SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                                   (Mark One)


     [X]  Quarterly  report  pursuant  to Section 13 or 15(d) of the  Securities
          Exchange Act of 1934 for the quarterly period ended September 30, 1999
          or

     [ ]  Transition  report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 for the transition period from _____ to _____.

                         Commission File Number: 0-22401

                              BIONX IMPLANTS, INC.
             (Exact name of registrant as specified in its charter)

       Pennsylvania                                                22-3198032
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

                            1777 Sentry Parkway West
                             Gwynedd Hall, Suite 400
                          Blue Bell, Pennsylvania 19422
           (Address of principal executive office, including zip code)

                                  215-643-5000
              (Registrant's telephone number, including area code)

      ---------------------------------------------------------------------
  (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.

                          Yes X              No___

          Indicate  the  number of shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

          At November 5, 1999,  there were 8,897,500 shares of Common Stock, par
value $.0019 per share, outstanding.


<PAGE>





                     BIONX IMPLANTS, INC. AND SUBSIDIARIES

                                     INDEX


                                                                         Page

Part I.  Financial Information

Item 1.   Consolidated Financial Statements

          Consolidated Balance Sheets at December 31, 1998
                  and September 30, 1999 (Unaudited)                       3

          Consolidated Statements of Operations for the Three and Nine
                  Months Ended September 30, 1998 and 1999 (Unaudited)     4

          Consolidated Statements of Cash Flows for the Nine Months
                  Ended September 30, 1998 and 1999 (Unaudited)            5

          Notes to Consolidated Financial Statements (Unaudited)           6

Item 2.    Management's Discussion and Analysis of Financial               8
          Condition and Results of Operations

Item 3.    Quantitative and Qualitative Disclosures about Market Risk     13


Part II.    Other Information

Item 2.    Changes in Securities and Use of Proceeds                      13

Item 4.    Submission of Matters to a Vote of Security Holders            14

Item 6.    Exhibits and Reports on Form 8-K                               15

Signatures                                                                16



<PAGE>

Item 1. Financial Statements

<TABLE>
<CAPTION>

                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    December 31, 1998 and September 30, 1999
                      (in thousands, except share amounts)

                                                                       December 31,   September 30,
                                                                        1998               1999
                                                                                          (Unaudited)
Assets:
Current assets:

<S>                                                                        <C>                <C>
   Cash and cash equivalents                                               $ 14,213           $ 2,926
   Inventory, net                                                             9,778            13,423
   Trade accounts receivable, net of
      allowance of $142 and $394 as of December 31,
      1998 and September 30, 1999                                             4,643             3,794
   Grants receivable                                                            189               145
   Due from related parties                                                     239               297
   Prepaid expenses and other current assets                                    726               482
   Deferred tax assets                                                          829             1,184
                                                                               -----            -----

Total current assets                                                         30,617            22,251

Investments                                                                      87                87
Plant and equipment, net                                                      2,561             3,321
Goodwill and intangibles, net                                                 3,684             3,738
                                                                               ----              -----

          Total assets                                                     $ 36,949           $29,397
                                                                           ========           =======

Liabilities and Stockholders' Equity:
Current Liabilities:
    Trade accounts payable                                                  $ 4,176           $ 2,814
     Long-term debt, current portion                                             41                 -
     Current income tax liability                                               578               395
     Accrued and other current liabilities                                    1,839             1,682
                                                                              -----             -----

Total current liabilities                                                     6,634             4,891

Long-term debt                                                                   75                60

Stockholders' equity:
   Preferred stock, par value $0.001 per share,
      8,000,000 authorized and none issued                                       -                  -
  Common stock, par value, $0.0019 per share,
    31,600,000 shares authorized,  8,924,000 shares issued
     and outstanding as of December 31, 1998 and
     September 30, 1999                                                          17                17
Treasury stock, 20,500 and 26,500 shares as of December 31,
   1998 and September 30, 1999, respectively                                   (128)             (161)
Additional paid-in capital                                                   35,642            35,642
Accumulated deficit                                                          (4,266)          (10,027)
Foreign currency translation adjustment                                      (1,025)           (1,025)
                                                                              ------           -------

Total stockholders' equity                                                   30,240            24,446
                                                                             ------            ------
          Total liabilities and stockholders' equity                       $ 36,949           $29,397
                                                                           ========           =======

</TABLE>

   See accompanying notes to the unaudited Consolidated Financial Statements.

<PAGE>
<TABLE>
<CAPTION>

                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)

                                                                        Three Months Ended                   Nine Months Ended
                                                                             September 30,                     September 30,
                                                                        1998          1999                  1998              1999
                                                                        ----          ----                  ----              ----


Revenues:
<S>                                                                    <C>          <C>                   <C>              <C>
Product Sales                                                          $5,265       $4,802                $14,781          $14,917
Grant revenues                                                            128           90                    290              256
                                                                       -------     -------                --------          -------
Total revenues                                                          5,393        4,892                 15,071            15,173
                                                                       -------     -------                 -------          -------

Cost of goods sold                                                      1,157        1,032                  3,200             3,834
Special charge related to instrument inventory                              -            -                      -               929
                                                                      -------       ------                 ------             ------
Gross profit                                                            4,236        3,860                 11,871            10,410
                                                                      -------       ------                 ------            ------

