SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934 for the quarterly period ended March 31, 1997 or

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

                        Commission File Number: 333-22359

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

         Delaware                                              22-3458598
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)


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

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

             279B Great Valley Parkway, Malvern, Pennsylvania 19355
      --------------------------------------------------------------------
  (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 _____                                   No  X

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

At May 31, 1997, there were 8,916,127 shares of Common Stock, par value $.0019
per share, outstanding.

<PAGE>



                              BIONX IMPLANTS, INC.

                                      INDEX


                                                                          Page

Part I.  Financial Information

Item 1.  Financial Statements

         Consolidated Balance Sheets at March 31, 1997 
         (historical and pro-forma, unaudited) and 
         December 31, 1996                                               3

         Consolidated Statements of Operations for the Three
         Months Ended March 31, 1997 and 1996 (Unaudited)                4

         Consolidated Statements of Cash Flows for the Three Months
         Ended March 31, 1997 and 1996 (Unaudited)                       5

         Notes to Consolidated Financial Statements (Unaudited)          6

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

Part II.  Other Information

         Item 4.   Submission of Matters to a Vote of Security Holders  26

         Item 6.  Exhibits and Reports on Form 8-K                      27

Signatures                                                              27


<PAGE>

Item 1.  Financial Statements

                     BIONX IMPLANTS, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                      December 31, 1996 and March 31, 1997
                                 (in thousands)

                                                                       Pro Forma
                                      December 31,      March 31,      March 31,
                                        1996             1997            1997
                                                               (Unaudited)
Assets:
Current assets:   
     Cash and cash equivalents        $ 1,593             1,278          23,748
     Inventory, net                     1,031             1,226           1,226
     Trade accounts receivable, net
       of allowance of $127 as
       of March 31, 1997 and $97 
       as of December 31, 1996          1,708             2,198           2,198
     Grants receivable                    123                79              79
     Deferred offering costs              195               508               0
     Prepaid expenses and other
       current assets                     153               313             313
                                          ---               ---             ---

Total current assets                    4,803             5,602          27,564
Investments                               100                90              90
Deposits                                   44                44              44
Plant and equipment, net                  483               660             660
Goodwill and intangibles                3,939             3,879           3,879
                                        -----             -----           -----
Total assets                          $ 9,369            10,275          32,237
                                        =====             =====          ======

Liabilities and Stockholders' Equity
Current Liabilities:
     Trade accounts payable           $   848             1,653           1,653
     Long-term debt, current portion      223               225             225
     Related party                        163                85              85
     Current income tax liability         205               280             280
     Accrued and other current 
       liability                        1,317             1,114           1,114
                                        -----             -----           -----
                                        
Total current liabilities               2,756             3,357           3,357
                                        -----             -----           -----

Long-term debt                            590               631             631
                                        -----             -----           -----

Contingencies

Series A mandatorily redeemable
  convertible preferred stock,
  par value $0.001 per share:           5,000             5,000             -
            ------                      -----             -----            ----

Stockholders' equity

     Preferred stock, par value $0.001 
       per share 8,000,000 authorized 
       and none issued and outstanding
     Common stock, par value $0.0019 per 
       share, 31,600,000 shares 
       authorized and 5,018,424 shares 
       issued and outstanding as of 
       March 31, 1997 (8,916,127 pro 
       forma common shares as of 
       March 31, 1997 upon consummation
       of the initial pubic offering)      10                10              17

     Additional paid-in capital         8,968             8,968          35,923
     Accumulated deficit               (7,686)           (7,464)         (7,464)
     Foreign currency translation 
       adjustment                        (269)             (227)           (227)
                                       ------             -----          -------
Total stockholders' equity              1,023             1,287          28,249
                                       ------             -----          ------

     Total liabilities and stockholders'
       equity                         $ 9,369            10,275          32,237
                                      =======           =======         =======


        See accompanying notes to the Consolidated Financial Statements

<PAGE>

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


                                                   Three months ended March 31,
                                                       1996              1997

Revenues:
  Product sales                                    $   666               3,218
  License and grant revenues                            50                  -
                                                       ---               ----- 

     Total revenues                                    716               3,218
                                                       ---               -----

Cost of good sold                                      458                 803
                                                       ---                ----

Gross profit                                           258               2,415
                                                       ---               -----

Selling, general and administrative                    620               1,940
Research and development                                99                 181
                                                        --               -----
Total operating expenses                               719               2,121

Operating income (loss)                               (461)                294
                                                      ----                 ---
Other income and expenses:
  Interest income (expense)                            (28)                  3
                                                       ---                 ---
Total other income (expense), net                      (28)                  3

Income (loss) before provision for 
  income taxes                                        (489)                297
Provision for income taxes                               -                  75
                                                  ---------            -------

Net income (loss)                                 $   (489)                222
                                                  =========            =======

Pro forma net income (loss) per share             $  (0.09)               0.02

Weighted average common and dilutive
  equivalent shares outstanding                      5,516               9,232
                                                  ========            ========

        See accompanying notes to the Consolidated Financial Statements

<PAGE>

                     BIONX IMPLANTS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                                           Three months ended March 31,
                                                  1996           1997

Cash flows from operating activities:
  Net income (loss)                            $  (489)         222
                                                  ----         ----
  Adjustments to reconcile net 
    income (loss) to net cash
    used in operating activities:
  Depreciation and amortization                    30             99
  Other non-cash charges
  Change in assets and liabilities:
  Increase in accounts receivable                (160)          (490)
  (Increase) decrease in inventory                 21           (195)
  Decrease in grants receivable                    -              44
  (Increase) in prepaid expense 
   and other assets                               (63)          (160)
  (Increase) decrease in investments              (59)            10
  Increase in trade accounts payable               37            805
  Decrease in related party                        -             (78)
  Increase (decrease) in current tax
    liability                                     (16)            75
  Increase (decrease) in accrued and
    other liabilities                             702           (203)
                                                  ---           -----

                                                  492           ( 93)
                                                  ---            ---

Net cash provided by operating activities           3            129
                                                  ---            ---

Cash flows from investing activities
  Purchases of plant and equipment               (188)          (216)
                                                 ----           -----

Net cash used in investing activities            (188)          (216)
                                                  ----          -----

Cash flow from financing activities:
  Proceeds from long-term debt                    362             43
  Deferred offering costs                          -            (313)
Net cash provided by (used in) financing 
   activities                                     362           (270)

Net effects of foreign exchange rate
  differences                                      36             42

Net increase (decrease) in cash and cash
  equivalents                                     213           (315)
Cash and cash equivalents at beginning
  of period                                        51          1,593
                                                  ---          ------

