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 June 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)

           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 August 11, 1999,  there were 8,895,576  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 June 30, 1999 (Unaudited)                                   3

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

         Consolidated Statements of Cash Flows for the Six Months
             Ended June 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                           14

Item 6.  Exhibits and Reports on Form 8-K                                    14

Signatures                                                                   15



<PAGE>


Item 1. Financial Statements

                                       BIONX IMPLANTS, INC. AND SUBSIDIARIES
                                            CONSOLIDATED BALANCE SHEETS
                                        December 31, 1998 and June 30, 1999
                                       (in thousands, except share amounts)
<TABLE>
<CAPTION>

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

<S>                                                                        <C>                <C>
   Cash and cash equivalents                                               $ 14,213           $ 5,641
   Inventory, net                                                             9,778            12,954
   Trade accounts receivable, net of
      allowance of $142 and $513 as of December 31,
      1998 and June 30, 1999                                                  4,643             3,955
   Grants receivable                                                            189               100
   Related parties                                                              239               339
   Prepaid expenses and other current assets                                    726               865
   Deferred tax assets                                                          829             1,554
                                                                             ------            ------

Total current assets                                                         30,617            25,408

Investments                                                                      87                87
Plant and equipment, net                                                      2,561             3,269
Goodwill and intangibles, net                                                 3,684             3,682
                                                                              -----            ------

          Total assets                                                     $ 36,949           $32,446
                                                                           ========           =======


Liabilities and Stockholders' Equity:
Current Liabilities:
     Trade accounts payable                                                 $ 4,176           $ 4,126
     Long-term debt, current portion                                             41                10
     Current income tax liability                                               578               695
     Accrued and other current liabilities                                    1,839             1,783
                                                                              -----             -----


Total current liabilities                                                     6,634             6,614

Long-term debt                                                                   75                50

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,  8,922,076 shares
    issued and outstanding as of December 31, 1998
    and June 30, 1999                                                            17                17
Treasury stock, 20,500 and 26,500 shares as of December 31,
   1998 and June 30, 1999, respectively                                        (128)             (161)
Additional paid-in capital                                                    35,642           35,642
Accumulated deficit                                                           (4,266)          (8,691)
Foreign currency translation adjustment                                       (1,025)          (1,025)
                                                                              -------          -------

Total stockholders' equity                                                    30,240           25,782
                                                                              ------           ------
          Total liabilities and stockholders' equity                        $ 36,949          $32,446
                                                                            ========          =======

   See accompanying notes to the unaudited Consolidated Financial Statements.

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

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

                                                                        Three Months Ended                   Six Months Ended
                                                                               June 30,                          June 30,
                                                                        1998          1999                1998              1999
                                                                        ----          ----                ----              ----

<S>                                                                    <C>            <C>                <C>              <C>
Revenues:
Product Sales                                                          $5,057         4,907              9,516            10,014
Grant revenues                                                            108            90                162               267
                                                                       ------         -----              -----            ------

Total revenues                                                          5,165         4,997              9,678            10,281
                                                                        -----         -----              -----            ------

Cost of goods sold                                                      1,074         1,454              2,043             2,802
Special charge related to instrument inventory                              -           929                  -               929
                                                                      --------        -----              -----             ------
Gross profit                                                            4,091         2,614              7,635             6,550
                                                                      --------        -----              -----             -----

Selling, general and administrative                                     3,124         5,049              6,142             8,998
Research and development                                                  630           522                931             1,272
Severance charges                                                           -           275                  -               275
Patent litigation                                                           -           706                  -             1,093
                                                                       --------       -----              -----           -------
Total operating expenses                                                3,754         6,552              7,073            11,638
                                                                       --------       -----              -----           -------

Operating income (loss)                                                   337        (3,938)               562            (5,088)
                                                                       --------      ------              -----           --------


Other income and expense                                                  287           378                568               663
                                                                         ------      ------              -----             ------

Income (loss) before provision for
   income taxes                                                           624        (3,560)             1,130           (4,425)

Provision for income taxes                                                181             -                358              -
                                                                        -----       -------              -----           -------

Net income (loss)                                                       $ 443        (3,560)               772           (4,425)
                                                                        =====       =======              =====           =======


Pro forma earnings (loss) per share:
     Basic                                                             $ 0.05      $ (0.40)             $ 0.09          $ (0.50)
     Diluted                                                             0.05        (0.40)               0.08            (0.50)


Shares used in computing pro forma earnings per share:
     Basic                                                              8,922         8,897              8,922             8,897
     Diluted                                                            9,266         8,897              9,272             8,897

