<PAGE>

                       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, 2002.

                                       Or

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       Exchange Act of 1934 for the transition period from _____ to _____.

                         Commission File Number: 0-22401


                              BIONX IMPLANTS, INC.

             (Exact name of registrant as specified in its charter)

          Pennsylvania                                    22-3458598
  (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 14, 2002 there were 10,770,377 shares of Common Stock, par value
$.0019 per share, outstanding.
<PAGE>
                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                          Page
<S>                                                                                                       <C>
Part I.  Financial Information

Item 1.   Consolidated Financial Statements

             Consolidated Balance Sheets at December 31, 2001 and June 30, 2002 (Unaudited)                 3

             Consolidated Statements of Operations for the Three and Six Months Ended June 30,
                      2001 and 2002 (Unaudited)                                                             4

             Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001
                      and 2002 (Unaudited)                                                                  5


              Notes to Consolidated Financial Statements (Unaudited)                                        6


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

Item 3.      Quantitative and Qualitative Disclosures about Market Risk                                    13


Part II  Other Information

Signatures                                                                                                 14
</TABLE>


                                       2
<PAGE>
                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,      JUNE 30,
                                                                         2001             2002
                                                                      -----------       --------
                                                                                        (Unaudited)
<S>                                                                   <C>               <C>
ASSETS

Current assets:

Cash and cash equivalents                                              $  4,985         $  4,889

Trade accounts receivable, net of allowance of $246 as of
     December 31, 2001 and $200 as of June 30, 2002                       2,467            2,661

Inventory, net                                                            3,704            3,271

Grants receivable                                                            95               18

Related party receivables                                                   529               41

Other receivables                                                             8                9

Prepaid expenses and other current assets                                   340              469

Deferred tax assets                                                         798              798
                                                                       --------         --------

Total current assets                                                     12,926           12,156

Plant and equipment, net                                                  2,062            1,914

Goodwill, net (Note 4)                                                    2,905            2,905

Intangibles, net (Note 4)                                                   922              959
                                                                       --------         --------

Total assets                                                           $ 18,815         $ 17,934
                                                                       --------         --------

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Trade accounts payable                                                 $  1,777         $  1,646
Related Party Payables                                                        0               35
Long - term debt, current portion                                            35               35
Accrued and other current liabilities                                     1,392            1,192
                                                                       --------         --------
Total current liabilities                                                 3,204            2,908
Long-term debt                                                              349              441
Subordinated debt                                                           145              184
                                                                       --------         --------
Total liabilities                                                         3,698            3,533
                                                                       --------         --------

STOCKHOLDERS' EQUITY

Preferred stock, par value $0.001 per share,
       8,000,000 shares authorized, none issued and outstanding              --               --
Common stock, par value $0.0019 per share,
       31,600,000 authorized, 10,864,906 and 10,869,113 shares
       issued as of December 31, 2001 and June 30, 2002,                     21               21
       respectively

Treasury stock, 2,779 and 98,736 shares as of December 31, 2001
       and June 30, 2002, respectively                                       (8)            (535)
Additional paid-in-capital                                               39,986           39,993
Accumulated deficit                                                     (23,819)         (24,035)
Amounts due from employees related to stock purchases                       (38)             (18)
Accumulated other comprehensive (loss)                                   (1,025)          (1,025)
                                                                       --------         --------
Total stockholders' equity                                               15,117           14,401
                                                                       --------         --------

Total liabilities and stockholders' equity                             $ 18,815         $ 17,934
                                                                       --------         --------
</TABLE>


      See accompanying notes to unaudited consolidated financial statements


                                       3
<PAGE>
                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED                 SIX MONTHS ENDED
                                                                 JUNE 30                           JUNE 30
                                                         -------------------------         -------------------------
                                                           2001             2002             2001             2002
                                                           ----             ----             ----             ----
<S>                                                      <C>              <C>              <C>              <C>
Revenues:
Product sales                                            $  4,763         $  4,564         $  9,694         $  9,300
Other revenues                                                 79               (3)             129               27
                                                         --------         --------         --------         --------
Total Revenues                                              4,842            4,561            9,823            9,327

Cost of goods sold                                          1,889            1,410            3,437            2,694
                                                         --------         --------         --------         --------


Gross profit                                                2,953            3,151            6,386            6,633

Selling, general and administrative                         3,250            2,562            6,336            5,294
Research and development                                      855              674            1,730            1,351
Patent and litigation expense                                  21                3               85               28
                                                         --------         --------         --------         --------

Total operating expenses                                    4,126            3,239            8,151            6,673
                                                         --------         --------         --------         --------

Operating (loss)                                           (1,173)             (88)          (1,765)             (40)