Cash and cash equivalents at end of 
  period                                     $    264          1,278
                                             ========        =======


        See accompanying notes to the 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, 1996 and March 31, 1997, and the Company's  consolidated results of
operations  and cash flows for the three  months  ended  March 31, 1997 and 1996
have been made.  Certain  information  and footnote  disclosures  required under
generally accepted accounting principles have been condensed or omitted from the
consolidated financial statements and notes thereto presented herein pursuant to
the rules  and  regulations  of the  Securities  and  Exchange  Commission.  The
consolidated  financial  statements and notes thereto presented herein should be
read in conjunction with the Company's audited consolidated financial statements
for the year ended December 31, 1996 and notes thereto included in the Company's
Registration Statement on Form S-1 (No. 333-22359) filed with the Securities and
Exchange Commission.  The results of operations and the cash flows for the three
months ended March 31, 1997 are not necessarily  indicative of the results to be
expected for any other interim period or the entire fiscal year.



2.        Inventory

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

                                                     December 31,  March 31, 
                                                       1996            1997

  Raw materials.................................     $   101           125
  Finished goods................................       1,210         1,457
                                                     -------        ------
                                                       1,311         1,582
         Less reserves.........................         (280)         (356)
                                                     --------       ------
                                                     $ 1,031         1,226
                                                     ========       =======


<PAGE>



3. Initial Public Offering and Related Transactions; Pro Forma Balance Sheet

     During the second  quarter of 1997,  the  Company  consummated  its initial
public  offering of Common  Stock (the "IPO").  A total of  2,300,000  shares of
Common Stock (including 300,000 shares issued upon exercise of the Underwriters'
over - allotment option) were issued pursuant to the IPO. In connection with the
IPO, all of the Company's  outstanding  shares of Series A Preferred  Stock were
automatically  converted into a total of 1,052,638 shares of Common Stock and an
additional  245,065  shares of Common Stock were issued upon the exercise of all
outstanding  warrants.  Net  proceeds  from the IPO and the exercise of warrants
were approximately $22.0 million.

     The unaudited pro forma balance sheet as of March 31, 1997 presented herein
reflects the  above-mentioned  conversion of the Company's  preferred  stock and
exercise of warrants, and common stock issued pursuant to the IPO.

     Pro forma net loss per share is computed using the weighted  average number
of common  shares  outstanding  giving effect to certain  adjustments  described
below.  Common  equivalent  shares  from stock  options  are  excluded  from the
computation  of pro forma net loss per share as their  effect is  anti-dilutive,
except  that,  pursuant  to  Securities  and  Exchange  Commission  (SEC)  Staff
Accounting  Bulletins  and SEC  staff  policy,  common  stock and  common  stock
equivalent  shares  issued at prices  below the initial  public  offering  price
during the  preceding  twelve  months of the offering  have been included in the
computation as if they were  outstanding  for all periods  presented  (using the
treasury stock method and the offering price).

     Pursuant to SEC staff policy,  the  calculation of shares used in computing
pro forma net loss per share also includes the weighted average number of common
equivalent  shares of Series A Preferred  Stock and warrants that  automatically
converted  into  shares of common  stock upon  completion  of the IPO (using the
if-converted method) from their respective original dates of issuance.

     The  weighted  average  shares  used to compute  the pro forma net loss per
share at March 31, 1977 includes the effect of the 2.3 million  shares issued in
the  Company's  IPO as if  outstanding  as of the  beginning of the three months
ended March 31, 1997.


4. Subsequent Events

New Facilities

     On May 17, 1997,  the Company  relocated  its  headquarters  facility  from
Malvern,  PA to a  new  location  in  Blue  Bell,  PA.  The  new  leased  space,
representing  approximately  7,300 square feet,  has been leased for a period of
five years, with an option to extend the lease for an additional five years. The
initial annual rent on this space will be approximately  $120,000,  representing
an  approximate  $90,000  increase over the previous  annual rent on the Malvern
facility.

Spin-Off

     Two of the  Company's  shareholders  and the  Company  were  each one third
equity owners in a business organized to engage in developing, manufacturing and
selling  polymer-based  advanced drug  delivery  systems (the  "Business").  The
Company's  Board  of  Directors  concluded  that  in  light  of the  substantial
expenditures  that  would be  required  in order to bring  any of the  Business'
products  to  market,  it was in the  best  interests  of the  Company  and  its
shareholders  for the Company to forego its  development  of the Business and to
spin-off the Business.  The Company has distributed its interest in the Business
to  shareholders  of record of the Company as of April 29, 1997, a date prior to
consummation of the Company's initial public offering.


<PAGE>



                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business

     Statements  regarding  future  performance in this Quarterly Report on Form
10-Q  constitute   forward-looking   statements  under  the  Private  Securities
Litigation  Reform  Act of 1995.  The  Company's  actual  results  could  differ
materially from those anticipated by such forward-looking statements as a result
of certain  factors,  including those set forth under the caption "Risk Factors"
herein.

     The  Company  was  founded in 1984 to develop  certain  resorbable  polymer
implants for orthopaedic  uses. The Company has incurred  substantial  operating
losses since its inception and, at March 31, 1997, had an accumulated deficit of
approximately $7.5 million.  Such losses have resulted principally from expenses
associated with the development, patenting and clinical testing of the Company's
Self-Reinforcing  technologies and resorbable  implant  designs,  preparation of
submissions  to the U.S.  Food and Drug  Administration  (the "FDA") and foreign
regulatory  agencies,  the  development  of sales,  marketing  and  distribution
channels, the write-off of acquired in-process research and development, and the
development of its manufacturing  capabilities.  Although the Company's revenues
grew significantly in 1996 and in the first quarter of 1997, no assurance can be
given that this trend will  continue  or that  revenues  of any  magnitude  will
exceed  expenses  incurred in anticipation  of future growth.  Accordingly,  the
Company may incur significant operating losses in the future as it continues its
product  development  efforts,  expands its  marketing,  sales and  distribution
activities  and  scales  up  its  manufacturing  capabilities.  There  can be no
assurance   that  the  Company   will  be  able  to  continue  to   successfully
commercialize its products or that continued profitability will be achieved.