</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)
                                                                                  Six Months Ended
                                                                                      June 30,
                                                                           -------------------------------
                                                                                     1998          1999

Cash flows from operating activities:

<S>                                                                                 <C>          <C>
Net income (loss)                                                                   $ 772        $(4,425)
Adjustments to reconcile net income (loss)
     to net cash used in by operating activities:
Depreciation and amortization                                                         234             364
Change in assets and liabilities:
(Increase) in inventory, net                                                      (1,718)         (3,176)
Decrease (increase) in trade accounts receivable, net                               (585)             688
Decrease in grants receivable                                                          12              89
(Increase) in related parties                                                        (74)           (100)
(Increase) in prepaid expense and other current assets                              (435)           (139)
(Increase) in deferred tax asset                                                    (252)           (725)
Increase (decrease) in trade accounts payable                                         575            (50)
(Decrease) increase in current income tax liability                                 (424)             117
(Decrease) in accrued and other current liabilities                                  (53)            (56)
                                                                                    -----           -----

                                                                                  (2,720)         (2,988)



Net cash used in operating activities                                             (1,948)         (7,413)
                                                                                  -------         -------

Cash flows from investing activities
            Purchase of plant and equipment                                       (1,096)           (955)
            Purchase of intangible assets                                              -            (114)
                                                                                 --------          -------


Net cash used in investing activities                                             (1,096)         (1,069)
                                                                                 --------         -------

Cash flows from financing activities:
             Proceeds from issuance of  long term debt                                13               -
             Capitalization of patents                                               (61)              -
             Repayment of long-term debt                                               -             (56)
             Proceeds from exercise of employee stock options                         26               -
             Purchase of treasury shares                                               -             (34)
                                                                                ---------         -------

Net cash used in financing activities                                                (22)            (90)



Net decrease in cash and cash equivalents                                         (3,066)         (8,572)
Cash and cash equivalents at beginning of period                                  22,632          14,213
                                                                                ---------        -------
Cash and cash equivalents at end of period                                      $ 19,566         $ 5,641
                                                                                =========        =======

Supplementary cashflow information:
Cash paid for interest                                                          $      1         $     -
Cash paid for taxes                                                             $  1,034         $   155
                                                                                    =====         ======

</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  June  30,  1999,  and  the  Company's
consolidated  results of operations  and cash flows for the three and six months
ended June 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 (SEC file no.  0-22401)  filed  with the SEC.  The
results of operations and the cash flows for the three and six months ended June
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,           June 30,
                                                                              1998                 1999
                                                                          -----------            --------
                         <S>                                                <C>                    <C>
                        Raw materials/Semi-finished implants                $1,781                 $815
                        Finished goods - implants                            2,570                2,783
                        Instruments                                          2,457                5,921
                        Instruments on consignment                           3,944                6,448
                                                                            ------               ------
                                                                            10,752               15,967

                        Inventory reserve                                    (174)              (1,003)
                        Special instrument inventory charge(a)                 --                 (929)
                        Accumulated amortization
                            - consigned instruments                          (800)              (1,081)
                                                                             -----              -------

                                                                           $ 9,778              $12,954
                                                                           =======              =======

</TABLE>

--------------
(a) This special  charge of $929,000 was taken in the second  quarter of 1999 to
reduce  the  current  carrying  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.


<PAGE>

          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 six months ended June 30, 1998 and 1999 (in thousands):


<TABLE>
<CAPTION>



                                                                Three Months      Six Months Ended         Three and Six Months
                                                               Ended June 30,         June 30,                Ended June 30,
                                                                    1998                1998                       1999
                                                                    ----                ----                       ----

<S>                                                                <C>                  <C>                        <C>
Shares used in computing basic                                     8,922                8,922                      8,897
  earnings per share

Incremental shares from assumed exercise of                          344                  350                        --
  dilutive options and warrants

Shares used in computing diluted                                   9,266                9,272                      8,897
  earnings per share


</TABLE>

4.        Reporting Comprehensive Income

          As of January 1, 1998,  the Company  adopted  Statement  of  Financial
Accounting Standards No. 130 Reporting Comprehensive Income (SFAS 130). SFAS 130
establishes new rules for the reporting and display of comprehensive  income and
its  components.  The  adoption of SFAS 130 had 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.

          Comprehensive  income (loss) was the same as net income (loss) for the
three and six months ended June 30, 1998 and 1999.

5.        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 within the
next four months and the remainder will be paid within eight months thereafter.



