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 March 31, 1998 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: 333-22359

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

      Delaware                                        22-3458598
(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 April 29, 1998, there were 8,922,076 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, 1997
        and March 31, 1998 (Unaudited)                              3

     Consolidated Statements of Operations for the Three
        Months Ended March 31, 1997 and 1998 (Unaudited)            4

     Consolidated Statements of Cash Flows for the Three Months
        Ended March 31, 1997 and 1998 (Unaudited)                   5

     Notes to Consolidated Financial Statements (Unaudited)         6

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

Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds                 14

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

Signatures                                                         16



<PAGE>


Item 1. Financial Statements

                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      December 31, 1997 and March 31, 1998
                      (in thousands, except share amounts)

                                                December 31,        March 31,
                                                   1997              1998
                                                                   (Unaudited)
Assets:
Current assets:

   Cash and cash equivalents                    $ 22,632           21,780
   Inventory, net                                  2,550            2,940
   Trade accounts receivable, net of
      allowance of $111 as of December 31,
      1997 and March 31, 1998                      3,070            3,198
   Grants receivable                                 129               61
   Prepaid expenses and other current assets         158              320
   Deferred tax assets                               355              355
                                                     ---              ---

Total current assets                              28,894           28,654
Investments                                           87               87
Plant and equipment, net                             849            1,287
Goodwill and intangibles, net                      3,711            3,654
                                                   -----            -----

          Total assets                          $ 33,541           33,682
                                                ========           ======


Liabilities and Stockholders' Equity
Current Liabilities:

     Trade accounts payable                     $  1,775            1,900
     Long-term debt, current portion                  43               43
     Related party                                    74               74
     Current income tax liability                    994              587
     Accrued and other current liabilities         1,459            1,527
                                                   -----            -----

Total current liabilities                          4,345            4,131

Long-term debt                                       115              115

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,  8,916,812 
      and  8,922,076  shares issued and outstanding
      as of December 31, 1997 and March 31, 1998,
      respectively                                    17               17
Additional paid-in capital                        35,616           35,642
Accumulated deficit                               (5,527)          (5,198)
Foreign currency translation adjustment           (1,025)          (1,025)
                                                  -------          -------

Total stockholders' equity                         29,081           29,436
                                                   ------           ------

    Total liabilities and stockholders' equity   $ 33,541           33,682
                                                 ========           ======
   See accompanying notes to the unaudited Consolidated Financial Statements



<PAGE>



                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (Unaudited)

                                                       Three Months Ended
                                                            March 31,
                                                      1997              1998
                                                      ----              ----


Revenues:
Product Sales                                      $  3,218             4,459
Grant revenues                                           -                 54
                                                     ------            ------

Total revenues                                        3,218             4,513
                                                     ------            ------

Cost of goods sold                                      803               969
                                                     ------            ------

Gross profit                                          2,415             3,544
                                                     ------            ------

Selling, general and administrative                   1,940             3,018
Research and development                                181               301
                                                     ------            ------

Total operating expenses                              2,121             3,319
                                                     ------            ------

Operating income                                        294               225
                                                     ------            ------

Other income and expense:
   Interest income                                        3               281
                                                     ------            ------
Income before provision for
   income taxes                                         297               506

Provision for income taxes                               75               177
                                                    -------            ------
Net income                                         $    222               329
                                                   ========            ======

Net income per share                               $   0.02              0.04
                                                   ========              ====



Pro forma earnings per share:
     Basic                                            $0.02              0.04
     Diluted                                          $0.02              0.04

Shares used in computing pro forma earnings
 per share:
     Basic                                            8,916             8,920
     Diluted                                          9,232             9,278

   See accompanying notes to the unaudited Consolidated Financial Statements



<PAGE>



                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)
                                                        Three Months Ended
                                                            March 31,
                                                      -------------------------
                                                        1997             1998

Cash flows from operating activities:

Net income                                           $   222              329
Adjustments to reconcile net income
     to net cash (used in) provided by 
     operating activities:
Depreciation and amortization                             99              109
Change in assets and liabilities:
Increase in trade accounts receivable                   (490)            (128)
Increase in inventory, net                              (195)            (390)
Decrease in grants receivable                             44               68
Increase in prepaid expenses and 
     other current assets                               (160)            (162)
Decrease in investments                                   10                -
Increase in trade accounts payable                       805              125
Decrease in related party                                (78)               -
Increase (decrease) in current income tax liability       75            (407)
Increase (decrease) in accrued and other liabilities    (203)              68
                                                       -----            -----