     The Company first introduced its polyglycolic  acid ("PGA") polymer pins in
1984 and its PGA  screws in 1986.  In 1987,  the  Company  introduced  its first
poly-l-lactic  acid  ("PLLA")  polymer  products,  PLLA pins.  PLLA  screws were
introduced in 1989.  Since the  introduction of these products,  the Company has
expanded  its PGA and PLLA pin and screw  product  lines to  address  additional
clinical indications. The Company's PGA membrane product was introduced in 1992,
and, in 1995, the Company  launched its Meniscus Arrow,  PLLA tacks, and PGA and
PLLA urology stents. Prior to 1996, the Company derived substantially all of its
revenue from sales of its PLLA and PGA screws and pins. A substantial portion of
the  Company's  revenues  and revenue  growth in the second half of 1996 and the
first  quarter of 1997  resulted from U.S.  sales of the Meniscus  Arrow,  which
received FDA clearance in March 1996. To date,  all products sold by the Company
have been launched first in international markets. During the three months ended
March 31, 1997 and 1996,  international  product sales represented 13%, and 92%,
respectively, of the Company's total product sales.

<PAGE>

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

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

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

<PAGE>

Company will be able to enter into other license  arrangements  regarding  other
products on satisfactory terms.

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

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

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

     While the Company's  operating  losses have resulted in net operating  loss
carryforwards of approximately  $2.0 million for income tax reporting  purposes,
the extent to which such  carryforwards  are available to offset future U.S. and
Finnish 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. portion of
these carryforwards for federal income tax purposes.  Furthermore, income earned
by a foreign  subsidiary  may not be offset  against  
<PAGE>

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 many  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.

     Product  sales trends will depend upon many factors,  including  demand and
market acceptance for the Company's existing and future products,  the timing of
regulatory  approvals,  the timing and results of clinical trials, the timing of
the introduction of new products by the Company and by competing companies,  and
the Company's  ability to attract and retain highly qualified  technical,  sales
and  marketing  personnel.  Accordingly,  there can be no assurance  that future
product sales will not vary significantly from quarter to quarter.

Results of Operations

     Product  Sales.  The  Company's   product  sales  increased  by  383%  from
approximately  $666,000  during the first three  months of 1996 to $3.2  million
during the first three months of 1997. The increase  primarily resulted from the
U.S. introduction of the Company's Meniscus Arrow products in the second quarter
of 1996;  revenues from the sale of Meniscus Arrow  products were  approximately
$99,000  during  the  first  three  months  of  1996   (generated   solely  from
international  sales),  as  compared  with $2.3  million  during the first three
months of 1997. In addition,  the 1997 product sales increase reflects 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. Revenues generated from the sale of instrumentation systems and related
loaner fees  represented  22% of product  sales during the first three months of
1996 as compared with 4% during the first three months of 1997,  decreasing from
$145,000 to $143,000.

     License and grant  revenues.  License and grant  revenues  totaled  $50,000
during the first three months of 1996. The Company  generated no such license or
grant  revenues  during the first  three  months of 1997.  Royalty  payments  by
Ethicon  GmbH based upon  actual  sales are  expected  to commence in the second
quarter of 1997,  although no assurances can be given with respect to the timing
or amount of such payments. Upon the commencement of such sales by Ethicon GmbH,
the Company will be required to cease its dental membrane sales in Europe, which
historically have not been significant.

<PAGE>
     Gross profit;  gross  margin.   The Company's  gross profit  increased from
$258,000  during the first three months of 1996 to $2.4 million during the first
three months of 1997.  The  increase in the  Company's  gross  profit  primarily
reflected  the  increased   sales  of  Meniscus   Arrow   products  after  their
introduction in the U.S. in the second quarter of 1996.  Overall,  the Company's
gross profit margin  increased from 36% during the first three months of 1996 to
75% during the first three months of 1997.  The increase in gross margin in 1997
is attributable to several factors, including an increase in sales of the higher
margin  Meniscus  Arrow  product,  an  increase  in the  percentage  of revenues
generated in the U.S., a decrease in the percentage of revenues generated by the
lower  margin  instrument   products,   and  the  leveraging  of  certain  fixed
manufacturing costs over the Company's expanded revenue base.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative  expenses  increased by 213% from $620,000 during the first three
months of 1996 to $1.9  million  during  the first  three  months of 1997.  Such
expenses were 93%  of  product  sales  during the first three months of 1996 and
60% of product sales during the first three months of 1997. Selling, general and
administrative  expenses consist  primarily of 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, in
1997,  amortization  of goodwill  and patents and  depreciation  of property and
equipment  associated  with the Company's  September 1996  Reorganization  (such
amortization and depreciation amounting to approximately $60,000 and expected to
be  approximately  $255,000 per year through  2017).  The increase in the dollar
amount  of  selling,   general  and   administrative   expenses  was   primarily
attributable  to  increased   commission  payment  obligations   reflecting  the
Company's  increased product sales in the U.S. and increased expenses associated
with  establishing and supporting a managed network of independent  sales agents
in the U.S.  The decrease in the  percentage  relationship  of such  expenses to
product  sales  reflects  the  leveraging  of  certain  such  expenses  over the
Company's expanded revenue base.

     Research and development.  Research and development  expenses  increased by
83% from $99,000  during the first three  months of 1996 to $181,000  during the
first three months of 1997.  This  increase  reflected  an  increased  volume of
product  development work being performed by the Company and increased  staffing
levels.

     Interest expense. Interest expense was reduced as a result of the Company's
September 1996 private placement of Preferred Stock and warrants,  which enabled
the Company to repay certain bank debt.

     Income  taxes.  The  provision for income taxes during the first quarter of
1997  reflects  the  Company's  profitable  operations  during the  period,  and
anticipates partial utilization of certain net operating loss carryforwards.

<PAGE>

     Net Income.  The Company  reported net income of $222,000 or $.02 per share
for the first three months of 1997,  as compared  with a net loss of $489,000 or
$.09 per share for the comparable period in 1996. No assurance can be given that
the Company will continue to be profitable during future periods.

     Per Share Calculation. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial  Accounting  Standards No. 128, Earnings per
Share  ("Statement  No.  128"),  effective  for fiscal  years  commencing  after
December,  1997. This Statement  replaces the presentation of primary EPS with a
presentation  of basic  EPS and  requires  the dual  presentation  of basic  and
diluted EPS on the face of the income  statement  of all  entities  with complex
capital  structures.  Statement  128  also  requires  a  reconciliation  of  the
numerator and denominator of the diluted EPS computation.