Other income and expense:
Interest income                                                61               18              137               36
Interest expense                                               (3)              (4)              (3)              (8)
Other, net                                                     (5)            (224)             (57)            (204)
                                                         --------         --------         --------         --------
Total other income and expense                                 53             (210)              77             (176)
                                                         --------         --------         --------         --------

(Loss) before provision for income taxes                   (1,120)            (298)          (1,688)            (216)

Provision for (benefit from) income taxes                      --               --               --               --

Net loss                                                 $ (1,120)        $   (298)        $ (1,688)        $   (216)
                                                         ========         ========         ========         ========


Loss per share (Note 3):

     Basic & Diluted                                     $  (0.10)        $   (.03)        $  (0.16)        $   (.02)


Shares used in computing income (loss) per share:
     Basic                                                 10,819           10,806           10,819           10,834
     Diluted                                               10,819           10,806           10,819           10,834
</TABLE>


      See accompanying notes to unaudited consolidated financial statements


                                       4
<PAGE>
                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                 (In Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                          SIX MONTHS ENDED
                                                                                              JUNE 30,
                                                                                       -----------------------
                                                                                        2001             2002
<S>                                                                                    <C>             <C>
Cash flow from operating activities:

Net Loss                                                                               $(1,688)        $  (216)

Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:

                 Depreciation and amortization                                             612             459
                 Consignment amortization                                                  516              --

Change in assets and liabilities:
Decrease in inventory, net                                                                 363             433
(Increase) in accounts receivable, net                                                     (59)           (194)
Decrease in grant receivable                                                                 7              77
(Increase) decrease in related parties                                                     (84)             (4)
(Increase) in prepaid expenses and other current assets                                    (65)           (130)
(Decrease) in trade accounts payable                                                      (751)           (131)
(Decrease) in accrued and other current liabilities                                       (197)           (200)
                                                                                       -------         -------

Net cash (used in) provided by operating activities                                     (1,346)             94
                                                                                       -------         -------

Cash flow from investing activities:
                 Purchases of plant and equipment                                         (342)           (201)
                 Purchases of  intangibles                                                (156)           (147)
                                                                                       -------         -------

Net cash used in investing activities                                                     (498)           (348)
                                                                                       -------         -------

Cash flow from financing activities:
                 Borrowing of long-term and subordinated debt                               27             131
                 Proceeds from employee investment plan                                     --              20
                 Stock options                                                              --               7
                                                                                       -------         -------

Net cash provided by financing activities                                                   27             158
                                                                                       -------         -------

Net decrease in cash and cash equivalents                                               (1,817)            (96)
Cash and cash equivalents at beginning of period                                         7,050           4,985
                                                                                       -------         -------

Cash and cash equivalents at end of period                                             $ 5,233         $ 4,889
                                                                                       -------         -------

Supplemental disclosure of cash flow information:
                 Cash paid for interest                                                $     1         $     4
                 Cash paid for taxes                                                   $    --         $    --
</TABLE>


      See accompanying notes to unaudited consolidated financial statements


                                       5
<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 June 30,
2002, and the Company's consolidated results of operations and cash flows for
the three and six months ended June 30, 2001 and 2002, 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, 2001
and notes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001 filed with the SEC. The results of operations and
the cash flows for the six months ended June 30, 2002 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 as of December 31, 2001 and June
30, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                         December 31, 2001         June 30, 2002
                                                         -----------------         -------------
<S>                                                      <C>                       <C>
Raw materials                                                 $   692                 $   676
Finished goods - Implants                                       2,301                   1,965
Finished goods - Instruments                                    3,381                   2,616
Instruments on consignment                                      2,269                   1,807
                                                              -------                 -------
                                                                8,643                   7,063
       Less:
             Inventory reserve for obsolete and excess
                  Instruments and Implants                     (4,939)                 (3,793)
                                                              -------                 -------


                                                              $ 3,704                 $ 3,271
                                                              -------                 -------
</TABLE>

3.       NET LOSS PER SHARE

Basic (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 plus dilutive potential
common shares outstanding during the period. Potential common shares consist of
stock options and warrants using the treasury stock method. For all periods
presented these options and warrants have been excluded from the dilutive losses
per share calculation as their effect would be antidilutive. Shares used for
both the basic loss per share and diluted loss per share were 10,819,464 and
10,805,648 for the quarters ended June 30, 2001 and 2002, respectively, and
10,819,464 and 10,833,731 for the six months then ended, respectively.