Selling, general and administrative                                     3,274        3,781                  9,416            12,779
Research and development                                                  533          778                  1,464             2,050
Severance charges                                                           -           -                       -               275
Patent litigation                                                           -         633                       -             1,726
                                                                      -------     -------               ---------            -------
Total operating expenses                                                3,807       5,192                  10,880            16,830
                                                                      -------     -------               ---------            ------

Operating income (loss)                                                   429      (1,332)                    991            (6,420)
                                                                         -------  --------              ---------            -------


Other income and expense                                                  161          45                     729               709
                                                                        ------    -------                ---------           -------
Income (loss) before provision for
   income taxes                                                           590    (1,287)                    1,720            (5,711)

Provision for income taxes                                                171         50                       50               529
                                                                        -----     ------                ---------            -------
Net income (loss)                                                       $ 419     $1,337                  $ 1,191          $ (5,761)
                                                                        =====    =======                =========          =========


Earnings (loss) per share:
     Basic                                                             $ 0.05    $ (0.15)                  $ 0.13          $  (0.65)
     Diluted                                                             0.05      (0.15)                    0.13             (0.65)


Shares used in computing earnings (loss) per share:
     Basic                                                              8,922       8,895                   8,921             8,895
     Diluted                                                            9,227       8,895                   9,261             8,895


</TABLE>

See accompanying notes to the unaudited Consolidated Financial Statements.



<PAGE>

<TABLE>
<CAPTION>

                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)
                                                                                 Nine Months Ended
                                                                                   September 30,
                                                                           -------------------------------
                                                                                     1998            1999

Cash flows from operating activities:

<S>                                                                               <C>            <C>
Net income (loss)                                                                 $ 1,191        $(5,761)
Adjustments to reconcile net income (loss)
     to net cash used in operating activities:
Depreciation and amortization                                                         427            648
Change in assets and liabilities:
(Increase) in inventory, net                                                      (3,789)         (3,645)
Decrease (increase) in trade accounts receivable, net                               (867)            849
Decrease in grants receivable                                                          26             44
(Increase) in related parties                                                        (74)            (58)
(Increase) decrease in prepaid expense and other current assets                     (371)            244
(Increase) in deferred tax asset                                                    (252)           (355)
Increase (decrease) in trade accounts payable                                         458          (1362)
(Decrease) in current income tax liability                                          (477)           (183)
(Decrease) in accrued and other current liabilities                                 (100)           (157)
                                                                                     -----          -----

                                                                                  (5,019)         (3,975)



Net cash used in operating activities                                             (3,828)         (9,736)
                                                                                  -------         -------

Cash flows from investing activities
            Purchase of plant and equipment                                       (1,625)         (1,348)
            Purchase of intangible assets                                               -           (114)
                                                                                  --------        -------


Net cash used in investing activities                                             (1,625)         (1,462)
                                                                                  -------         -------

Cash flows from financing activities:
             Capitalization of patents                                              (104)               -
             Repayment of long-term debt                                             (32)            (56)
             Proceeds from exercise of employee stock options                         26                -
             Purchase of treasury shares                                                -            (33)
                                                                                  ---------         -----

Net cash used in financing activities                                               (110)            (89)



Net decrease in cash and cash equivalents                                         (5,563)        (11,287)
Cash and cash equivalents at beginning of period                                  22,632          14,213
                                                                                   ------         ------
Cash and cash equivalents at end of period                                       $ 17,069        $ 2,926
                                                                                   ======         =======

Supplementary cashflow information:
Cash paid for interest                                                           $      1        $     1
Cash paid for taxes                                                               $ 1,154        $   383
                                                                                  =======          ======

</TABLE>


See accompanying notes to the unaudited Consolidated Financial Statements.


<PAGE>


                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.       Basis of Presentation

         The  accompanying  financial  statements  have been  prepared  by Bionx
Implants,  Inc.  (the  "Company")  and  are  unaudited.  In the  opinion  of the
Company's  management,  all adjustments  (consisting  solely of normal recurring
adjustments)  necessary to present fairly the Company's  consolidated  financial
position as of December  31, 1998 and  September  30,  1999,  and the  Company's
consolidated  results of operations and cash flows for the three and nine months
ended  September  30, 1998 and 1999,  have been made.  Certain  information  and
footnote  disclosures  required under generally accepted  accounting  principles
have been condensed or omitted from the  consolidated  financial  statements and
notes thereto presented herein pursuant to the rules and regulations of the SEC.
The consolidated  financial statements and notes thereto presented herein should
be read  in  conjunction  with  the  Company's  audited  consolidated  financial
statements  for the year ended  December 31, 1998 and notes thereto  included in
the Company's  Annual  Report on Form 10-K for the year ended  December 31, 1998
(SEC file no.  0-22401)  filed with the SEC. The results of  operations  and the
cash flows for the three,  and nine  months  ended  September  30,  1999 are not
necessarily  indicative  of the  results to be  expected  for any other  interim
period or the entire fiscal year.