     Had  Statement  128 been adopted for the first  quarter of 1997,  basic and
diluted EPS would have been computed as follows (in thousands,  except per share
amounts):


                                            Income        Share        Per Share
                                          (Numerator)  (Denominator)     Amount

Basic EPS                               $    222          8,671            $0.03

Incremental shares from assumed
exercise of dilutive options 
and warrants                                  -             561             -
                                         ----------   -----------       --------
Diluted EPS                                  222          9,232             0.02

Liquidity and Capital Resources


     Historically, the Company has relied upon bank loans (guaranteed in certain
instances by the Company's principal stockholders), capital contributions by its
principal  stockholders  and  government  grants  to  fund  its  operations.  In
September  1996, the Company  completed a private  placement of preferred  stock
(all of which was converted into Common Stock upon consummation of the Company's
initial public offering in April 1997) and warrants (all of which were exercised
during  April 1997) in which it received  net  proceeds  of  approximately  $4.9
million.  These net  proceeds  were used to repay bank  debt,  to pay down trade
debt,  to fund  manufacturing  and  product  development  efforts  and for other
working capital purposes. During April 1997, the Company consummated its initial
public  offering.  In  May  1997,  the  Underwriters  exercised  in  full  their
over-allotment  option granted in connection  with the initial public  offering.
Net proceeds from the initial  public  offering  (including  the exercise of the
over-allotment  option)  and the  exercise  of  warrants  during  April 1997 are
estimated to be approximately $22.0 million.  In addition,  the Company recently
made arrangements for a $2 million credit line, secured by the personal property
of Bionx Implants, Inc. and its Biostent, Inc. subsidiary.

<PAGE>

Amounts to be advanced thereunder are subject to the lender's discretion and are
limited to specific  percentages of certain domestic  receivables and inventory.
To date, no amounts have been borrowed pursuant to this facility.

     At March 31, 1997 and December 31, 1996, cash and cash equivalents  totaled
$1.3  million  and $1.6  million,  respectively.  The  decrease in cash and cash
equivalents  of  approximately  $300,000  has been used  primarily  to  purchase
production  equipment  associated with the Company's  manufacturing  facility in
Finland and for working capital purposes.

     As of March 31, 1997, the Company had working  capital of $2.2 million.  At
that date,  the  Company had  outstanding  approximately  $856,000 of  long-term
debt  (including  the  current  portion  of   such  indebtedness);  the  Company
expects to repay  a  portion of such long-term debt out of the proceeds  of its
initial public offering.

     The Company  believes  that  existing  capital  resources  from its initial
public  offering,  its  September  1996 private  placement  and its $2.0 million
credit line,  together  with cash flow from  operations  (if, and to the extent,
generated), will be sufficient to fund its operations through 1998. However, the
Company's  future capital  requirements and the adequacy of available funds will
depend on numerous  factors,  including  market  acceptance  of its existing and
future products,  the successful  commercialization  of products in development,
progress in its product  development  efforts,  the  magnitude and scope of such
efforts,   progress  with  preclinical  studies,  clinical  trials  and  product
clearances by the FDA and other agencies,  the cost and timing of its efforts to
expand  its  manufacturing  capabilities,   the  cost  of  filing,  prosecuting,
defending and enforcing  patent claims and other  intellectual  property rights,
competing  technological  and  market  developments,   and  the  development  of
strategic alliances for the marketing of certain of its products.  The Company's
operations  did not produce  positive cash flows during 1994,  1995 and 1996. To
the extent that funds generated from the Company's operations, together with its
existing  capital  resources  (including  such  credit  facility),  and  the net
interest earned thereon,  are insufficient to meet current or planned  operating
requirements,  the Company will be required to obtain  additional  funds through
equity or debt  financings,  strategic  alliances  with  corporate  partners and
others,  or through other  sources.  The terms of any equity  financings  may be
dilutive  to  stockholders  and the  terms of any debt  financings  may  contain
restrictive  covenants  which  limit the  Company's  ability  to pursue  certain
courses of action. Principal stockholders of the Company who previously provided
funding to the  Company  and  provided  guarantees  to  sources  of credit  have
indicated that they do not intend to continue  furnishing such  assistance.  The
Company does not have any committed sources of additional  financing beyond that
described  above,  and there can be no assurance  that  additional  funding,  if
necessary,  will be available on acceptable  terms, if at all. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain   aspects  of  its   operations  or  attempt  to  obtain  funds  through
arrangements  with strategic  partners or others that may require the Company to
relinquish rights to certain of its technologies,  product candidates,  products
or potential markets. If adequate funds are not available, the

<PAGE>
Company's  business,  financial  condition  and results of  operations  could be
materially and adversely affected.

Risk Factors

     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 below:

     History of Operating  Losses;  Accumulated  Deficit;  Uncertainty of Future
Profitability;  Fluctuating  Results of  Operations.  The Company  has  incurred
substantial  operating losses since its inception and, at March 31, 1997, had an
accumulated  deficit of  approximately  $7.5 million.  Such losses have 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 FDA and foreign  regulatory
bodies,  the  development of sales,  marketing and  distribution  channels,  the
write-off of acquired in-process research and development and the development of
manufacturing   capabilities.   Although  the  Company's   revenues  have  grown
significantly  during 1996 and the first three months of 1997,  no assurance can
be given that this trend will continue or that  revenues of any  magnitude  will
exceed expenses incurred in anticipation of future revenue growth.  Accordingly,
the Company may incur significant  operating losses in the future as the Company
continues its product  development  efforts,  expands its  marketing,  sales and
distribution activities and scales up its manufacturing capabilities.  There can
be no  assurance  that the  Company  will be able to  continue  to  successfully
commercialize  its products or that consistent  profitability  will be achieved.
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  upon a number of  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, and
the timing of expenses related to product launches.  Due to one or more of these
factors, in one or more future quarters, the Company's results of operations may
fall below the expectations of securities analysts and investors. In that event,
the market price of the Company's Common Stock could be materially and adversely
affected.

     Uncertainty of Market Acceptance. The Company's success will depend in part
upon the acceptance of the Company's Self-Reinforced  resorbable implants by the
medical  community,  including  health care  providers,  such as  hospitals  and
physicians,  and third-party  payors. Such acceptance may depend upon the extent
to which the  medical  community  perceives  the  Company's  products as a safe,
reliable and cost-effective  alternative to non-resorbable  products,  which are
widely  accepted,  have a long

<PAGE>

history  of use and are  generally  sold at prices  lower than the prices of the
Company's products. Such acceptance may also depend upon the extent to which the
medical  community  believes  that  the  Company's  Self-Reinforced,  resorbable
implants have  overcome the strength and  composition  difficulties  experienced
with  first  generation  resorbable  implants.  Ultimately,  for  the  Company's
products  to gain wide  market  acceptance,  it will also be  necessary  for the
Company to convince  surgeons  that the benefits  associated  with the Company's
products  justify the modification of standard  surgical  techniques in order to
use the Company's  implants  safely and  effectively.  There can be no assurance
that the Company's products will achieve market acceptance on a timely basis, or
at all. Failure of some or all of the Company's products to achieve  significant
market  acceptance  could  have a  material  adverse  effect  on  the  Company's
business, financial condition and results of operations.