                                                         (93)            (717)
                                                       -----            -----

Net cash (used in) provided by operating activities      129             (388)
                                                       -----            -----

Cash flows from investing activities
         Purchase of plant and equipment                (216)            (490)
                                                       -----             -----

Cash flows from financing activities:
         Proceeds from issuance of long-term debt         43                -
         Proceeds from exercise of employee stock options  -               26
         Deferred offering cost                         (313)               -
                                                        -----             ----

Net cash (used in) provided by financing activities     (270)              26
Net effects of foreign exchange rate differences          42                -
                                                        -----             ----
Net decrease in cash and cash equivalents               (315)            (852)
Cash and cash equivalents at beginning of period       1,593           22,632
                                                       -----           ------
Cash and cash equivalents at end of period          $  1,278           21,780
                                                    ========           ======


Supplementary cashflow information:
Cash paid for interest                                     3                -
Cash paid for taxes                                      208              584



   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,  1997  and  March  31,  1998,  and the  Company's
consolidated  results of  operations  and cash flows for the three  months ended
March 31,  1997 and 1998,  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 Securities
and Exchange Commission. 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, 1997 and notes
thereto  included in the  Company's  Annual  Report on Form 10-K (No.  33-22359)
filed with the Securities and Exchange Commission. The results of operations and
the cash flows for the three  months  ended March 31,  1998 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):


                                                     December 31,      March 31,
                                                        1997             1998

         Raw materials                              $      437            245
         Finished goods                                  2,778          3,375
                                                         -----          -----

                                                         3,215          3,620
                        Less reserves                     (665)          (680)
                                                         -----          -----
                                                    $    2,550          2,940
                                                     =========          =====

3.       Initial Public Offering; Pro Forma Net Income  Per Share

         During the second quarter of 1997, the Company  consummated its initial
public  offering of Common  Stock (the "IPO").  A total of  2,300,000  shares of
Common Stock (including 300,000 shares issued upon exercise of the Underwriters'
over - allotment option) were issued pursuant to the IPO. In connection with the
IPO, all of the Company's  outstanding  shares of Series A Preferred  Stock were
automatically  converted into a total of 1,052,638 shares of Common Stock and an
additional  245,065  shares of Common Stock were issued upon the exercise of all
outstanding  warrants.  Net  proceeds  from the IPO and the exercise of warrants
were $21.7 million.

         Effective  December 31, 1997,  the Company  adopted the  provisions  of
Statement of Financial Accounting  Standards No. 128 ("SFAS 128"),  Earnings per
Share (EPS).  SFAS 128  establishes  and  simplifies  the standards of computing
earnings per share previously  found in Accounting  Principles Board Opinion No.
15,  Earnings  per  Share,  and  makes  them  comparable  to  international  EPS
standards. Under SFAS 128, basic earnings (loss) per share is computed using the
weighted average number of shares of common stock outstanding during the period.
Diluted  earnings (loss) 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.

         Pursuant to Securities and Exchange  Commission  (SEC) Staff Accounting
Bulletin  No. 98 and SEC staff  policy,  all  common  shares  issued  during the
periods  prior to the Company's  IPO for nominal 

<PAGE>

consideration  are presumed to have been issued in  contemplation of the IPO and
are to be included in the  calculation of basic earnings  (loss) per share as if
they were outstanding for all periods  presented.  Similarly,  common shares and
potential  common  shares  issued during the period prior to the IPO for nominal
consideration  are presumed to have been issued in  contemplation of the IPO and
are to be included in the calculation of diluted earnings (loss) per share, even
though anti-dilutive,  as if outstanding for all periods presented.  The Company
had no common or potential common shares issued for nominal consideration during
the periods prior to the IPO.

         The calculation of shares used in computing pro forma basic and diluted
earnings  per  share  also   includes  the  Company's   mandatorily   redeemable
convertible  preferred  stock and related  warrants,  assuming  conversion  into
shares of common stock (using the if-converted method) from the original date of
issuance in 1996.  The  calculation  also assumes that the shares  issued in the
Company's IPO were outstanding as of January 1, 1997.