                                       6
<PAGE>
4.       GOODWILL AND INTANGIBLES

At June 30, 2002, the Company has net goodwill of $2.9 million and net
intangibles (patents) of $959,000. The Company has adopted Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("FAS 142"), effective
January 1, 2002, and accordingly no longer amortizes goodwill. FAS 142 requires
the Company to complete a test for goodwill impairment within six months from
the date of adoption. The Company has completed the impairment test and
determined that goodwill has not been impaired. The following table is provided
to disclose what net income would have been had FAS 142 been adopted in prior
periods:

<TABLE>
<CAPTION>
                                            For the three months ended           For the six months ended
                                                     June 30,                            June 30,
                                              2001              2002              2001              2002
<S>                                         <C>               <C>               <C>               <C>
Reported net loss                           $  (1,120)        $    (298)        $  (1,688)        $    (216)
Add back:  goodwill amortization                   49                --                98                --
                                            ---------         ---------         ---------         ---------

Adjusted net loss                           $  (1,071)        $    (298)        $  (1,590)        $    (216)
                                            =========         =========         =========         =========


Basic (loss) per share as reported          $   (0.10)        $   (0.03)        $   (0.16)        $   (0.02)
Adjusted basic (loss) per share                 (0.10)            (0.03)            (0.15)            (0.02)
Diluted (loss) per share as reported            (0.10)            (0.03)            (0.16)            (0.02)
Adjusted diluted (loss) per share               (0.10)            (0.03)            (0.15)            (0.02)
</TABLE>


5.       INTEREST AND OTHER INCOME AND EXPENSE

In the three months ended June 30, 2001 the Company generated interest income of
approximately $61,000, interest expense of approximately $3,000, and foreign
exchange losses of approximately $5,000, resulting in net other income of
$53,000. In the three months ended June 30, 2002, the Company generated interest
income of approximately $18,000, interest expense of approximately $4,000, and
foreign exchange losses of approximately $224,000 resulting in net other expense
of $210,000.

6.       SUPPLEMENTAL CASH FLOW DISCLOSURE

On April 10, 2002, a stockholder transferred 95,957 shares of the Company's
common stock with a value of $527,764 to the Company as payment in full for an
outstanding indebtedness of $479,000 and for futures services to be rendered by
the Company.


                                       7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Statements regarding future performance in this Quarterly Report on Form 10-Q
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995 ("Forward looking Statements"). The Company's actual results
could differ materially from those anticipated by such forward-looking
statements as a result of certain factors, including those set forth in Exhibit
99.1 to the Company's Annual Report on Form 10-K for the year ended December 31,
2001.

The Company was founded in 1984 to develop certain resorbable polymers for
orthopedic uses. The Company has incurred substantial operating losses since its
inception and as of June 30, 2002 had an accumulated deficit of approximately
$24.0 million. Such losses have resulted to a large extent from expenses
associated with the development and patenting of the Company's
Self-Reinforcing(TM) technologies and resorbable implant designs, pre-clinical
and clinical studies, the write off and reserve of impaired inventory,
preparation of submissions to 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 the
Company's manufacturing capabilities. The Company has been focusing on expanding
its market share within the procedure specific Sports Medicine market and since
the beginning of 2001 has introduced several new products which management
believes have started to offset sales decreases of the Meniscus Arrow(TM). Arrow
sales have declined over time as competitors have entered this category, which
was initially created by Bionx. No assurance can be given that revenues will
grow in the future or that revenues will exceed expenses. There can be no
assurance that the Company will be able to successfully commercialize its
products or that the Company will be profitable again.

During 2002 the Company continued to implement initiatives to refocus its
business, to reduce operational costs and to streamline operations. Management
is continuing to focus on and to evaluate monthly the effects of these
operational improvement plans. No assurances can be given that the Company's
initiatives will result in profitable operations.

The Company has one business segment - bioabsorbable implants and associated
specialized stainless steel surgical instruments for orthopedic surgical use in
bone and bone to soft tissue procedures. Its two primary product lines for these
applications are Sports Medicine and Fracture Fixation. The Company sells its
products to hospitals and surgery centers in the United States and to
distributors in international locations. In certain more limited cases the
Company consigns implants to hospitals in the United States, primarily during an
introductory period when surgeons are evaluating these products. In order to
support implant sales efforts in the United States the Company will, in limited
cases, provide instruments free of charge to hospitals and surgery centers. The
sale and provision of these instruments results in margins which are typically
lower than the margins applicable to the Company's implant products. For
financial statement purposes, revenues from the sale of instrumentation systems
are included within product sales and costs associated with such systems are
included within cost of goods sold.

As part of the Company's marketing efforts, the Company's marketing staff and
Business Development Managers participate in conventions attended by surgeons at
which they demonstrate the products in models of human bone and show surgeons
how to use the products. These individuals may also attend a surgical procedure
to answer any questions the surgeon may have. None of these efforts are
obligations related to a contract or a sale but are done to enhance customer
relationships at the discretion of the Company. The Company is not obligated on
any sale of product to support or train. The Company sells its products through
managed networks of independent sales agents, distributors and dealers. In the
U.S. the Company handles all invoicing functions directly and pays commissions
to its independent 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 international sales.