2.       Inventory

         Inventory consists of the following components (000's):

<TABLE>
<CAPTION>

                                                                      December 31,        September 30,
                                                                           1998                 1999

<S>                                                                         <C>                   <C>
                        Raw materials/Semi-finished implants                $1,781                $ 996
                        Finished goods - implants                            2,570                3,597
                        Instruments                                          2,457                6,190
                        Instruments on consignment                           3,944                6,180
                                                                             -----                -----
                                                                            10,752               16,963

                        Inventory reserve                                     (174)                (503)
                        Special instrument inventory charge (a)                --                  (929)

                        Accumulated amortization
                            - consigned instruments                          (800)               (2,108)
                                                                             -----               ------

                                                                           $ 9,778              $13,423
                                                                           =======              =======
</TABLE>

  (a) This special charge of $929,000 was taken in the second quarter of 1999 as
a result of the  reevaluation  of the current  value of certain of the Company's
instrument  inventory due to changes in technology and the  introduction  of new
instruments.

3.       Net Income (loss) Per Share

         Basic earnings per share is computed using the weighted  average number
of shares of common stock  outstanding  during the period.  Diluted earnings per
share is  computed  using the  weighted  average  number of common and  dilutive
potential common shares outstanding  during the period.  Potential common shares
consist of stock  options and warrants  using the treasury  stock method and are
excluded if their effect is antidilutive.

         The following  table sets forth the  calculation of the total number of
shares used in the  computation of net earnings  (loss) per common share for the
three and nine months ended September 30, 1998 and 1999 (in thousands):

<PAGE>

<TABLE>
<CAPTION>


                                                Three Months         Nine Months          Three and Nine
                                               Ended September          Ended              Months Ended
                                                     30,            September 30,         September 30,
                                                    1998                 1998                  1999
                                                    ----                 ----                  ----

<S>                                                 <C>                 <C>                   <C>
Shares used in computing basic                      8,922               8,922                 8,895
  earnings per share

Incremental shares from assumed                      344                  339                   --
exercise of dilutive options and
warrants

Shares used in computing diluted                    9,227               9,261                 8,895
earnings per share

</TABLE>

4.       Severance Charges

         During the  second  quarter of 1999,  the  Company  incurred a one-time
severance   charge  of  $275,000.   This   severance   charge   relates  to  the
organizational restructuring of the Company, including severance payments to the
Company's  former chief  executive  officer,  chief  financial  officer and vice
president of sales.  As of September  30, 1999 the balance of these  charges was
$150,000. The remaining charges will be paid on or before March 31, 2000.

5.       Reincorporation

         On August 27, 1999, the Company  reincorporated,  changing its state of
incorporation from Delaware to Pennsylvania. It effected this reincorporation by
creating  a  wholly-owned  subsidiary  as a  Pennsylvania  corporation  and then
merging the parent  corporation (a Delaware  corporation)  into that subsidiary.
The  subsidiary  was  the  surviving   corporation  in  this  transaction.   The
reincorporation  was approved by the  Company's  stockholders  at the  Company's
annual meeting of  stockholders  on August 13, 1999.  Upon  consummation  of the
transaction,   each  share  of  Common  Stock  of  the  Company  as  a  Delaware
corporation,  par value $.0019 per share, was converted into one share of Common
Stock of the Company as a Pennsylvania corporation,  par value $.0019 per share.
There was no change in the name, business,  management, benefit plans, location,
assets,   liabilities   or  net  worth  of  the  Company  as  a  result  of  the
reincorporation.





<PAGE>



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

Business

         Statements  regarding  future  performance in this Quarterly  Report on
Form 10-Q constitute  forward-looking  statements  under the Private  Securities
Litigation  Reform Act of 1995  ("Forward  looking  Statements").  The Company's
actual  results  could  differ   materially  from  those   anticipated  by  such
forward-looking  statements as a result of certain factors,  including those set
forth in Exhibit 99.1 to the  Company's  Annual Report on Form 10-K for the year
ended December 31, 1998.

         The Company was founded in 1984 to develop certain  resorbable  polymer
implants for  orthopedic  uses. The Company had incurred  substantial  operating
losses from its inception through December 31, 1996, with an accumulated deficit
of  approximately  $7.7 million as of December 31,  1996.  Such losses  resulted
principally  from  expenses  associated  with  the  development,  patenting  and
clinical testing of the Company's  Self-Reinforcing  technologies and resorbable
implant  designs,   preparation  of  submissions  to  the  U.S.  Food  and  Drug
Administration (the "FDA") and foreign regulatory  agencies,  the development of
sales, marketing and distribution channels, the write-off of acquired in-process
research and development, and the development of its manufacturing capabilities.
After  recording  profitable  results for a number of quarters,  the Company has
again  recorded  losses  in  recent  periods.  As of  September  30,  1999,  the
accumulated  deficit  was  approximately  $10  million.  The  Company  may incur
significant  operating  losses  in  the  future  as  it  continues  its  product
development efforts,  expands its marketing,  sales and distribution activities,
develops  strategies for competing with other  manufacturers,  and scales up its
manufacturing  capabilities.  There can be no assurance that the Company will be
able to successfully commercialize its products or that profitability will again
be achieved.

         The Company first introduced its polyglycolic acid ("PGA") polymer pins
in 1984 and its PGA screws in 1986. In 1987,  the Company  introduced  its first
poly-l-lactic  acid  ("PLLA")  polymer  products,  PLLA pins.  PLLA  screws were
introduced in 1989.  Since the  introduction of these products,  the Company has
expanded  its PGA and PLLA pin and screw  product  lines to  address  additional
clinical indications. The Company's PGA membrane product was introduced in 1992,
and, in 1995, the Company  launched its Meniscus Arrow and PLLA tacks.  Prior to
1996,  the Company  derived  substantially  all of its revenue from sales of its
PLLA and PGA screws and pins. A substantial portion of the Company's revenues in
more recent  periods has resulted from U.S. sales of the Meniscus  Arrow,  which
received FDA clearance in March 1996. To date,  all products sold by the Company
have been launched first in international markets. During the three months ended
September 30, 1999, international product sales represented 14% of the Company's
total product sales.