         The following  table sets forth the  calculation of the total number of
shares used in the  computation  of pro forma  earnings per common share for the
three months ended March 31, 1997 and 1998 (in thousands):

                                                    1997                    1998
                                                    ----                    ----

Weighted average common shares outstanding         7,618                   8,920
Assumed conversion of Series A Mandatorily
         Redeemable Convertible Preferred Stock
         and related warrants using the
         if-converted method                       1,298                       -
                                                   -----                       -

Shares used in computing pro forma basic
         earnings per share                        8,916                   8,920

Incremental shares from assumed exercise of
         dilutive options and warrants               316                     358
                                                   -----                     ---

Shares used in computing pro forma diluted
         earnings per share                        9,232                   9,278
                                                   =====                   =====


4.       Long Term Debt

         In April 1997,  the Company  entered  into a $2.0  million  credit line
agreement  secured  by the  personal  property  of Bionx  Implants,  Inc.  and a
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.


5.        Foreign Currency Translation

         Through  December 31, 1997,  the financial  statements of the Company's
foreign  subsidiaries  were  translated  into U.S.  dollars in  accordance  with
Statement of Financial Accounting Standards No. 52, Foreign Currency Translation
(SFAS 52). Substantially all assets and liabilities of the foreign subsidiaries,
all of which are located in Finland,  were translated at year-end exchange rates
and income and expense items were translated at an average exchange rate for the
year. Adjustments resulting from the translation of financial statements through
December 31, 1997 are  reflected as a component of  stockholders'  equity in the
accompanying balance sheets.

Effective  January 1, 1998,  the  functional  currency of the Company's  foreign
subsidiaries was changed from the Finnish Markka to the U.S. dollar.  The change
in functional  currency was based on changes in certain salient economic factors
of the foreign  subsidiaries  including cash flows, sales prices of the products
being  manufactured,  the sales  markets for the  products  being  manufactured,
expenses being 

<PAGE>

incurred,  sources of financing,  and intercompany  transactions.  The change in
these economic factors is primarily due to the increased reliance of the foreign
subsidiaries on the U.S. marketplace for sales of products being manufactured.

In  accordance  with SFAS 52,  the  cumulative  translation  adjustment  through
December 31, 1997 has been frozen,  and remains as a component of  stockholders'
equity.

6.       Reporting Comprehensive Income

          As of January 1, 1998,  the Company  adopted  Statement  of  Financial
Accounting Standards No. 130 (SFAS 130), "Reporting  Comprehensive Income." SFAS
130 establishes new rules for the reporting and display of comprehensive  income
and its components.  The adoption of SFAS 130 has no impact on the Company's net
income or stockholders' equity. SFAS 130 requires the Company's foreign currency
translation  adjustments,  which prior to adoption were  reported  separately in
stockholders' equity, to be included in other comprehensive income.

Following are the components of comprehensive income for the three month periods
ended March 31, 1997 and 1998 (in thousands): 

                                                                March 31, 
                                                           1997           1998 
                                                           ----           ----

Net income                                                $ 222            329
Foreign currency translation adjustments                     42             -
                                                          -----           ----

Comprehensive income                                      $ 264            329
                                                          =====           ====




<PAGE>


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.  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, 1997.

         The Company was founded in 1984 to develop certain  resorbable  polymer
implants for orthopaedic  uses. The Company had incurred  substantial  operating
losses from its inception  through December 31, 1996 and, at March 31, 1998, had
an  accumulated  deficit of  approximately  $5.2 million.  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.
Although the Company's revenues have grown  significantly in recent periods,  no
assurance  can be given that this trend will  continue  or that  revenues of any
magnitude  will exceed  expenses  incurred  in  anticipation  of future  growth.
Accordingly, the Company may incur significant operating losses in the future as
it continues its product development efforts,  expands its marketing,  sales and
distribution activities and scales up its manufacturing capabilities.  There can
be no  assurance  that the  Company  will be able to  continue  to  successfully
commercialize its products or that continued profitability will 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,  PLLA tacks, and PGA and
PLLA urology  stents.  During the first  quarter of 1998,  the Company  received
approval to market three  additional  products;  a tack for shoulder  repair,  a
cannulated screw for wrist fractures and a screw for cosmetic surgery.  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
and revenue  growth 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 March 31, 1997 and 1998,  international  product
sales represented 15% of the Company's total product sales.