During the three and six months periods presented, ending June 30, 2001 and
2002, implants as a percentage of the Company's product revenues ranged from 92%
to 94%, with the remaining 6% to 8% related to the sale of associated
instruments and other product sales. The instruments are specially designed for
surgical procedures involving the Company's implants and are therefore
inextricably linked to implant sales. Other product-related sales includes
instrument loaner fees and outgoing freight billings to customers.

Historically a substantial portion of the Company's revenues resulted from sales
of the Meniscus Arrow, which received FDA clearance in March 1996. In November,
2001 the Company released its next generation Arrow product, the Contour
Meniscus Arrow(TM). During the twelve months ended December 31, 2001 Meniscus
Arrow sales represented 46% of total Company product and product-related sales.
For the three and six months ended June 30, 2002 non-Arrow sales as a percentage
of total Company sales increased to 57%, reflecting the Company's focus on
expanding its Sports Medicine product line and lessening its dependence on the
Meniscus Arrow. This expansion is visible through the increases in sales of
recently-introduced products, such as the Biocuff C(TM) and the 1.5 mm Bone
Fixation Kit(TM).

Bionx continues to evaluate the formation of strategic partnerships for its
craniofacial products. The Company believes that, with the appropriate strategic
partner who has a focused marketing and sales effort coupled with key surgeon
champions and a unique product portfolio, resorbable fixation products can
effectively penetrate the craniofacial market.

                                       8
<PAGE>
The Company has intellectual property and techniques with application outside of
the orthopedic market, including certain IP and techniques related to stents,
and for which it may seek to establish licensing or distribution agreements with
strategic partners to fund and develop certain products and to market and
distribute products that the Company elects not to distribute through its
managed networks of independent sales agents, distributors and dealers. No
assurance can be given that the Company will be able to enter into license
arrangements on satisfactory terms.

The majority of the Company's sales are in the United States, and most of the
sales to international markets are in Europe and Asia. The Company is actively
seeking to expand its international sales and has grown international sales as a
percentage of the Company's total product sales. During 2000, 2001 and the first
six months of 2002, international product sales represented approximately 18%,
21% and 22% respectively, of the Company's total product sales. The Company has
foreign operations in Finland consisting primarily of manufacturing and certain
R&D and marketing functions. Approximately 85% of the Company's consolidated
revenues and 75% of its expenses are denominated in US Dollars. The majority of
the remaining sales and expenses are denominated in Euros, and Euro denominated
expenses exceed Euro denominated revenues. As the dollar is the functional
currency for the Company's Finnish operation, a weakening of the Euro has a
favorable impact on the Company when the Finnish operations experience a loss
and an unfavorable impact on the Company when the Finnish operations experience
a profit. Alternatively, a strengthening of the Euro has an unfavorable impact
on the Company when the Finnish operations experience a loss and favorable
impact on the Company when the Finnish operations experience a profit.
Additionally, the effect on the Company of changes in the relative strength of
the Euro depends upon the extent of the Company's Euro denominated net expenses
and/or net assets for the period under evaluation. The Company may seek to
manage its foreign currency risk through the purchase of foreign currency
options and forward contracts in the future. However, there is a cost to such
hedging and, for 2001 and the six months ended June 30, 2002, the Company did
not hedge such exposures. No assurances can be given that such hedging
techniques, if implemented, will protect the Company from exposure resulting
from relative changes in the economic strength of the Euro. Foreign exchange
transaction gains and losses can vary significantly from period to period.

Periodically the Company has evaluated constructing or leasing manufacturing
facilities in the United States to supplement its Finnish manufacturing
capabilities. At this time the Company has decided to supplement its Finnish
manufacturing by using third party contract manufacturers, primarily in the
United States, to produce specific implants or instruments.

The Company's operating losses have resulted in net operating loss carryforwards
("NOL") of approximately $ 9.2 million in federal NOL and $3.7 million in state
NOL, which are available to offset future federal and state taxable income, if
any, through 2022, with the state NOL expiring in various years beginning in
2006 and the federal NOL expiring in various years beginning in 2011.
Additionally, the Company had an NOL of approximately $4.3 million for foreign
income tax purposes which is available to offset future foreign taxable income,
if any, through 2011. For federal, state and foreign income tax reporting
purposes as of December 31, 2001, the extent to which such carryforwards are
available to offset future U.S. and Finnish taxable income may be limited as a
result of various ownership changes in the Company that have occurred in recent
years. Additionally, because tax laws limit the time during which these
carryforwards may be applied against future taxable income, the Company may not
be able to take full advantage of these carryforwards for income tax purposes.
Furthermore, income earned by a foreign subsidiary may not be offset against
operating losses of U.S. entities. The statutory tax rates applicable to the
Company and its foreign subsidiaries vary substantially. Tax rates have
fluctuated in the past and may do so in the future. As a result of the net
operating loss carryforwards, the Company has a deferred tax asset in the amount
of $798,000 which the Company continually evaluates for realizability.

