share data)
                                        
                                        
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No.128 ("SFAS No. 128"), "Earnings
Per Share." This statement establishes and simplifies standards for computing
and presenting earnings per share. SFAS No. 128 will be effective for interim
and annual periods ending after December 15, 1997, and requires the restatement
of all previously reported earnings per share data that are presented. Early
adoption of SFAS No. 128 is not permitted. SFAS No. 128 replaces primary and
fully diluted earnings per share with basic and diluted earnings per share. As
the Company has historically reported net losses, earnings per share as computed
under the provisions of SFAS No. 128 will not differ from the earnings per share
amounts previously reported by the Company.

4.   Deferred compensation

In 1997, the Company issued, under the 1996 Omnibus Stock Plan, 21,500 common
stock options to members of its scientific advisory board and 127,000 common
stock options to certain consultants in conjunction with the acquisition of
MedicineLodge, Inc. (Note 5). The estimated value of these options totaled
approximately $848 and was recorded as deferred compensation which is being
amortized over the vesting period of the options. The estimated value of each
option grant was calculated on the date of grant using the Black-Scholes option-
pricing model.

5.   Acquisition

On June 27, 1997, the Company, through a newly formed subsidiary, acquired
substantially all of the operating assets of MedicineLodge, Inc. ("MLI"), in
exchange for 1,885,000 shares of the Company's common stock valued at $14,326
and the assumption of certain liabilities. The acquisition has been accounted
for under the purchase method and, accordingly, the purchase price has been
allocated based on the estimated fair value of assets purchased and liabilities
assumed upon acquisition. A portion of the purchase price was allocated to in-
process research and development, resulting in a charge to the Company's
operations of $13,370. The excess of cost over the fair value of net assets
acquired (goodwill) of $1,403 is being amortized over ten years on a straight-
line basis. The operating results of MLI are included in the Company's results
from the date of acquisition.

The following unaudited pro forma summary combines the results of operations of
the Company and MLI as if the acquisition had occurred at the beginning of 1997
and 1996, after giving effect to certain adjustments, including the write off of
purchased in-process research and development and amortization of goodwill. The
unaudited pro forma summary does not necessarily reflect the results of
operations as they would have been if the Company and MLI had constituted a
single entity during such periods.

<TABLE>
<CAPTION>
                                                   Nine months ended
                                                     September 30,
                                               -------------------------
                                                   1997         1996
                                                   ----         ----
 
<S>                                              <C>          <C>
Net sales                                        $  5,943     $  4,114
Net loss                                          (18,085)     (16,641)
Net loss per share                                  (1.98)       (2.06)
</TABLE>

                                       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 has since expanded its product offering
to include a broader line of suture fasteners, accessory instruments and the
Innovasive COR system for the repair of osteochondral defects.

The Company further broadened its product portfolio with the June 27, 1997
acquisition of MedicineLodge, Inc., 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 Company acquired substantially all of the assets,
including intellectual property related to orthopaedic medicine, and assumed
substantially all of the liabilities of MedicineLodge, Inc., a Delaware
corporation ("MLI") in exchange for 1,885,000 shares of the Company's common
stock . A portion of the purchase price was allocated to in-process research and
development, resulting in a charge to the Company's operations of $13,370. The
excess of cost over the fair value of net assets acquired (goodwill) of $1,403
is being amortized over ten years on a straight-line basis. The operating
results of MLI are included in the Company's results from the date of
acquisition.

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 26, 1997.

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 26, 1997.


                                       8
<PAGE>
 
Results of Operations

Three Months Ended September 30, 1997 compared to the Three Months Ended
September 30, 1996

Net sales for the third quarter of 1997 of $1,985,000 increased $879,000 from
$1,106,000 for the same period in the prior year. This increase resulted
primarily from sales of the Innovasive COR system, not available in the third
quarter of 1996, and a higher level of ROC suture fastener sales. The COR
system, introduced in October 1996, is used to repair osteochondral defects in
the knee. In June 1997, the Company introduced the ROC EZ, an improved version
of the original ROC fastener used in hardbone applications, and the CuffLink,
used to augment tunnels made in the bone for rotator cuff repair procedures. The
ROC EZ and CuffLink both contributed to the increase in net sales for the third
quarter versus the prior year. Domestic sales increased during the third quarter
of 1997 over the third quarter of 1996 as a result of an increase in the unit
sales of the Company's line of suture fasteners, suturing systems, COR systems
and incremental sales associated the acquisition of MLI. International net sales
decreased during the third quarter of 1997 from the third quarter of 1996,
primarily due to a change of distributors in a key market and a decrease in
sales of the Company's original ROC suture fasteners as a result of the
anticipated launch of the ROC EZ.

Gross profit increased to $1,429,000 in the third quarter of 1997 from $707,000
in the third quarter of 1996. As a percentage of sales, gross profit increased
to 72.0% in the third quarter of 1997 from 63.9% in the second quarter of 1996.
The increase in gross profit was due primarily to the improved mix of ROC suture
fasteners and COR systems sold in the period and higher sales volumes which
resulted in improved manufacturing efficiencies.

Selling, general and administrative expenses increased to $2,282,000 in the
third quarter of 1997 from $1,374,000 in the third quarter of 1996. The increase
resulted primarily from the expansion of the domestic direct sales force,
increased salary and travel costs, higher selling commissions resulting from
higher sales volume, increased advertising costs and incremental administrative
costs associated with the acquisition of MLI.