         The Company typically sells or consigns implant grade,  stainless steel
surgical  instruments  for  use  with  each of its  Self-Reinforced,  resorbable
products.  The sale of these instruments  results in margins which are typically
lower than the margins  applicable to the Company's implant  products.  However,
since  orthopedic  companies  operating in the U.S.  have  traditionally  loaned
rather than sold instruments to their customers, the Company anticipates that in
the  future it will be  necessary  for the  Company  to  provide  an  increasing
proportion  of its  instrumentation  in the U.S. on a loan basis.  In most cases
instrumentation is provided on a consignment basis to customers that commit to a
certain purchase level of implant products.  For financial  statement  purposes,
revenues from the sale of  instrumentation  systems are included  within product
sales and costs  associated  with such systems are included within cost of goods
sold. In the case of a consigned product,  the Company amortizes the cost of the
instrumentation  over a three to four  year  period as cost of goods  sold.  The
Company's instrumentation systems are reusable.  Accordingly, sales and loans of
such systems are likely to be most  pronounced in periods  shortly after product
launches  and are  likely to be less  prevalent  as  penetration  of the  market
increases over the long term.

         The Company sells its products  through managed networks of independent
sales agents,  direct sales  representatives,  distributors and dealers.  In the
U.S., the Company handles all invoicing  functions directly and pays commissions
to its sales agents or representatives.  Outside the U.S., the Company sells its
products  directly to distributors and dealers at discounts that vary by product
and by market.  Accordingly,  the  Company's  U.S.  sales result in higher gross
margins than its  international  sales. The Company  anticipates that during the
next few years, the relative  percentage of its  international  product sales to
total product sales are expected to increase.

<PAGE>

         The Company has entered into  agreements  pursuant to which the Company
is obligated  to pay  royalties  based on net sales of certain of the  Company's
products, including the Meniscus Arrow. To the extent that sales of the Meniscus
Arrow  products and other  licensed  products  increase in future  periods,  the
Company's royalty obligations are expected to increase.

         The Company invoices more than 85% of its consolidated revenues in U.S.
dollars.  Approximately  80%  of  the  expenses  incurred  by  the  Company  are
denominated in U.S. dollars.  The remaining portion of revenues and expenses are
denominated in European  currencies,  predominantly  Finnish Markka. The Company
seeks to manage its foreign currency risk for these other currencies through the
purchase of foreign currency options and forward contracts. No assurances can be
given that such  hedging  techniques  will  protect  the Company  from  exposure
resulting  from  relative  changes  in the  economic  strength  of  the  foreign
currencies  applicable to the Company.  Foreign exchange  transaction  gains and
losses can vary significantly from period to period.

         While the  Company's  operating  losses have  resulted in net operating
loss carryforwards of approximately  $900,000 for income tax reporting purposes,
the extent to which such  carryforwards  are  available  to offset  future  U.S.
taxable income is significantly limited as a result of various ownership changes
that have  occurred in recent years.  Additionally,  because U.S. tax laws limit
the time during which these  carryforwards  may be applied against future taxes,
the Company may not be able to take full advantage of the U.S. carryforwards for
federal income tax purposes.  Furthermore, income earned by a foreign subsidiary
may not be offset against  operating losses of Bionx Implants,  Inc. or its U.S.
subsidiaries.  As a result, the Company may incur tax obligations during periods
when it reflects a  consolidated  net  operating  loss.  The statutory tax rates
applicable  to the  Company  and its foreign  subsidiaries  vary  substantially,
presently  ranging  from  approximately  40% in the U.S. to 28% in Finland.  Tax
rates have fluctuated in the past and may do so in the future.

         The Company's  results of operations  have fluctuated in the past on an
annual and quarterly basis and may fluctuate significantly from period to period
in the future,  depending on several  factors,  many of which are outside of the
Company's control. Such factors include the timing of government approvals,  the
medical  community's  acceptance  of the  Company's  products,  the  success  of
competitive  products,  the  ability  of the  Company  to enter  into  strategic
alliances with corporate partners,  expenses associated with patent matters, the
results of regulatory  inspections and the timing of expenses related to product
launches.

         In April, 1999 Bionx entered into a distribution  agreement with Mentor
Corporation. Under the terms of the agreement, Mentor has exclusive distribution
rights for all current and future Bionx bioabsorbable stent products for urology
applications  in all  areas of the  world  other  than the U.S.  and  Japan.  In
exchange for exclusive  distribution rights, Mentor must achieve certain minimum
market penetration objectives, and pay Bionx a pre-agreed upon percentage of the
customer sales price on all stent products sold.

         In late 1998,  the Company  entered  into an expansion  phase  building
inventory  levels and personnel in anticipation of continued  growth in its core
business  and the  introduction  of new  products in the  Craniofacial  surgical
market.  Actual  sales  results  were less than  planned;  thus these  increased
expenditures,  together  with legal  costs  incurred  to protect  the  Company's
intellectual property, resulted in operating losses during 1999.