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 many factors, many of which are outside of the Company's
control. Such factors include but are not limited to the timing of government
approvals, the medical community's acceptance of the Company's products, the
success of competitive products, the ability of the Company to enter into
strategic alliances with corporate partners, expenses associated with patent
matters, the results of regulatory inspections and the timing of expenses
related to product launches.

In order to develop new products, and to satisfy the needs of surgeons, Bionx is
committed to developing strong surgeon relationships and supporting medical
education. The Company continues its commitment to medical organizations by
remaining a Founding Donor to AANA (Arthroscopy Association of North America),
which is one of the largest Sports Medicine associations in North America.
During the first quarter of 2002, Bionx also joined ASMI (American Sports
Medicine Institute), whose mission is to improve the understanding, prevention,
and treatment of sports-related injuries through research and education. The
Company has continued its new product introductions with the release of the 1.5
mm Bone Fixation Kit(TM), Contour Meniscus Arrow(TM), Biocuff C(TM), and Duet
Suture Anchor(TM) since September, 2001. These new product introductions
highlight the Company's ability to leverage its technology in resorbable
polymers across varied product lines and offerings. The Company's recently
formed Surgeon Advisory Board continues to assist in the development of
procedure-specific resorbable products. There is no assurance that these actions
will result in increased revenues.


                                       9
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENT

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development and/or normal
use of the assets. The Company also records a corresponding asset which is
depreciated over the life of the asset. Subsequent to the initial measurement of
the asset retirement obligation, the obligation will be adjusted at the end of
each period to reflect the passage of time and changes in the estimated future
cash flows underlying the obligation. The Company is required to adopt SFAS No.
143 on January 1, 2003.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred and nullifies EITF 94-3. The Company plans to adopt SFAS No. 146 in
January 2003. Management believes that the adoption of this statement will not
have a material effect on the Company's future results of operations.

RESULTS OF OPERATIONS

Total Revenues

Total revenues decreased by 5.8% from $4.84 million to $4.56 million for the
three months ended June 30, 2002 compared to the three months ended June 30,
2001. For the six months ended June 30, 2001 and June 30, 2002 total revenues
decreased by 5.1% from $9.82 million to $9.33 million, respectively. The
decrease in both the three and six month periods primarily is a result of lower
sales in the sports medicine and craniofacial product lines, a decline in
non-product revenue (primarily grants), and partially offset by an increase in
sales of orthopedic trauma products.

Product sales

The Company's product and product-related sales decreased by 4.2% from $4.76
million to $4.56 million for the three months ended June 30, 2001 and 2002,
respectively, and by 4.1% from $9.69 million to $9.30 million, for the six
months ended June 30, 2001 and 2002, respectively. The decrease in sales of
Craniofacial products and of the Meniscus Arrow was partially offset by sales of
new products released in the second half of 2001. Sales of these products
contributed over $300,000 to revenues for the quarter and over $400,000 to
revenues for the six months ended June 30, 2002.

Global Sports Medicine

Consolidated sales of Sport Medicine products decreased 5.7% from $3.3 million
to $3.1 million for the three months ended June 30, 2001 and 2002, respectively,
and by 5.4% from $6.7 million to $6.3 million for the six months ended June 30,
2001 and 2002, respectively. These decreases in the sales of Sports Medicine
products reflect lower Meniscus Arrow sales in 2002 compared to 2001 for the
three and six month periods ending June 30. However, the Company developed, and
then in early 2002 began recording sales for, a product line extension, the
Contour Arrow, which offers increased product flexibility. It is possible this
product has begun to stabilize Arrow product sales, when comparing total Arrow
products for the first quarter of 2002 to the second quarter of 2002 ($2.04
million in the first quarter, compared to $1.97 million in the second quarter).
Additionally, as a result of new product development efforts, over the last
couple of years the Company has released other Sports Medicine products that
reduce its reliance on the Arrow products. For the six months ended June 30,
2001 and 2002, non-Arrow Sports Medicine product sales increased by 5.5% from
$2.2 million to $2.3 million respectively (and remained flat at $1.1 million for
the three months ended June 30, 2001 and 2002). The Company intends to continue
to expand its product lines, offering the surgeon improved clinical solutions
throughout all of its product families.