     Uncertainties Relating to Licenses,  Trade Secrets, Patents and Proprietary
Rights.  The Company  believes  that its success is  dependent  in part upon its
ability to preserve its trade secrets, obtain and maintain patent protection for
its  technologies,  products and processes,  and operate without  infringing the
proprietary  rights of other parties.  As a result of the substantial  length of
time and expense  associated  with  developing and  commercializing  new medical
devices, the medical device industry places considerable importance on obtaining
and  maintaining  trade  secret  and  patent  protection  for new  technologies,
products and processes.

     The Company's  patent  strategy has been to seek patent  protection for the
technologies  that  produce the  Company's  Self-Reinforced  resorbable  polymer
products and, in certain  instances,  for the products  themselves.  The Company
owns or has  licenses  to  patents  issued in the U.S.  and in  various  foreign
countries and has patent applications  pending at the U.S. PTO and in the patent
offices of various foreign  countries.  Provided that all requisite  maintenance
fees are paid, the Company's four principal U.S. patents (two of which are owned
by the  Company and two of which are  licensed  to the  Company on an  exclusive
basis) will expire between 2004 and 2008.  The two principal U.S.  patents owned
by the  Company  relate  to the  Company's  Self-Reinforced  resorbable  polymer
products,  the Company's  sintering  process,  and resorbable  polymer  products
produced from the Company's  controlled  drawing  process.  The Company also has
pending two  principal  U.S.  patent  applications  that relate to the Company's
resorbable stent technology. The Company's other patents and patent applications
relate to various uses for Self-Reinforced  resorbable polymers, either alone or
in combination with other resorbable  polymers or biocompatible  materials,  and
generally  involve  specific  applications or  improvements of the  technologies
disclosed  in the  Company's  principal  patents  and patent  applications.  The
Japanese counterpart to one of the two principal patents owned by the Company is
currently the subject of opposition  proceedings.  A European counterpart to one
of the Company's two principal  patents has been revoked by the European  Patent
Office for lack of novelty  based on an earlier  publication.  The  Company  has
filed an  appeal  of the  European  Patent  Office's  revocation  decision.  The
Japanese  patent  application  is  being  challenged  on  lack  of  novelty  and
inventiveness grounds on the basis of disclosures made in patent and

<PAGE>

other  publications.  The  Company is  vigorously  defending  its  European  and
Japanese patent positions in these proceedings.  No assurance can be given as to
whether  such  appeal in Europe will be  successful  or as to the outcome of the
pending opposition  proceeding.  In order to clarify and confirm its U.S. patent
position,  the Company has  requested  reexamination  by the U.S. PTO of the two
principal  U.S.  patents  owned by the Company.  No assurance can be given as to
whether the issues raised in the  reexamination  proceedings will be resolved in
the Company's favor. The reexamination  process is expected to take up to twelve
months or longer.  Such reexamination  could result in some or all of the patent
claims set forth in these two U.S.  patents  being  altered to provide  narrower
coverage or determined to be  unpatentable.  No assurance can be given as to the
outcome of the reexamination process.  Narrowing of the coverage or a holding of
unpatentability  in relation to one or both of these two principal U.S.  patents
may  significantly  ease  entry  to the  U.S.  market  for the  products  of the
Company's  competitors and could have a material adverse effect on the Company's
business, financial condition and results of operations.

     The Company also relies upon trade secret protection for certain unpatented
aspects  of  its   proprietary   technology,   including  its   Self-Reinforcing
technology.  Although  the Company has taken steps to protect its trade  secrets
and know-how,  through the use of confidentiality  agreements with its employees
and certain of its business  partners and  suppliers,  there can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, that others will not independently develop or otherwise
acquire  substantially   equivalent  proprietary   technology,   information  or
techniques,  that others  will not  otherwise  gain  access to or  disclose  the
Company's proprietary technologies or that any particular proprietary technology
will be regarded as a trade secret under  applicable  law.  There can also be no
assurance that the steps taken by the Company will prevent  misappropriation  of
its trade  secrets.  As a result of the reliance that the Company  places on its
trade secrets,  loss of the Company's trade secret protection in this area would
have a material adverse effect on the Company's  business,  financial  condition
and results of operations.

     Additionally,  the Company is licensed  under two principal  U.S.  patents.
Pursuant to this license  agreement,  the Company has the exclusive right in the
U.S. to  manufacture,  use and sell  certain  devices  for  fixation of meniscus
lesions.  This  license  agreement,  which  requires the Company to pay periodic
royalties,  has a term  expiring  in  2006,  unless  terminated  earlier  by the
licensor for breach by the Company. There can be no assurance that these patents
licensed to the Company are valid and  enforceable,  and, if  enforceable,  that
they cannot be circumvented or avoided by competitors.

     There can be no  assurance  that patent  applications  to which the Company
holds rights will result in the issuance of patents,  that any patents issued or
licensed to the Company will not be challenged  and held to be invalid or narrow
in  scope,  or that  the  Company's  present  or  future  patents  will  provide
significant  coverage  for or  protection  to the  Company's  present  or future
technologies,  products or processes. Since patent applications are secret until
patents are issued in the U.S., or  corresponding  applications 

<PAGE>

are published in foreign countries,  and since publication of discoveries in the
scientific  or patent  literature  often lags  behind  actual  discoveries,  the
Company cannot be certain that it was the first to make its inventions,  or that
it was the first to file patent applications for such inventions.

     In the  event  that a third  party  has  also  filed a  patent  application
relating to an invention  claimed in a Company patent  application,  the Company
may be required to participate  in an  interference  proceeding  declared by the
U.S. PTO to determine  priority of invention,  which could result in substantial
uncertainties  and  cost  for the  Company,  even  if the  eventual  outcome  is
favorable to the Company.  In  addition,  there can be no assurance  that others
will not obtain access to the Company's  know-how or that others will not be, or
have not been,  issued  patents  that may prevent the sale of one or more of the
Company's products or the practice of one or more of the Company's processes, or
require  licensing  and the  payment of  significant  fees or  royalties  by the
Company to third parties in order to enable the Company to conduct its business.
There can be no assurance  that the Company would be able to obtain a license on
terms  acceptable  to  the  Company  or  that  the  Company  would  be  able  to
successfully redesign its products or processes to avoid such patents. In either
such case, such inability could have a material  adverse effect on the Company's
business, financial condition and results of operations.