         During  the second  quarter of 1999,  the  Company  began to  implement
initiatives  to refocus its business and  reallocate  critical  resources with a
goal to achieve  sales  growth,  profit  improvement  and a  positive  cash flow
position.     Management     initiatives     include:     development    of    a
management-restructuring  plan to add critical resources in areas that will have
the greatest  impact on sales growth and profit  improvement;  consolidation  of
sales efforts for craniofacial and orthopedic products designed to improve sales
efficiencies, increase in market coverage and reduction of the Company's cost of
sales; reduction in sales administration to reduce the Company's overall cost of
sales; refocus of R&D investments on new product introductions that will provide
complementary  product  offerings for orthopedic and craniofacial  products that
are  planned to be  introduced  during  1999 and 2000;  consolidation  of global
inventories  to reduce the  Company's  overall  investment  in  inventories  and
improve  customer  service  levels;  reduction  in  inventory  levels to improve
inventory turn rates thereby reducing the Company's cash requirements to support
inventory  investments;  increases in sales and  marketing  efforts  designed to
expand  sales   contributions   from   markets   outside  of  the  US;  and  the
implementation  of surgeon  educational  programs  designed to increase  surgeon
awareness and use of the Company's  products.  In addition to these initiatives,
during  the  second  quarter  of 1999,  four new  patents  were  issued  for the
application of the Company's technology for orthopedic  indications.  During the

<PAGE>

third quarter of 1999, the Company  continued to implement these initiatives and
refocus its business in an attempt to improve its  profitability  and operations
performance.  No  assurances  can be given that the Company's  initiatives  will
result in profitable operations.

         During the third quarter of 1999,  Innovasive  Devices agreed to settle
the patent  infringement  claim  brought by the Company  regarding  Innovasive's
clear fix Meniscal Dart. Under the terms of the settlement,  Innovasive  Devices
will  license the  Company's  Miniscus  Implants  patent for the field of sports
medicine.

Results of Operations

         Product sales.  The Company's  product sales  decreased by 9% from $5.3
million  during the quarter ended  September 30, 1998 to $4.8 million during the
quarter ended September 30, 1999, and increased by 1% from $ 14.8 million during
the first nine months of 1998 to $14.9  million  during the first nine months of
1999.  Consolidated  revenues for the company are  comprised  of three  specific
product  categories:  Sports  Medicine  (which  includes  the  Meniscus  Arrow),
Orthopedic Trauma and Craniofacial.

          Consolidated sales of Sport Medicine products during the third of 1999
were $2.9  million,  down from $3.7 million in the third  quarter of 1998, a 22%
decrease.  During  the first  nine  months  of 1999,  Sports  Medicine  products
revenues were $9.3 million,  down from $10.3 million in the first nine months of
1998, a 10% decrease.  The Company believes that the reduction of sales of Sport
Medicine  products reflects the effect of competition and may reflect lower unit
usage of Company products in particular procedures.

         Consolidated  sales of  Orthopedic  Trauma  products  during  the third
quarter of 1999 were $1.1 million, up from the $1.0 million in the third quarter
of 1998, a 10% increase. During the first nine months of 1999, Orthopedic Trauma
products  revenues  were $3.7  million,  up from $2.9  million in the first nine
months of 1998, a 28% increase.

         Consolidated sales of Craniofacial products during the third quarter of
1999 were  $404,000,  up from  $310,000  in the  third  quarter  of 1998,  a 30%
increase.  During the first nine months of 1999,  Craniofacial products revenues
were $1.4  million,  up from  $400,000 in the first nine months of 1998,  a 250%
increase. The Company commenced sales of Craniofacial products in May 1998.

         Grant and License revenues.  Grant and license revenues totaled $90,000
for the three months ended September 30, 1999, compared with revenue of $128,000
recorded  during the  three-month  period ended  September  30, 1998.  Grant and
license  revenues  decreased  to  $256,000  for the  first  nine  months of 1999
compared  to  $290,000  for the  comparable  period  in 1998.  This  revenue  is
generated  primarily  from grants  obtained from a Finnish  government  research
organization which funds certain research and development projects.

          Gross profit;  gross margin. The Company's gross profit decreased from
$4.2 million  during the third quarter of 1998 to $3.9 million  during the third
quarter of 1999,  and from $11.9 million during the first nine months of 1998 to
$10.4 million  during the first nine months of 1999.  For the three months ended
September 30, 1999, the decline in gross profit relates primarily to the decline
in revenues.  For the nine months ended September 30, 1999, the decline in gross
profit  reflects a change in the mix of revenue,  from higher margin products to
lower margin  products,  and a special charge taken during the second quarter of
1999 relating to instrument inventory. The inventory charge reflects a reduction
of current carrying values of certain of the Company's  instrument inventory due
to changes in technology and the introduction of new instruments.  Overall,  the
Company's  gross  margin  (including  the  effects  of grant  revenue)  remained
unchanged  at 80% for the third  quarter  of 1998 and 1999,  and, including  the
effects of a special charge related to instrument  inventory taken in the second
quarter of 1999,  declined  from 80% during the first nine months of 1998 to 69%
during the  comparable  period of 1999.  The decrease in gross margin in 1999 is
primarily  attributable  to the inventory  charge noted above and to a change in
the mix of product revenues toward products with lower gross margins.