Global Orthopedic Trauma

Consolidated sales of Orthopedic Trauma products increased 11% from $1.0 million
to $1.1 million during the three months ended June 30, 2001 and 2002,
respectively, and by 11% from $2.0 million to $2.2 million for the six months
ended June 30, 2001 and 2002, respectively. Sales increased as a result of
greater acceptance of the Company's orthopedic trauma line in Europe, Asia and
the United States and the introduction of new products in the second half of
2001.

Global Craniofacial

Consolidated sales of Craniofacial products decreased by 27% from $0.5 million
to $0.3 million for the three months ended June 30, 2001 and 2002, respectively,
and by 23% from $0.7 million to $0.6 million for the six months ended June 30,
2001 and 2002, respectively. This decrease results from the Company reducing its
sales and marketing efforts for this product line.

Other Sales

Other sales consist of a net credit against grant revenues totaling $3,000 for
the three months ended June 30, 2002, compared with grant revenues $79,000 for
the three months ended June 30, 2001. Other sales for the six months ended June
30, 2001 and 2002 decreased by 80% from $129,000 to $25,000, respectively. Other
sales revenue is generated primarily from grants obtained from a


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<PAGE>
Finnish government research organization which funds certain research and
development projects. These grants have declined as the Company has decided to
concentrate its development efforts on projects which enable the Company to meet
short-term horizons for product introductions and which utilize internally
generated funding.

International Sales

International sales remained flat at $1.1 million for the three months ended
June 30, 2001 and 2002 and at $2.0 million for the six months ended June 30,
2001 and 2002. As a percentage of total product sales international sales
increased from 22% to 23% of total product sales for the three months ended June
30, 2001 and 2002, respectively, and from 20% to 22% for the six months ended
June 30, 2001 and 2002, respectively. Increased sales of Sports Medicine
products in all international markets were partially offset by decreases in
Orthopedic Trauma and Craniofacial product in some markets. The Company is
continuing to concentrate its international sales efforts on the development of
new country-specific distributors.

Gross Profit

The Company's gross profit increased 6.7%, from $3.0 million to $3.2 million,
for the three months ended June 30, 2001, and June 30, 2002, respectively, and
3.9%, from $6.4 million to $6.6 million for the six months ended June 30, 2001
and 2002, respectively. Gross profit rose from 61% of sales to 69% of sales for
the three months ended June 30, 2001 and 2002, respectively. For the six months
ended June 30, 2001 and 2002 gross profit increased from 65% of sales to 71% of
sales, respectively. This improvement in gross profit percentage is a result of
lower direct product costs resulting from productivity improvements and cost
savings in the Company's manufacturing and operational processes and the
elimination of consignment amortization in 2002, offset by increased physical
inventory adjustments and promotions expense.

Selling, General, and Administrative Expenses

Selling, general and administrative expenses decreased 21%, from $3.3 million to
$2.6 million, for the three months ended June 30, 2001 and 2002, respectively,
and 16%, from $6.3 million to $5.3 million for the six months ended June 30,
2001 and 2002, respectively. As a percentage of revenues, such expenses
decreased from 67% to 56% of revenues for the three months ended June 30, 2001
and 2002, respectively, and from 65% to 57% for the six months ended June 30,
2001 and 2002, respectively. The reduction in SG&A expenses reflects the
organizational changes the Company implemented during the latter half of 2001.

Research and Development

While the Company continues to be committed to providing cutting-edge products
for an increasingly competitive Sports Medicine environment, research and
development expenses decreased 21%, from $0.9 million to $0.7 million, for the
three months ended June 30, 2001 and 2002, respectively, and 22%, from $1.7
million to $1.4 million for the six months ended June 30, 2001 and 2002,
respectively. As a percentage of revenues, such expenses decreased from 18% to
15% of revenues for the three months ended June 30, 2001 and 2002, respectively,
and from 18% to 14% for the six months ended June 30, 2001 and 2002,
respectively. Excluding spending for stent development, the Company spent 13% of
revenues on Research and Development for the three and six month periods ended
June 30, 2001 and 2002. Therefore, the decrease in R&D spending, both in gross
dollars and as a percentage of sales, is primarily a result of reduced spending
for resorbable stent development, which is consistent with the Company's intent
to invest in projects that have shorter development cycles and to reduce
spending on projects with longer time horizons. Spending on stent development
decreased from $233,000 to $63,000 for the three months ended June 30, 2001 and
2002, respectively, and from $462,000 to $132,000 for the six months ended June
30, 2001 and 2002, respectively.