          Historically,  the Company  typically  sold implant grade,  stainless
steel surgical instruments for use with each of its Self-Reinforced,  resorbable
products.  The margins for these  instruments  were and are typically lower than
the  margins  applicable  to the  Company's  implant  products.  However,  since
orthopaedic  companies  operating in the U.S. have  traditionally  loaned rather
than sold  instruments  to their  customers,  it has  become  necessary  for the
Company to provide an increasing  proportion of its  instrumentation in the U.S.
on a loan basis. Similar practices are not common in international  markets. For
financial statement purposes,  revenues from the sale of instrumentation systems
are  included  within  product  sales and costs  associated  with the  Company's
procurement  of such  systems  are  included  within  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 likely to be less prevalent as penetration of the market  increases
over the long term.  Thus,  the negative  impact on the  Company's  gross profit
margins  associated  with sales and loans of a particular  instrument  system is
expected to decrease after a substantial  market  penetration has been achieved.
Similarly, such impact is likely to lessen to the extent that sales and loans of
instrument systems decrease as a percentage of total product sales.  However, no
assurance  can be given as to the  extent to which  instrumentation  sales  will
depress the Company's gross profit margins in the future.

<PAGE>

          The Company sells its products through managed networks of independent
sales agents,  distributors  and dealers.  In the U.S., the Company  handles all
shipping and  invoicing  functions  directly and pays  commissions  to its sales
agents.   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
international  sales.  Since the Company pays  commissions on sales made through
its U.S. network, any increase in the percentage of U.S. sales to total sales in
the future will  likely  result in an  increase  in the  percentage  of selling,
general and  administrative  expenses to total  sales.  This  increase  would be
partially  offset by the higher gross  margins  received on products sold in the
U.S.

         Outside of the  orthopaedic  market,  the Company may seek to establish
licensing or distribution  agreements with strategic partners to develop certain
products and to market and  distribute  products that the Company  elects not to
distribute  through managed networks of independent  sales agents,  distributors
and dealers.  The Company has licensed its membrane patent for use in dental and
two other  applications  in Europe to Ethicon  GmbH, a  subsidiary  of Johnson &
Johnson.  Ethicon  GmbH has  agreed to pay  royalties  to the  Company  upon the
initiation of commercial sales of its membrane products, which were released for
commercial use commencing in the third quarter of 1997;  royalties on such sales
are payable to the Company in the following quarter. Revenues from the Company's
domestic  or  international  sales of such  products  have  not  been  material.
Accordingly,  no assurance can be given that royalty payments from Ethicon GmbH
will be material.

         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 license obligations are expected to increase.

         The Company has benefited from the research and development  activities
of Dr. Pertti Tormala,  the founder of the Company, at the Technical  University
in Tampere,  Finland.  Dr.  Tormala is  currently  an Academy  Professor  at the
Technical University and is permitted by the University to devote his efforts to
developing  products for the  Company.  Dr.  Tormala  utilizes a group of senior
researchers,  graduate  students  and  faculty at the  Technical  University  to
perform  research and development  projects  involving  resorbable  polymers and
other topics relating to the Company's  technology and manufacturing  processes.
This   arrangement,   permitted  in  Finland  as  a  means  of  encouraging  the
commercialization of technological development, has resulted in substantial cost
savings to the Company while greatly expanding its product development  efforts.
The Company has hired certain senior researchers from the University program and
anticipates  that, in the future,  more of its product  development work will be
performed and funded directly by the Company,  thereby  increasing the Company's
research and development expenses.

         The Company  currently  manufactures its implant products solely at its
Tampere,  Finland  plant.  The  Company  intends to  establish  a  manufacturing
capability in the U.S. The Company plans to establish this capability  either by
equipping and operating a leased  facility or contracting  with a third party to
provide a manufacturing  capability to the Company. The Company believes that on
an interim basis, contract  manufacturing may enable the Company to save certain
staffing  costs and enable  senior  management  to focus on other aspects of its
business. However, if the Company arranges for a third party to provide contract
manufacturing  in the U.S.,  fees  payable to such  manufacturer  may exceed any
savings in  staffing  costs and  result in higher  costs of goods sold and lower
gross profit.  Ultimately,  in operating a U.S. facility, the Company will incur
certain  duplicative  manufacturing  costs which could result in higher costs of
goods sold and lower gross profit margins.

         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.

<PAGE>

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.

Results of Operations

          Product sales. The Company's  product sales increased by 39% from $3.2
million  during the  quarter  ended March 31,  1997 to $4.5  million  during the
quarter  ended March 31, 1998.  Product  sales are  comprised of three  specific
product  categories;  Meniscus Arrows,  Other Implants (screws,  pins, tacks and
stents) and Instruments and other product-related revenue.