          Selling,  general and administrative  expenses.  Selling,  general and
administrative  expenses  consist  primarily of distributor  commissions paid on
product sales in the U.S., patent and license related  expenses,  costs incurred
in  connection  with  the  regulatory  process,  and  expenses  associated  with
supporting  the  Company's   managed  networks  of  independent   sales  agents,
distributors and dealers.  Selling,  general and administrative expenses for the
third quarter were $3.8 million,  a decrease of 24% from the previous  quarter's
activity  of $5.0  million  and an  increase  of  $507,000 or 15% from the third
quarter of 1998. For the nine months ended September 30, 1999, selling,  general
and administrative  expenses were $12.8 million,  an increase of $3.4 million or
36% over the nine months ended  September 30, 1998.  During the third quarter of
1999 the  Company was  successful  in reducing  its  selling  expenses.  Selling
expenses for the third quarter were $2.5 million,  down $829,000 or 25% compared
to the prior quarter of 1999,  and down 6% from the  comparable  period in 1998.
These decreases reflect a restructuring of the commissions paid to the Company's
distributors. Selling expenses for the nine months ended September 30, 1999 were
$ 9.3 million,  representing  an increase of 29%;  this  increase was  primarily
attributable to salaries paid to newly employed sales persons  (including  sales
persons hired to sell the Company's craniofacial products), commissions paid and
increased expenses associated with establishing and supporting a managed network
of  independent  sales agents in the U.S.,  and increases in employee  benefits,
travel and entertainment, and marketing expenses. The increase in the percentage
relationship  of general and  administrative  expenses to product  sales for the
periods  described  herein  reflects the  increased  general and  administrative
expenses  incurred in the second and third  quarters of 1999 in connection  with
the  Company's  implementation  of  new  business  initiatives  related  to  the
restructuring of the Company's operations and organization, and the anticipation
of new product launches.

         Research and  development.  Research and development  expenses  totaled
$778,000 or 16% of sales for the third quarter, up from $533,000 or 10% of sales
for the same  period of 1998 and  increased  by 40% to $2.1  million  during the
first nine  months of 1999 from $1.5  million  during the  comparable  period in
1998. The increase in research and  development  expense  reflects the increased
levels  of  research  and  development  activities  to  accelerate  new  product
introductions.

         Severance  charges.  During the second  quarter  of 1999,  the  Company
incurred a one-time severance charge of $275,000.  This severance charge relates
to the organizational restructuring of the Company, including severance payments
to the Company's  former chief executive  officer,  chief financial  officer and
vice president of sales. A majority of the severance  accrual will be paid on or
before  November 30, 1999,  and the  remainder  will be paid within eight months
thereafter.

         Patent  litigation.  In the third quarter of 1999, the Company incurred
$633,000 in legal fees to prosecute  (and in one instance  settle)  three patent
infringements  suits.  The Company has incurred  $1.7 million in such legal fees
for the first nine months of 1999. The Company did not incur substantial  patent
litigation legal fees in the first three quarters of 1998. The patent litigation
legal fees incurred during 1999 are part of the Company's efforts to protect and
strengthen its proprietary intellectual property position.

          Other income and expense.  In the third  quarter of 1999,  the Company
generated interest income of $45,000, compared to interest income of $161,000 in
the  comparable  period of 1998.  For the nine month  periods,  other income and
expenses,  including interest income and foreign exchange gains,  decreased from
$729,000 to $709,000.  Funds obtained from the proceeds of the Company's initial
public offering in April 1997 ("IPO")  generated the interest income in both the
1998 and 1999 periods,  but the average  invested  balance has decreased  during
1999.

          Income  taxes.  The Company  recorded a $50,000 tax  provision for the
three and nine months ended  September 30, 1999,  compared to a tax provision of
$171,000 and $529,000 for the three and nine months ended September 30, 1998.The
difference is due to the change in pre tax income.

         Net (loss) income. The Company reported a net loss of ($1.3) million or
($.15) per share (basic and diluted) for the third  quarter of 1999, as compared
with net income of $419,000 or $.05 per share  (basic and diluted) for the third
quarter of 1998. The Company reported a net loss of ($5.8) million or ($.65) per
share (basic and diluted)  for the first nine months of 1999,  as compared  with
net income of $1.2  million or $.13 per share (basic  diluted)  during the first
nine months of 1998.

Liquidity and Capital Resources

         The Company has relied  primarily  upon  external  (private and public)
sources of equity to fund operations and development.  In addition,  the Company
has made  arrangements  for a $4 million  credit  line,  secured by the personal
property  of the  Company  and its  Biostent,  Inc.  subsidiary.  Amounts  to be
advanced  thereunder  are subject to the lender's  discretion and are limited to
specific percentages of certain domestic receivables and inventory.
To date, no amounts have been borrowed pursuant to this facility.


         At December 31, 1998 and September 30, 1999, cash and cash  equivalents
totaled $14.2 million and $2.9 million,  respectively.  The decrease in cash and
cash equivalents of approximately $11.2 million is primarily attributable to the
Company's  operating  losses,  investments  of  approximately  $1.5  million  in
patents,  machinery  and  equipment  in the Finnish  manufacturing  facility and
computer  systems  upgrades,  and a $3.6 million increase in inventory levels in
anticipation of new product launches and consignment of instrumentation.

         As of  September  30,  1999,  the Company had working  capital of $17.4
million,  compared  with $24.0 million as of December 31, 1998.  This  reduction
reflects the decrease in the Company's cash and related  assets.  Long-term debt
(including  the current  portion)  was reduced by $56,000  from the level at the
beginning of the year to $60,000 as of September 30, 1999.  This debt represents
loans obtained from the Finnish  government  and carries  interest rates ranging
from 1-3% per annum.