The Company continues to partner with surgeons who are key opinion leaders in
the Sports Medicine and Fracture Fixation fields to develop new products. The
research, design and development efforts draw on the Company's Surgeon Advisory
Board and experts from other industry organizations to work alongside the
Company's research engineers. The Company's strategy of providing procedure
specific surgical solutions depends on its ongoing product development in order
to bring innovative new products to the market, and the Company's spending
reflects expenditures on development of those new products within its
established market and on new products and technologies that are for therapeutic
applications outside of established markets.

The Company believes that the resorbable stent business has a significant market
size, a well-defined regulatory pathway, and has therapeutic outcome
characteristics that may favor resorbable stents. However, given the Company's
limited cash resources, management is exploring other funding and licensing
opportunities with respect to the stent business and has limited stent spending
to minimal amounts.

Patent and Litigation Expense

Patent and litigation expenses decreased 86%, from $21,000 to $3,000, for the
three months ended June 30, 2001 and 2002, respectively, and decreased 67%, from
$85,000 to $28,000 for the six months ended June 30, 2001 and 2002,
respectively. This is largely due to the current status of the proceedings and
to negotiations requiring less legal assistance than previously required.

Other income and expense

Interest income decreased 71%, from $61,000 to $18,000, for the three months
ended June 30, 2001 and 2002, respectively, and decreased 74%, from $137,000 to
$36,000 for the six months ended June 30, 2001 and 2002. During the three months
ended June 30, 2001, the Company generated $61,000 of interest income, interest
expense of $3,000 and other expense of $5,000, resulting in net other income of
$53,000. This compares to $18,000 of interest income, $4,000 of interest expense
and $224,000 of other


                                       11
<PAGE>
expense, resulting in net other expense of $210,000 for the three months ended
June 30, 2002. During the six months ended June 30, 2001, the Company generated
$137,000 of interest income, interest expense of $3,000 and other expense of
$57,000, resulting in net other income of $77,000. This compares to $36,000 of
interest income, $8,000 of interest expense and $204,000 of other expense,
resulting in net other expense of $176,000 for the six months ended June 30,
2002. The decrease in interest income is a result of lower cash balances and
decreased market interest rates during the three and six month periods ending
June 30, 2002 compared to June 30, 2001. Other expense primarily represents net
foreign currency translation and transaction losses as a result of unfavorable
changes in the exchange rate between Euros and US dollars.

Income Taxes

The Company recorded no tax benefit for any period presented as there is no
assurance beyond a reasonable doubt that tax benefits will be realizable.

Net Loss

Net loss decreased 73%, from $1.1 million or $0.10 per basic and diluted share
to $0.3 million or $0.03 per basic and diluted share for the three months ended
June 30, 2001 and 2002, respectively. For the six months ended June 30, 2001 and
2002 net loss decreased from $1.7 million or $0.16 per basic and diluted share
to $0.2 million or $0.02 per basic or diluted share, respectively. The decrease
in net loss and net loss per share reflects lower sales offset by a decrease in
cost of goods sold; selling, general and administrative expenses and research
and development.

LIQUIDITY AND CAPITAL RESOURCES

The Company has relied primarily upon external (private and public) sources of
equity to fund operations and development. At June 30, 2002, cash and cash
equivalents totaled $4.9 million, which is a decrease of $0.1 million from $5.0
million at December 31, 2001. The decrease from December 31, 2001 is primarily
as result of purchases of plant, equipment and intangibles, partially offset by
an increase in long term and subordinated debt. At June 30, 2002, the Company's
net working capital position was $9.2 million compared to working capital at
December 31, 2001 of $9.7 million. The decrease in working capital resulted
primarily from the receipt of the Company's stock in payment of a $0.5 million
receivable from Bionx B.V. At December 31, 2001 and June 30, 2002 the Company's
ratio of current assets to current liabilities remained steady at 4:1.

At March 31, 2002 the Company was owed $0.479 million from Bionix B.V.
Sixty-eight percent of Bionix B.V. stock is owned by related parties and at
March 31, 2002 Bionix B.V. beneficially owned 24.9% of the Company's Common
Stock. On April 2, 2002, Pertti Tormala, a director of the Company, on behalf of
all of the Finnish shareholders of Bionix B.V. executed an agreement to transfer
95,957 shares of the Company's common stock to the Company at a price of $5.50
per share. The transfer was completed on April 10, 2002, and of the shares
received, 87,091 were used to satisfy the Bionx B.V.'s debt to the Company, and
the value of the remaining 8,866 shares is accrued in Other Current Liabilities
to offset future services to be provided by the Company for Bionx B.V. At June
30, 2002 Bionx B.V. beneficially owns 24.0% of the Company's Common Stock.