Research and development expenses increased to $1,052,000 in the third quarter
of 1997 from $662,000 in the third quarter of 1996. The increase was primarily
attributable to incremental research and development costs associated with the
acquisition of MLI and higher salary related costs associated with additional
personnel required to support new product development. Increases also occurred
in expenses related to product development costs and patent preparation and
filing costs associated with product development programs.

Interest income decreased to $260,000 in the third quarter of 1997 from $310,000
in the third quarter of 1996 primarily as a result of investment returns earned
on lower average cash balances maintained during the third quarter of 1997
compared to the third quarter of 1996.

As a result of the foregoing, the net loss increased to $1,645,000 in the third
quarter of 1997 from a loss of $1,019,000 in the third quarter of 1996.


Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30,
1996

Net sales for the first nine months of 1997 of $5,399,000 increased $2,403,000
from $2,996,000 for the same period in the prior year. This increase resulted
primarily from increased sales of ROC suture fasteners and COR systems. The COR
system, introduced in October 1996, is used to repair osteochondral defects in
the knee. In June 1997, the Company introduced the ROC EZ, an improved 

                                       9
<PAGE>
 
version of the original ROC fastener used in hardbone applications, and the
CuffLink, used to augment tunnels made in the bone for rotator cuff repair
procedures. Domestic net sales increased during the first nine months of 1997
over the same period in the prior year as a result of an increase in sales of
the Company's line of suture fasteners, suture systems, and COR systems.
International net sales decreased during the first nine months of 1997 from the
same period in the prior year primarily as a result of an initial stocking sale
of ROC suture fasteners and related surgical instruments to a distributor in
Japan in the second quarter of 1996, a transition of distributors in a key
market, and a decrease in sales of the Company's original ROC suture fasteners
in the third quarter of 1997 as a result of the anticipated launch of the ROC
EZ.

Gross profit increased to $3,823,000 for the first nine months of 1997 from
$1,845,000 for the first nine months of 1996. As a percentage of sales, gross
profit increased to 70.8% for the first nine months of 1997 from 61.6% for the
first nine months of 1996. The increase in gross profit was due primarily to the
improved mix of ROC suture fasteners and COR systems sold in the period and
higher sales volumes which resulted in improved manufacturing efficiencies.

Selling, general and administrative expenses increased to $5,633,000 for the
first nine months of 1997 from $3,622,000 for the first nine months of 1996. The
increase resulted primarily from the expansion of the domestic direct sales
force, increased salary and travel costs, higher selling commissions resulting
from higher sales volume, increased sample expenses and incremental
administrative costs associated with the acquisition of MLI.

Research and development expenses increased to $2,809,000 for the first nine
months of 1997 from $1,840,000 for the first nine months of 1996. The increase
was primarily attributable to salary related expenses and recruitment costs
associated with additional personnel required to support new product development
and incremental research and development costs associated with the acquisition
of MLI. Increases also occurred in product development costs and patent
preparation and filing costs associated with product development programs.

As a result of the Company's transaction with MLI, the Company incurred a charge
to operations of $13,370,000 representing the portion of the purchase price
allocated to in-process research and development.

Net interest income increased to $844,000 for the first nine months of 1997 from
$484,000 for the first nine months of 1996 primarily as a result of 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 for the first nine months of 1997 was
$17,145,000. The net loss, prior to the in-process research and development
charge of $13,370,000, increased to $3,775,000 for the first nine months of 1997
from a loss of $3,133,000 for the same period in the prior year.

Liquidity and Capital Resources
 
As of September 1997, working capital amounted to $17.7 million as compared to
$22.8 million at December 31, 1996.

Cash used in the Company's operations amounted to $5.2 million for the first
nine months of 1997 and was comprised of the net loss of $17.1 million, less a
non-cash adjustment of $13.4 million for in-process research and development
resulting from the MLI transaction, and a net increase in working capital
requirements including an increase in accounts receivable as a result of higher
sales levels 

                                      10
<PAGE>
 
and an increase in inventories to support new product introductions, partially
offset by an increase in short term payables.

Cash used for investing activities totaled $4.9 million for the first nine
months of 1997 resulting from net purchases of marketable securities totaling
$3.7 million, capital equipment expenditures totaling $647,000 and direct
transaction costs related to the MLI transaction of $544,000. The Company
invests its excess cash in marketable securities with maturities of less than
two years.

Cash used for financing activities totaled $558,000 for the first nine months of
1997 resulting primarily from the payment in full of a note payable the Company
assumed resulting from the MLI transaction totaling $602,000.

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.


                                      11
<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 14


                                      12
<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 14, 1997    By: /s/ Richard D. Randall
                              ---------------------------------------
         Richard D. Randall
         President, Chief Executive Officer
         and Director
         (Principal Executive Officer)

Date:    November 14, 1997    By:/s/ James V. Barrile
                              ---------------------------------------
         James V. Barrile
         Executive Vice President of Finance,
         Chief Financial Officer and Treasurer
         (Principal Financial Officer)


                                      13
<PAGE>
 
                           INNOVASIVE DEVICES, INC.
                                 EXHIBIT INDEX
                                        
Exhibit                                                                    Page

11.1         Statement Regarding Computation of Net Loss per Share           15


                                      14