         The Company's  liquidity has been weakened  substantially  during 1999.
The  Company's  liquidity  is  dependent  primarily  upon its ability to improve
operating  results  and thereby  generate  adequate  cash flow from  operations.
Management has taken several steps designed to improve future financial  results
and reduce the amount of cash used by  operations,  including  (i)  developing a
management  restructuring  plan to add  critical  resources  to areas having the
greatest  impact in sales growth,  (ii)  consolidating  sales efforts to improve
sales efficiencies, increase market coverage and reduce the cost of sales, (iii)
refocusing  research and development  investments on new product  introductions,
(iv)  consolidating  and reducing  inventory  levels,  (v) increasing  sales and
marketing  efforts  outside the U.S.,  and (vi) where  possible,  reducing other
operating expenses.  However, there can be no assurance that these steps will be
successful.  The  Company's  operations  may not provide  sufficient  internally
generated cash flows to meet the Company's projected requirements. The Company's
ability to  continue  to finance  its  operations  will depend on its ability to
achieve profitability by improving sales and margins, Its ability to reduce cash
outflows  and,  if  necessary,  its ability to obtain  other  sources of funding
sufficient to support the Company's operations.  No assurances can be given that
such funding will be available on satisfactory terms or at all.

         The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including management's ability to reverse
recent trends,  market acceptance of the Company's existing and future products,
the successful  commercialization  of products in  development,  progress in its
product development efforts,  the magnitude and scope of such efforts,  progress
with preclinical studies,  clinical trials and product clearances by the FDA and
other  agencies,  the cost and  timing of the  Company's  efforts  to expand its
manufacturing  capabilities,  the cost of  filing,  prosecuting,  defending  and
enforcing  patent  claims  and other  intellectual  property  rights,  competing
technological  and  market  developments,   and  the  development  of  strategic
alliances for the marketing of certain of its products. The Company's operations
did not produce  positive cash flows during 1994, 1995, 1996, 1998 or during the
first nine months of 1999. To the extent that funds generated from the Company's
operations,  together with its existing capital resources  (including its credit
facility), and the net interest earned thereon, are insufficient to meet current
or planned  operating  requirements,  the  Company  will be  required  to obtain
additional  funds through  equity or debt  financing,  strategic  alliances with
corporate partners and others, or through other sources. The terms of any equity
financing may be dilutive to  stockholders  and the terms of any debt  financing
may contain restrictive  covenants,  which limit the Company's ability to pursue
certain  courses of action.  The Company does not have any committed  sources of
additional  financing beyond that described above, and there can be no assurance
that additional funding, if necessary, will be available on acceptable terms, if
at all.  If  adequate  funds are not  available,  the Company may be required to
delay,  scale-back or eliminate  certain aspects of its operations or attempt to
obtain funds through  arrangements  with  strategic  partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates,  products or potential markets. If adequate funds are not available,
the Company's  business,  financial condition and results of operations could be
materially and adversely affected.

Year 2000 Compliance

Readiness

          The Company's centralized corporate business and technical information
systems have been fully assessed as to year 2000  compliance and  functionality.
Presently,  these systems are nearly complete with respect to required  software
changes,  tests  and  migration  to  the  production  environment.  The  Company
anticipates that internal  business and technical  information  system year 2000
compliance  issues is  substantially  remedied by the end of November 1999. This
expectation constitutes a Forward-Looking Statement. Actual results could differ
materially from this  expectation as a result of a number of factors,  including
unanticipated  technological  difficulties,  the  availability of  technological
support,  the  readiness of others and the risk factors set forth in Exhibit 99,
to the Company's Annual Report on Form 10-K for the year ended December 1998.

         The Company has satisfactorily  completed the identification and review
of computer hardware and software  suppliers and is in the process of verifying,
reviewing  and logging  year 2000  preparedness  of general  business  partners,
suppliers,  vendors, and/or service providers that the Company has identified as
critical.  The Company  expects to complete its review of these third parties by
November 30, 1999.

Costs

         The Company  incurred  costs of  approximately  $250,000 in fiscal 1998
associated  with the purchase of and  modifications  to the  Company's  existing
systems to make them year 2000 ready. The Company expects to incur costs between
$100,000 and $200,000 in fiscal year 1999 for a total  project cost of less than
$500,000.  Most of these costs  relate to the  implementation  of a new internal
business  system,  which will be depreciated  over its estimated life. Any other
cost  relating to this  undertaking  will be expensed as incurred.  Based on the
estimates and information  currently available,  the Company does not anticipate
that the cost associated  with year 2000  compliance  issues will be material to
the Company's consolidated financial position or results of operations.

Risks and Contingency Plans

         Considering the substantial progress made to date, the Company does not
anticipate  delays in  finalizing  internal  year 2000  remediation  within  the
remaining  time  schedules.  There  can  be no  assurances,  however,  that  the
Company's internal systems or those of a third party on which the Company relies
will be year 2000 compliant by the year 2000. An  interruption  of the Company's
ability to conduct its business due to a year 2000 readiness  problem could have
a material adverse effect on the Company,  its operations,  financial  condition
and liquidity.