The Company's liquidity is dependent primarily upon its ability to improve
operating results and thereby generate adequate cash flow from operations. The
Company is continuing to focus its sales and marketing efforts to achieve the
greatest impact, to maintain prudent control over the allocation of critical
resources, and to streamline operations. Management has continued to implement
operational improvement plans and during 2002 is continuing to focus on and
evaluate monthly the effects of these initiatives. These plans have included the
addition of critical resources in areas that will have the greatest impact on
sales growth and profit improvement; consolidation of the sales organization
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 selling costs; a refocus of R&D investments on new product
introductions that will provide complementary product offerings in the
short-term; 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. However, there can
be no assurance that these steps will be successful. The Company's operations
may not provide sufficient internally generated cash flows to meet the Company's
projected requirements. The Company's ability to continue to finance its
operations will depend on its ability to achieve profitability by improving
sales and margins, its ability to reduce cash outflows and, if necessary, its
ability to obtain other sources of funding sufficient to support the Company's
operations. No assurances can be given that such funding will be available on
satisfactory terms or at all.

The Company believes that existing capital resources together with cash flow
from operations (if, and to the extent, generated) will be sufficient to fund
its operations during 2002. This statement constitutes a Forward-Looking
Statement. Actual results could differ materially from the Company's
expectations regarding its capital requirements and its sources of capital. The
Company's future capital requirements and the adequacy of available capital
resources will depend on numerous factors, including the Company's ability to
reverse recent trends and successfully perform management initiatives, 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, acquisition opportunities, progress with
preclinical studies, clinical trials and product clearances by the FDA and other

                                       12


<PAGE>
agencies, the cost and timing of the Company's efforts to expand its
manufacturing capabilities, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, and the development of strategic
alliances for the marketing of certain of the Company's products.

Although the Company's operations produced a positive cash flow from operations
for the six months ended June 30, 2002, it did not produce positive cash flows
during 1994, 1995, 1996, 1998, 1999, or 2001. To the extent that funds generated
from the Company's operations, together with its existing capital resources, 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 further 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 financing
and there can be no assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. 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. 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. The sufficiency of the
Company's capital reserves with respect to operations beyond June 30, 2002 will
depend primarily upon the Company's operating results and the extent to which
such results are capable of funding anticipated growth.

No assurances can be given that the Company's initiatives will result in
profitable operations in the future.

The Company has been able to make substantial improvements in cash flow
management due to its continued efforts to complete the management initiatives,
while continuing to fund research and development at 14% of sales during 2002.
This research funding consisted of investing in new treatment modalities and
product development that does not result in dramatic sales increases initially
and will only do so when products are released and gain market acceptance.

The Company's total use of cash and cash equivalents for 2001 was $2.1 million.
During the six months ended June 30, 2001 and 2002 the Company's total use of
cash and cash equivalents decreased from $1.8 million to $0.1 million,
respectively. The reduction in cash usage resulted primarily from the Company
realizing a lower net loss during the first six months of 2002 compared to 2001
and from operations providing cash for the first six months of 2002 compared to
using cash for the first six months of 2001.

Earnings before interest income taxes, depreciation and amortization (EBITDA)
for the six months ended June 30, 2002 is a positive $251,000, compared to a
negative $557,000 for the six months ended June 30, 2001.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's functional currency is the US dollar. In its Finnish operation,
the Company has revenues and expenses that are Euro-denominated. As the dollar
is the functional currency for the Company's Finnish operation, a weakening of
the Euro has a favorable impact on the Company when the Finnish operations
experience a loss and an unfavorable impact on the Company when the Finnish
operations experience a profit. Alternatively, a strengthening of the Euro has
an unfavorable impact on the Company when the Finnish operations experience a
loss and a favorable impact on the Company when the Finnish operations
experience a profit. Additionally, the effect on the Company of changes in the
relative strength of the Euro depends upon the extent of the Company's Euro
denominated net expenses and/or net assets for the period under evaluation. As
the Company was structured during the first half of 2002, a 1% strengthening of
the Euro results in a $50,000 to $150,000 loss to the Company. During 2001, and
the first six months of 2002, the Company did not purchase financial instruments
to manage this foreign currency risk. The Company may seek to manage its foreign
currency risk through the purchase of foreign currency options and forward
contracts in the future. However, there is a cost to such hedging. No assurances
can be given that such hedging techniques if implemented will protect the
Company from exposure resulting from relative changes in the economic strength
of the Euro.


PART II. OTHER INFORMATION

         (a)      The Registrant did not file any Current Reports on Form 8-K
                  during the quarter ended June 30, 2002.

         (b)      Exhibits - None


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<PAGE>
                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              BIONX IMPLANTS, INC.


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



                          By:   /s/ Drew Karazin
                                --------------------------
                                Drew  Karazin
                                Chief Financial Officer



Dated:  August 14, 2002



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