          Meniscus Arrow  revenues  increased by 38% worldwide from $2.3 million
during the first  quarter of 1997 to $3.1  million  during the first  quarter of
1998.  However,  Meniscus Arrow  revenues  declined by 8% compared to the fourth
quarter,  1997 level of $3.4 million. This decline was attributed to the arrival
of new  competition in the meniscal  repair market.  During the first quarter of
1998, the Company reported that discounting and other  competitive  practices by
competitors  launching  new  products  were  adversely  impacting  sales  of the
Meniscus  Arrow.  The Company  estimates  that for the first six months of 1998,
such  practices  (which are not  expected to continue on a long-term  basis) are
expected to reduce  revenues from  Meniscus  Arrow sales by  approximately  $2.0
million from the Company's  previous  expectations.  The  immediately  preceding
sentence  constitutes a Forward-Looking  Statement.  Actual results could differ
materially from the projections in that sentence as a result of several factors,
including  the nature  and  extent of the  pricing  practices  of the  Company's
competitors and other factors set forth in Exhibit 99.1 to the Company's  Annual
Report on Form 10-K for the year ended December 31, 1997.

          Other implant revenues  increased by 45% worldwide from  approximately
$620,000 during the first quarter of 1997 to  approximately  $890,000 during the
first quarter of 1998. Instruments and other product-related  revenues increased
by 17% worldwide from approximately $370,000 during the first quarter of 1997 to
approximately  $430,000 during the first quarter of 1998. 

          The 1998  product  sales  increases  over the  comparable  1997 period
reflect  increased  utilization of the Company's  managed network of independent
sales agents in the U.S. and increased sales of the Company's  existing products
in international markets.

          Grant  revenues.  Grant revenues  totaled $54,000 for the three months
ended March 31, 1998. No grant revenue was recorded during the comparable period
ended March 31, 1997. The revenue generated during the first quarter of 1998 was
due to grants obtained from a Finnish government  research  organization,  which
funds certain research and development projects.

         Gross profit;  gross margin.  The Company's gross profit increased from
$2.4 million  during the first quarter of 1997 to $3.5 million  during the first
quarter of 1998. The increase in the Company's gross profit  primarily  resulted
from the general increase in product sales volume.  Overall, the Company's gross
profit margin (including the effects of grant revenue) increased from 75% during
the first  quarter  of 1997 to 78.5%  during  the  first  quarter  of 1998.  The
increase in gross margin in 1998 is primarily  attributable to the leveraging of
certain fixed manufacturing costs over the Company's expanded revenue base.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative  expenses  increased  by 56% from $1.9  million  during the first
quarter of 1997 to $3.0 million during the first quarter of 1998.  Such expenses
were 60% of product sales during the first quarter of 1997, as compared with 68%
of  product  sales  during  the first  quarter  of 1998.  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,  expenses associated with supporting

<PAGE>

the Company's  managed  networks of independent  sales agents,  distributors and
dealers,  and amortization of goodwill and patents associated with the Company's
September 1996 reorganization  (such amortization and depreciation  amounting to
approximately $65,000 per quarter and expected to be approximately  $255,000 per
year through 2017).  The increases in the dollar amount of selling,  general and
administrative  expenses were  primarily  attributable  to increased  commission
payment obligations reflecting the Company's increased product sales in the U.S.
and increased  expenses  associated with  establishing  and supporting a managed
network of  independent  sales agents in the U.S. The increase in the percentage
relationship  of such  expenses to product sales reflects an increase in certain
fixed expenses without a corresponding increase in product sales.

          Research and development.  Research and development expenses increased
by 66% from  $181,000  during the first  quarter of 1997 to $301,000  during the
first quarter of 1998.  This increase  reflected an increased  volume of product
development work being performed by the Company and increased staffing levels.

         Interest  income.  In the first quarter of 1998, the Company  generated
interest  income  of  $281,000,  compared  to  interest  income of $3,000 in the
comparable  period of 1997.  Funds  obtained  from the  proceeds  of the initial
public  offering in late April 1997  generated  the interest  income in the 1998
period.

         Income  taxes.  The provision for income taxes during the first quarter
of  1998  reflects  the  Company's  profitable  operations  during  the  periods
presented.  Due to  the  utilization  of  certain  Finnish  net  operating  loss
carryforwards  during 1997, the effective tax rate increased from 25% during the
first quarter of 1997 to 35% during the first quarter of 1998.

         Net  income.  The Company  reported  net income of $329,000 or $.04 per
share (basic and diluted) for the first  quarter of 1998,  as compared  with net
income of $222,000 or $0.02 per share  (basic and  diluted)  for the  comparable
period in 1997.  No assurance  can be given that the Company will continue to be
profitable during future periods.