<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.  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.
As of June 30, 1999, the  accumulated  deficit was  approximately  $8.7 million.
After  recording  profitable  results for a number of quarters,  the Company has
again  recorded  losses in recent  periods.  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 successfully  commercialize its products or that  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. 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  June 30,  1999,  international  product  sales
represented 19% 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.  The instruments are loaned on the
basis of a one-year  consignment  policy.  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 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 U.S.  product  sales to total
product  sales is  likely to  continue  to  increase.  Since  the  Company  pays
commissions on sales made through its U.S. network,  an increased  percentage of
U.S.  sales in the future will likely result in an increase in the percentage of
selling,  general and administrative expenses to total sales. This increase will
be partially offset by the higher gross margins received on products sold in the
U.S.

<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.

         During  the second  quarter of 1999,  the  Company  began to  implement
initiatives to refocus its business and reallocate critical resources 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  market
coverage  and  reduce  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;  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 balance of 1999, the Company will continue to
implement  these  initiatives  and refocus its business in an attempt to improve
its profitability and operations.  No assurances can be given that the Company's
initiatives will result in profitable operations.

Results of Operations

         Product sales.  The Company's  product sales  decreased by 3% from $5.1
million  during the  quarter  ended  June 30,  1998 to $4.9  million  during the
quarter ended June 30, 1999,  and increased by 5% from $ 9.5 million  during the
first six months of 1998 to $10.0  million  during the first six months of 1999.
Product  sales are  comprised of three  specific  product  categories:  Meniscus
Arrows;  Other  Implants  (screws,   pins,  plates,   tacks,  and  stents);  and
Instruments and other product-related revenue.

         Meniscus  Arrow  revenues  decreased by 18% worldwide from $3.4 million
during the second  quarter of 1998 to $2.8 million  during the second quarter of
1999.  Revenues from Meniscus  Arrow sales for the first six months of 1999 were

<PAGE>

$5.9  million,  a 9% decrease over  revenues of the  comparable  period in 1998.
Meniscus Arrow  performance in the U.S.  continues to be impacted by competitive
pressures in the marketplace.

         Other implant  revenues  increased by 88%  worldwide  from $1.1 million
during the second  quarter of 1998 to $2.1 million  during the second quarter of
1999,  and  increased by 84%  worldwide  from $2.0 million  during the first six
months of 1998 to $ 3.7  million  during the first six months of 1999.  The 1999
product sales increases 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.

         Instruments and other  product-related  revenues declined from $568,000
during the second quarter of 1998 to $230,000 for the comparable  period in 1999
and from $1.0  million  during the first six months of 1998 to $440,000  for the
comparable  period in 1999. The 1999 instrument  revenue  decreases  reflect the
result of market penetration that was achieved in 1998.

         Grant and License revenues.  Grant and license revenues totaled $90,000
for the three  months  ended June 30,  1999,  compared  with revenue of $108,000
recorded  during the three-month  period ended June 30, 1998.  Grant and license
revenues  increased  from  $162,000 for the first six months of 1998 to $267,000
for the  comparable  period in 1999.  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
$4.1 million during the second quarter of 1998 to $2.6 million during the second
quarter of 1999,  and from $7.6  million  during the first six months of 1998 to
$6.5 million  during the first six months of 1999.  The decrease in gross profit
reflects  a special  charge of  $929,000  taken in the  second  quarter  of 1999
resulting  from the  reduction in the current  carrying  value 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)  decreased  from 79% during the second quarter of 1998 to 52%
during the second  quarter of 1999,  and from 79% during the first six months of
1998 to 64% during the  comparable  period of 1999. The decrease in gross margin
in 1999 is primarily attributable to the instrument inventory charge noted above
and to the  change in the mix of product  revenues  with  lower  gross  margins.
Excluding the instrument  inventory  charge,  the Company's gross margin was 71%
during the second quarter of 1999.

         Selling,  general and  administrative  expenses.  Selling,  general and
administrative  expenses  increased by 61% from $3.1  million  during the second
quarter of 1998 to $5.0 million  during the second  quarter of 1999,  and by 48%
from $6.1 million during the first six months of 1998 to $9.0 million during the
first six months of 1999.  Such  expenses  were 61% of product  sales during the
second quarter of 1998, 102% of product sales during the second quarter of 1999,
65% of  product  sales  during  the first six  months of 1998 and 90% of product
sales during the first six months of 1999.  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  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, are 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 new employee  salaries,
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., and
increases  in  employee  benefits,  travel  and  entertainment,   marketing  and
professional  expenses.  The  increase in the  percentage  relationship  of such
expenses  to  product  sales  for the  periods  described  herein  reflects  the
increased  general and  administrative  expenses incurred in connection with the
Company's   implementation   of  new   business   initiatives   related  to  the
restructuring   of  the  Company's   operations  and   organizations,   and  the
anticipation of new product launches.