     Legal standards relating to the scope of claims and the validity of patents
in the medical device field are still evolving, and no assurance can be given as
to the degree of  protection  any  patents  issued to or licensed to the Company
would provide.  The medical device industry has been  characterized by extensive
litigation  regarding  patents  and  other  intellectual  property  rights,  and
companies in the medical  device  industry have employed  intellectual  property
litigation  to  gain  competitive  advantage.   The  Company  has  initiated  an
opposition  in the  European  Patent  Office  challenging  the  grant of a third
party's  European  patent  relating  to  a  drawing  process  for  manufacturing
resorbable  polymer products.  Subsequently,  another company has instituted its
own  opposition  against  that  patent.  No  assurance  can be given  that these
oppositions will result in either the revocation of that patent or the narrowing
of its claims.  If neither  opposition is  successful,  then no assurance can be
given that the third party will not assert that its European patent is infringed
by sales of one or more of the  Company's  products or by the practice of one or
more of the Company's processes in any of the eight countries  identified in the
European patent.  Moreover,  there can be no assurance that the Company will not
be subject to claims  that one or more of its  products  or  processes  infringe
other patents or violate the  proprietary  rights of third parties.  Defense and
prosecution of patent claims can be expensive and time consuming,  regardless of
whether the outcome is favorable to the Company, and can result in the diversion
of  substantial  financial,  management  and other  resources from the Company's
other  activities.  An adverse  outcome could subject the Company to significant
liability to third  parties,  require the Company to obtain  licenses from third
parties,  or  require  the  Company  to cease any  related  product  development
activities or product sales. In addition,  the laws of certain countries may not
protect the Company's  patent  rights,  trade secrets,  inventions,  products or
processes to the same extent as in the U.S.

<PAGE>

     The Company  has  certain  trademark  registrations  and pending  trademark
applications  in the U.S.  and in various  countries.  The  Company's  U.S.  and
foreign  trademark  registrations  have 5-20 year  terms and are  renewable  for
additional terms for as long as the Company uses the registered trademark in the
manner recited in the registration and makes the appropriate filings to maintain
and  renew  registrations.  There  can  be  no  assurance  that  any  particular
registration, or the mark that is the subject of that registration,  will not be
held to be invalid,  narrow in scope or not owned exclusively by the Company. In
the past, the Company has agreed with third-parties that it will not use certain
trademarks in connection  with certain  devices.  There can be no assurance that
the  Company  will not  enter  into  other  arrangements  to avoid or  terminate
infringement,  opposition,  cancellation  or  other  proceedings,  or to  induce
third-parties  to give up or limit the use of their  trademarks,  trade names or
other designations.

     Uncertainties Relating to Product Development. Product development involves
a high degree of risk. There can be assurance that the Company's  products under
development  will prove to be safe and  effective,  will  receive the  necessary
regulatory  approvals  or will  ultimately  be  commercially  successful.  These
products will require substantial additional investment, laboratory development,
clinical  testing and  regulatory  approvals  prior to their  commercialization.
There can be no assurance that the Company will not experience difficulties that
could delay or prevent the successful development, introduction and marketing of
new products.  The  Company's  inability to  successfully  develop and introduce
products  under  development  on a timely  basis or at all,  or  achieve  market
acceptance  of such  products,  could  have a  material  adverse  effect  on the
Company's business, financial condition and results of operations.

     FDA  Submission  Dates  Subject to Change.  Regulatory  submissions  can be
delayed,  or plans to submit proposed products can be canceled,  for a number of
reasons,  including the receipt of  unanticipated  preclinical or clinical study
reports,  a  determination  by the FDA that PMA approval (as  described  herein)
rather than 501(k) clearance (as described herein) is required with respect to a
particular submission, changes in regulations, adoption of new, or unanticipated
enforcement of existing, regulations, technological developments and competitive
developments.  Accordingly,  no  assurances  can be  given  that  the  Company's
anticipated  regulatory  submissions  will be made on their target dates,  or at
all.  Delays in such  submissions  could have a material  adverse  effect on the
Company's business, financial condition and results of operations.

     Dependence on Key Personnel and Relationship with the Technical  University
at Tampere. The Company's ability to operate successfully depends in significant
part upon the continued service of certain key scientific, technical, managerial
and  finance  personnel,  and its  continuing  ability  to  attract  and  retain
additional  highly  qualified  scientific,  technical,  managerial  and  finance
personnel.  Competition  for such  personnel  is  intense,  and  there can be no
assurance  that the Company  will be able to retain  existing  personnel  and to
attract or retain  additional  highly  qualified  employees  in the  future.  At
present,  the Company  does not  maintain  key man life  insurance on any of its
employees 

<PAGE>
and only has  employment  agreements  with two of it employees.  The loss of key
personnel  and the  inability  to hire and  retain  qualified  personnel  in key
positions  could  have a  material  adverse  effect on the  Company's  business,
financial condition and results of operations.

     Government  Regulation.  The  Company's  products  are subject to extensive
regulation by the FDA and certain foreign regulatory  agencies.  Pursuant to the
Federal  Food,  Drug,  and  Cosmetic  Act,  as  amended,   and  the  regulations
promulgated  thereunder  (the "FDC Act"),  the FDA regulates the preclinical and
clinical testing, manufacture,  labeling,  distribution and promotion of medical
devices.  Noncompliance with applicable  requirements can result in, among other
things,  warning  letters,  fines,  injunctions,  civil  penalties,  recalls  or
seizures of products, total or partial suspension of production,  failure of the
government  to grant  premarket  clearance  or  premarket  approval for devices,
withdrawal of marketing  clearances or approvals and criminal  prosecution.  The
FDA also has the authority to request repair,  replacement or refund of the cost
of any device manufactured or distributed by the Company.

     The Company is prohibited  from  marketing new devices in the U.S. until it
obtains  clearance from the FDA under the premarket  notification  provisions of
Section  510(k) of the FDC Act  ("Section  510(k)")  or  approval of a Premarket
Approval  Application  ("PMA")  from the  FDA.  A  510(k)  submission  generally
requires  supporting  data,  which may  include  clinical  data.  The process of
obtaining  PMA  approval  is much more  costly,  lengthy  and  uncertain.  A PMA
application  requires extensive clinical data and other supporting  information.
When  clinical  data  is  required  for  either  a  510(k)  submission  or a PMA
application,   the  process  of  compiling   the  data  can  be  expensive   and
time-consuming,  and there can be no assurance  that any clinical study proposed
by the  Company  will be  permitted  by the  FDA,  will  be  completed,  or,  if
completed,  will provide  data and  information  that will support  clearance or
approval.  The Company believes that it usually takes from four to twelve months
from  submission to obtain 510(k)  clearance,  although it can take longer,  and
that the FDA's review of a PMA  application  after it is accepted for filing can
last from one to three  years,  or even  longer.  In all cases,  there can be no
assurance that 510(k) clearance or PMA approval will ever be obtained. Moreover,
regulatory  clearances  or  approvals,   if  granted,  may  include  significant
limitations on the indicated uses for which a product may be marketed.