          Per Share  Calculations.  In February 1997,  the Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 128,
Earnings per Share  ("Statement  No.  128"),  effective  for fiscal years ending
after December,  1997. This Statement  replaces the  presentation of primary EPS
with a presentation of basic EPS and requires the dual presentation of basic and
diluted EPS on the face of the income  statement  of all  entities  with complex
capital  structures.  Statement  128  also  requires  a  reconciliation  of  the
numerator  and  denominator  of the diluted EPS  computation.  See Note 3 of the
Notes to the Company's Consolidated Financial Statements.


Liquidity and Capital Resources

         Historically,  the Company has relied  upon bank loans  (guaranteed  in
certain   instances   by  the   Company's   principal   stockholders),   capital
contributions by its principal  stockholders  and government  grants to fund its
operations. In September 1996, the Company completed a private placement of $5.0
million in preferred  stock (all of which was  converted  into Common Stock upon
consummation  of the  Company's  initial  public  offering  in April  1997)  and
warrants (all of which were exercised  during April 1997). The net proceeds were
used to repay  bank debt,  to pay down trade  debt,  to fund  manufacturing  and
product development efforts and for other working capital purposes. During April
1997,  the Company  consummated  its initial public  offering.  In May 1997, the
Underwriters exercised in full their over-allotment option granted in connection
with the initial public offering.  Net proceeds from the initial public offering
(including  the  exercise  of the  over-allotment  option)  and the  exercise of
warrants  during April 1997 were $21.7  million.  In addition,  the Company made
arrangements for a $2 million credit line,  secured by the personal  property of
Bionx Implants, Inc. 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,  1997 and March 31,  1998,  cash and cash  equivalents
totaled $22.6 million and $21.8 million,  respectively. The decrease in cash and
cash  equivalents  of  $852,000  is 

<PAGE>

primarily attributable to investments made in facility expansion,  and a payment
related to the 1997 Finnish income tax liability.

         As of March 31, 1998, the Company had working capital of $24.5 million.
Long-term debt of $158,000 remained unchanged from the level at the beginning of
the year,  representing  loans obtained from the Finnish  government.  This debt
carries interest ranging in rates from 1 - 3% per annum.

         The Company believes that existing  capital  resources from its initial
public  offering,  its  September  1996 private  placement  and its $2.0 million
credit line,  together  with cash flow from  operations  (if, and to the extent,
generated), will be sufficient to fund its operations through 2000. However, the
Company's  future capital  requirements and the adequacy of available funds will
depend on numerous  factors,  including  market  acceptance  of its 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 its 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 and 1996. To
the extent that funds generated from the Company's operations, together with its
existing  capital  resources  (including  such  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  financings,  strategic  alliances  with  corporate  partners and
others,  or through other  sources.  The terms of any equity  financings  may be
dilutive  to  stockholders  and the  terms of any debt  financings  may  contain
restrictive  covenants  which  limit the  Company's  ability  to pursue  certain
courses of action. Principal stockholders of the Company who previously provided
funding to the  Company  and  provided  guarantees  to  sources  of credit  have
indicated that they do not intend to continue  furnishing such  assistance.  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

          For  information  regarding the Company's  compliance with "Year 2000"
issues,  see Item 7 of the  Company's  Annual  Report  on Form 10-K for the year
ended December 31, 1997.

<PAGE>


Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds

         The Company's initial public  offering  was  effected   pursuant  to  a
registration  statement on Form S-1 (No.  333-22359)  declared  effective by the
Securities and Exchange  Commission  (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  March 31, 1998,  the Company has used the
net  proceeds  of its  initial  public  offering  for the  following  categories
enumerated by the SEC:

                                                  Reasonable Estimated Amount
                                                         (in thousands)
       Category

       Construction of plant, building and facilities       $       157

       Purchase and installation of machinery and equipment         683

       Purchases of real estate                                      -

       Acquisition of other businesses                               -

       Repayment of indebtedness                                    655

       Working capital                                               -

       Short term investments                                    19,705

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

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.

<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. 27.1 Financial Data Schedule

     (b) The  Registrant  did not file any Current Report on Form 8-K during the
quarter ended March 31, 1998.



<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/David W. Anderson
                                         David W. Anderson
                                         President and Chief Executive Officer





                                     By: /s/ Michael J.  O'Brien
                                         Michael J. O'Brien
                                         Vice President, Chief Financial Officer
                                         and Chief Accounting Officer


Dated: May 12, 1998



<PAGE>


EXHIBIT INDEX


Exhibit No.

Exhibit No. 27.1 Financial Data Schedule