         Pending  the  results  of  the  Company's   review  of  the  year  2000
preparedness of its critical third parties, the Company will then determine what
course of action and contingencies will need to be made, if any. The Company has
not  yet  developed  a  worst  case  contingency  plan,   although  the  Company
anticipates  that its worst case  analysis  will  involve the failure of outside
entities to be Year 2000 compliant.


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

         No change since filing of the Company's  Annual Report on Form 10-K for
the year ended December 31, 1998.

Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds

         On August 27, 1999, the Company  reincorporated,  changing its state of
incorporation from Delaware to Pennsylvania. It effected this reincorporation by
creating  a  wholly-owned  subsidiary  as a  Pennsylvania  corporation  and then
merging the parent  corporation (a Delaware  corporation)  into that subsidiary,
The subsidiary was the surviving corporation in this transaction.

         The reincorporation  was approved by the Company's  stockholders at the
Company's  annual meeting of stockholders on August 13, 1999. Upon  consummation
of the  transaction,  each  share of Common  Stock of the  Company as a Delaware
corporation,  par value $.0019 per share, was converted into one share of Common
Stock of the Company as a Pennsylvania corporation,  par value $.0019 per share.
The rights of the Company's stockholders and the internal affairs of the Company
are now governed by the Company's  articles of  incorporation  and bylaws and by
the Pennsylvania Business Corporation Law of 1988, as amended (the "Pennsylvania
BCL").  While the  rights of  stockholders  under the  Pennsylvania  BCL and the
Delaware General  Corporation Law differ in a number of respects,  the Company's
articles  of   incorporation   and  bylaws  were  designed  to  minimize   these
differences.  The proxy  statement  submitted to stockholders in connection with
the annual meeting describes the differences between the rights of the Company's
stockholders  as  stockholders  of a Delaware  corporation and the rights of the
Company's stockholders as stockholders of a Pennsylvania corporation.

          There was no change in the name, business,  management, benefit plans,
location,  assets,  liabilities  or net worth of the  Company as a result of the
reincorporation.

         The  Company's  initial  public  offering  was  effected  pursuant to a
registration statement on Form S-1 (No. 333-22359) declared effective by the SEC
on April 24, 1997. The offering commenced on April 25, 1997 and terminated after
all securities were sold.

         From April 25, 1997 through  September  30, 1999,  the Company has used
the following  amounts of the net proceeds from the initial public  offering for
the following categories enumerated by the SEC:

<TABLE>
<CAPTION>

                                                                              Reasonable Estimated Amount
                                                                                           (in thousands)
     Category

<S>                                                                                                 <C>
     Construction of plant, building and facilities                                                 2,017

     Purchase and installation of machinery and equipment                                           2,670

     Purchases of real estate                                                                           -

     Acquisition of other businesses                                                                    -

     Repayment of indebtedness                                                                        790

     Working capital                                                                               17,359

     Short term investments (Cash Equivalents)                                                      2,926

     Other purposes for which at least $100,000 has been used                                           -

</TABLE>

None of the  above-mentioned  uses of  proceeds  represented  direct or indirect
payments to directors or officers of the Company or their associates, to persons
owning ten percent or more of any class of equity  security of the Company or to
affiliates of the Company.  Such uses do not represent a material  change in the
use of proceeds described in the above-mentioned registration statement.

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

         (a) The Company  conducted its annual meeting of stockholders on August
13, 1999.

         (b) David J. Bershad and Pertti  Tormala were  re-elected  as directors
for three year terms. In the aggregate,  5,782,261 shares were voted in favor of
David J. Bershad and 5,783,061 shares were voted in favor of Pertti Tormala.  No
shares were voted in favor of either of the nominees. Anthony J. Dimun, David H.
MacCallum and Terry Wall continued in office after the meeting.

         (c) The stockholders also authorized a proposal to  re-incorporate  the
Company in Delaware.  In the aggregate,  4,923,661 shares were voted in favor of
this  proposal,  70,185  shares were voted against this  proposal,  1,325 shares
abstained and there were broker non-votes covering 801,654 shares.

<PAGE>


Item 6. Exhibits and Reports on Form 8-K

          (a) The following  exhibits are filed as part of this Quarterly Report
              on Form 10-Q:

          No. 3.1 Articles of  Incorporation  of the Registrant,  a Pennsylvania
          corporation,  and  Articles  of Merger  which amend  Article 1 of such
          Articles of Incorporation

          No. 3.2 By-laws of the Registrant, as reincorporated in Pennsylvania.

          No. 27.1 Financial Data Schedule

          (b) The Registrant did not file any Current Reports on Form 8-K during
              the quarter ended June 30, 1999.



<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.

                                                BIONX IMPLANTS, INC.


                                                By:  /s/ Gerard Carlozzi
                                                     ___________________________
                                                     Gerard Carlozzi, President
                                                     and Chief Executive Officer


                                                By:  /s/ Jim Hayden
                                                     ___________________________
                                                     Jim Hayden, Controller and
                                                     Principal Financial Officer



Dated:  November 15, 1999



<PAGE>


EXHIBIT INDEX


   Exhibit

    3.1  Articles  of   Incorporation   of   the   Registrant,   a  Pennsylvania
         corporation,  and  Articles  of  Merger  which  amend Article 1 of such
         Articles of Incorporation.

    3.2  By-laws of the Registrant, as reincorporated in Pennsylvania.

    27.1 Financial Data Schedule