     To date,  all of the  Company's  products  sold in the U.S.  have  received
510(k) clearance. However, the FDA recently advised the Company that its urology
stent will require PMA approval. There can be no assurance that the FDA will not
determine that other products  currently in development by the Company or future
products  must also undergo the more costly,  lengthy and uncertain PMA approval
process.

     Current FDA enforcement  policy prohibits the marketing of approved medical
devices  for  unapproved  uses.  The  Company's  PGA pins have  received  510(k)
clearance  for the general  intended use of  "maintenance  of alignment of small
fragments of fractured  non-load  bearing  bones in the presence of  appropriate
immobilization."  The Company 

<PAGE>
has promoted this product for numerous specific  indications  within the general
framework of the language quoted above. Although the Company believes that these
specific  indications are covered by the 510(k)  clearance  already received for
its PGA  pins,  there  can be no  assurance  that  the FDA  would  not  consider
promotion  of this product for the  specific  indications  to be a change to the
intended use of the device requiring a new 510(k) submission.

     Any products  manufactured  or distributed  by the Company  pursuant to FDA
clearances or approvals are subject to pervasive  and  continuing  regulation by
the FDA. Changes in existing  requirements or adoption of new requirements could
adversely  affect the  ability of the  Company to be in  regulatory  compliance.
Failure to comply with  regulatory  requirements  could have a material  adverse
effect on the Company's business, financial condition and results of operations.
There  can be no  assurance  that  the  Company  will not be  required  to incur
significant costs to comply with laws and regulations in the future or that laws
or  regulations  will not have a  material  adverse  effect  upon the  Company's
business, financial condition and results of operations.

     The FDC Act requires  devices to be  manufactured  in accordance  with good
manufacturing   practices   ("GMPs")   which  impose   certain   procedural  and
documentation  requirements  upon the  Company  with  respect to  manufacturing,
quality  assurance  and  other  matters.  Enforcement  of  GMP  regulations  has
increased  significantly  in the last  several  years,  and the FDA has publicly
stated that compliance will be more strictly  scrutinized.  The FDA has recently
finalized changes to the GMP regulations,  including design controls, which will
likely increase the cost of compliance with GMP requirements.

     In October  1994,  the  Company's  facility in Finland was inspected by the
FDA. The inspector made several observations related to GMP's, which resulted in
a Warning  Letter being issued to the Company on February 23, 1995.  The Company
then began an exchange of  correspondence  with the FDA, which concluded with an
October  10,  1995 letter from the FDA  stating,  among other  things,  that the
Company's  responses to the Warning  Letter were  "adequate" and that during the
next  inspection,   the  FDA  would  "verify  that  the  corrections  have  been
implemented." During April 14 through 17, 1997, the Company was inspected by the
FDA and received  four  observations  related to GMP's,  including  one that was
deemed a recurring  observation from the 1994 inspection.  The Company responded
to  the  FDA in  writing  on  April  17,  1997.  In its  response,  the  Company
acknowledged  the  observations  and  indicated  that  three had been  corrected
(including the recurring observation) and that the correction for the fourth was
underway.  No  assurance  can be  given  that the FDA  will  determine  that the
Company's responses are satisfactory.

     In addition,  international  regulatory bodies often establish  regulations
governing product  standards,  packaging  requirements,  labeling  requirements,
import  restrictions,  tariff  regulations,  duties and tax  requirements.  As a
result of the  Company's  sales in Europe,  the Company is required to receive a
"CE" marking  certification,  an international 

<PAGE>

symbol of quality and  compliance  with the applicable  European  medical device
directive. In January 1997, the Company received an EC Design Examination and an
EC Quality System  Certificate from a European Notified Body, which entitles the
Company  to affix a CE  marking on all of its  currently  marketed  orthopaedic,
dental and  maxillo-facial  products.  Submission of the required design dossier
for the Company's  stent products is scheduled for late 1997.  Failure to obtain
CE marking for the Company's  stent products by June 14, 1998 would prohibit the
Company  from selling such  products in the  European  Economic  Area unless and
until compliance is achieved. There can be no assurance that the Company will be
able to achieve and/or  maintain  compliance  required for CE marking for any or
all of its  products or that it will be able to produce its products in a timely
and profitable manner while complying with applicable requirements.

     The Company is also subject to numerous  environmental  and safety laws and
regulations, including those governing use of hazardous materials. Any violation
of, and the cost of compliance  with,  these  regulations  could have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

     Competition.  The medical device industry is subject to intense competition
in the U.S. and abroad.  The Company's  products  compete against metal implants
and other resorbable products for orthopaedic  surgery,  urology,  dentistry and
maxillo-facial  surgery  applications.  Potential  competitors  may be  able  to
develop  technologies  that are as effective as, or more  effective or easier to
use than,  those  offered by the  Company,  which  could  render  the  Company's
products  noncompetitive or obsolete.  Moreover,  many of the Company's existing
and potential  competitors  have  substantially  greater  financial,  marketing,
sales,  distribution and technological resources than the Company. Such existing
and  potential  competitors  may be in the process of seeking FDA  approval  for
their respective products or may possess substantial advantages over the Company
in terms  of  research  and  development  expertise,  experience  in  conducting
clinical trials,  experience in regulatory  matters,  manufacturing  efficiency,
name recognition,  sales and marketing expertise or distribution channels. There
can be no  assurance  that  the  Company  will be able to  compete  successfully
against  current  or  future  competitors  or that  competition  will not have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.

     Dependence Upon Independent  Sales Agents,  Distributors  and Dealers.  The
Company markets and sells its products  through managed  networks of independent
sales agents in the U.S.  and  independent  distributors  and dealers in foreign
countries.  As a result,  a substantial  portion of the  Company's  revenues are
dependent upon the sales efforts of such sales agents, distributors and dealers.
The  Company  may  also  rely on its  distributors  to  assist  it in  obtaining
reimbursement and regulatory approvals in certain international  markets.  There
can be no assurance that the Company's sales agents,  distributors  and dealers,
certain  of which  operate  relatively  small  businesses,  have  the  financial
stability to assure their continuing presence in their markets. The inability of
a sales  agent,  distributor  or  dealer  to  perform  its  obligations,  or the
cessation of business by a sales agent,  distributor or dealer, could materially
and adversely affect the Company's 

<PAGE>

business,  financial  condition  and  results  of  operations.  There  can be no
assurance  that the  Company  will be able to engage or retain  qualified  sales
agents,  distributors or dealers in each territory targeted by the Company.  The
failure  to engage  such  entities  in such  territories  would  have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.