         Patent litigation.  The Company incurred in the second quarter of 1999,
$706,000 in legal fees to prosecute  (and in one instance  settle)  three patent
infringements  suits.  The Company has incurred  $1.1 million in such legal fees
for the first six months of 1999. The Company did not incur  substantial  patent
litigation  legal fees in either  the second  quarter or the first six months 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.

         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

<PAGE>

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 within
the  next  four  months  and the  remainder  will be paid  within  eight  months
thereafter.

         Research and development.  Research and development  expenses decreased
by 17% from $630,000  during the second  quarter of 1998 to $522,000  during the
second quarter of 1999, and increased by 37% from $931,000  during the first six
months  of 1998 to $1.3  million  during  the  comparable  period  in 1999.  The
decrease  in the  second  quarter of 1999  resulted  from  increased  management
controls and project prioritization,  while the increase in the first six months
of 1999  reflected  an  increased  volume  of  product  development  work  being
performed by the Company and increased staffing levels in this area.

         Other income and expense.  In the second  quarter of 1999,  the Company
generated  interest income of $378,000,  compared to interest income of $287,000
in the comparable  period of 1998. For the six month  periods,  interest  income
increased  from  $586,000 to $663,000.  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.

         Income taxes.  The Company  recorded no tax  provisions  for the second
quarter or first six months of 1999,  compared to tax provisions of $187,000 and
$358,000 in the comparable  periods of 1998. The consolidated  operating loss in
the  second  quarter  1999 was  incurred  by the U.S.  entity.  As a result,  no
corresponding  tax benefit was recognized due to the net operating loss position
in the U.S.

         Net (loss) income. The Company reported a net loss of ($3.6) million or
($.40) per share (basic and diluted) for the second quarter of 1999, as compared
with net income of $443,000 or $.05 per share (basic and diluted) for the second
quarter of 1998. The Company reported a net loss of ($4.4) million or ($.50) per
share (basic and diluted) for the first six months of 1999, as compared with net
income of  $772,000 or $.08 per share  (diluted)  during the first six months of
1998.

         Per Share  Calculations.  In February  1997,  the Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 128,
Earnings  per Share (SFAS 128),  effective  for fiscal  years  commencing  after
December,  1997.  SFAS 128  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. SFAS 128 also requires a reconciliation of the numerator and
denominator  of the  diluted  EPS  computation.  See note 3 of the  Notes to the
Consolidated Financial Statements.


Liquidity and Capital Resources

         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 IPO 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 IPO. In May 1997, the  Underwriters  exercised in full their  over-allotment
option granted in connection  with the IPO. Net proceeds from the IPO (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  (increased  recently to $4.0  million),  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 credit facility.

         At  December  31,  1998 and June 30,  1999,  cash and cash  equivalents
totaled $14.2 million and $5.6 million,  respectively.  The decrease in cash and
cash  equivalents of  approximately  $8.5 million is attributable to loss in net
income of $4.4 million,  investments of approximately  $700,000 in machinery and
equipment in the Finnish  manufacturing  facility and computer systems upgrades,
and a $3.2 million  increase in inventory  levels in anticipation of new product
launches and consignment of instrumentation.

         As of June 30, 1999, the Company had working  capital of $18.8 million,
compared with $24.0 million as of December 31, 1998.  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 June 30, 1999.  This debt  represents  loans  obtained
from the Finnish  government  and carries  interest  rates ranging from 1-3% per
annum.

<PAGE>

         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,  and 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  greater  profitability  by improving  sales and margins,  reducing cash
outflows and, if  necessary,  obtaining  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 rends,  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 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, 1996, 1998 or during the first six 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 will be substantially remedied by the end of the third quarter
of 1999. This expectation constitutes a Forward-Looking Statement.

         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
the third quarter of 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.

<PAGE>

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.


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.



<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 SEC
on April 24, 1997. The offering commenced on April 25, 1997 and terminated after
all securities were sold.

         From April 25, 1997  through  June 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>

                                                                              Reasonable Estimated Amount
                                                                                           (in thousands)
     Category

<S>                                                                                                <C>
     Construction of plant, building and facilities                                                $1,933

     Purchase and installation of machinery and equipment                                           2,607

     Purchases of real estate                                                                           -

     Acquisition of other businesses                                                                    -

     Repayment of indebtedness                                                                        790

     Working capital                                                                               16,672

     Short term investments (Cash Equivalents)                                                      5,641

     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 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 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 Operating Officer


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





Dated: August 19, 1999



<PAGE>


                                 EXHIBIT INDEX


Exhibit No.

Exhibit No. 27.1 Financial Data Schedule