     Risks  Relating  to  International  Operations.  Approximately  32%  of the
Company's  sales during the year ended December 31, 1996 and 13% of sales in the
first three months of 1997 were generated in international  markets. A number of
risks  are  inherent  in  international  operations.   International  sales  and
operations may be limited or disrupted by the imposition of government controls,
export license requirements,  political instability, trade restrictions, changes
in  tariffs,   difficulties  in  managing   international   operations,   import
restrictions  and   fluctuations  in  foreign   currency   exchange  rates.  The
international   nature  of  the   Company's   business   subjects   it  and  its
representatives,  agents and  distributors  to the laws and  regulations  of the
foreign jurisdictions in which they operate, and in which the Company's products
are sold. The regulation of medical  devices in a number of such  jurisdictions,
particularly  in the  European  Union,  continues to develop and there can be no
assurance that new laws or regulations  will not have a material  adverse effect
on the Company's business, financial condition and results of operations.

     Product Liability Risks; Limited Insurance Coverage. The Company's business
is  subject  to  product  liability  risks  in the  testing,  manufacturing  and
marketing  of its  products.  There can be no assurance  that product  liability
claims will not be asserted against the Company,  its strategic  partners or its
licensees. While the Company maintains product liability insurance, there can be
no assurance that this coverage will be adequate to protect the Company  against
future product  liability claims.  In addition,  product liability  insurance is
expensive and there can be no assurance that, in the future,  product  liability
insurance will be available to the Company on terms satisfactory to the Company,
if at all. A  successful  product  liability  claim or series of claims  brought
against  the  Company in excess of its  coverage  could have a material  adverse
effect on the Company's business, financial condition and results of operations.

     No  Assurance  of  Ability  to Manage  Growth.  The  Company's  experienced
substantial growth in product sales during the second half of 1996 and the first
quarter of 1997.  Although  there can be no  assurance  that such  growth can be
sustained, products in development may potentially lead to further growth. There
can be no assurance  that the Company will be able to (i) develop the  necessary
manufacturing  capability,  (ii) manage an expanded sales and marketing network,
(iii)  attract,  retain  and  integrate  the  required  key  personnel,  or (iv)
implement  the  financial,  accounting  and  management  systems to meet growing
demand for its products should it occur.  Failure of the Company to successfully
manage  its  growth  could  have a  material  adverse  effect  on the  Company's
business, financial condition and results of operations.

<PAGE>

     Uncertainties Regarding  Manufacturing.  The Company currently manufactures
its  implant  products  solely in  Finland.  The  Company  intends  to develop a
manufacturing  capability  in the U.S.  in order to increase  its  manufacturing
capacity for its existing and new implant products. The Company anticipates that
it will establish this capability either by (i) equipping and operating a leased
facility in the eastern U.S. or (ii) contracting with a third party to provide a
manufacturing capability to the Company. The Company presently is exploring both
of these alternatives.  If the Company pursues contract  manufacturing,  it will
solicit bids from reliable medical device manufacturers,  including a subsidiary
of Vital Signs,  Inc.  ("Vital  Signs").  Certain of the directors and principal
stockholders  of the Company are directors,  officers and  stockholders of Vital
Signs. If the Company uses a contract manufacturer,  the Company would equip the
manufacturer's  facility,  with the objective of ultimately  transitioning  to a
neighboring  Company-owned or Company-leased facility. There can be no assurance
that the Company will be able to enter into a contract  manufacturing  agreement
or otherwise  secure the use of suitable  facilities in the U.S. on commercially
reasonable  terms,  or  at  all.  Furthermore,  regardless  of  the  alternative
selected,  the  integration of the Company's  existing  operations with the U.S.
facility may result in inefficiencies and delays,  especially as a result of the
technical  requirements  necessary to produce  products in  accordance  with the
Company's  specifications.  There can be no assurance  that the Company will not
encounter  difficulties in scaling up production,  including  problems involving
production  yield,  quality  control and  assurance,  and shortages of qualified
personnel.  In addition,  the U.S.  facility will be subject to GMP regulations,
international  quality  control  standards  and other  regulatory  requirements.
Difficulties  encountered  by the  Company  in  manufacturing  scale-up,  or the
failure by the Company to establish and maintain the U.S. facility in accordance
with such regulations,  standards or other regulatory requirements, could have a
material  adverse  effect on the  Company's  business,  financial  condition and
results of operations.  The Company has experienced  occasional periods of delay
in filling product orders due to increases in demand beyond  forecasted  levels.
The Company is currently  upgrading  its  production  machinery and processes to
address this increased demand. No assurance can be given that the integration of
these machines into the production  process will occur within the scheduled time
frame or will not result in  difficulties in scale-up that could lead to further
delays in filling orders in the future.  Difficulties experienced in integrating
such  machinery  on a timely basis could have a material  adverse  effect on the
Company's business, financial condition and results of operations.

     Limited  Sources  of  Supply;  Lack of  Contractual  Arrangements.  The raw
materials for the Company's PLLA products are currently available to the Company
from  three  qualified  sources,  while  the  Company's  PGA raw  materials  are
available from two qualified sources. The Company's raw materials have been used
in  products  cleared by the FDA and the  Company's  suppliers  maintain  Device
Master  Files  at the  FDA  that  contain  basic  toxicology  and  manufacturing
information.  The Company does not have long-term  supply  contracts with any of
its suppliers,  although it is currently negotiating a supply agreement with its
principal  PLLA  supplier.  In the event  that the  Company  is unable to obtain
sufficient quantities of raw materials on commercially reasonable terms, 

<PAGE>
or in a timely manner, the Company would not be able to manufacture its products
on a timely and  cost-competitive  basis which,  in turn,  would have a material
adverse  effect on the Company's  business,  financial  condition and results of
operations.  In addition,  if any of the raw materials for the Company's PGA and
PLLA products are no longer available in the  marketplace,  the Company would be
forced to further modify its Self-Reinforcing processes to incorporate alternate
raw  materials.  The  incorporation  of new raw  materials  into  the  Company's
existing products would likely require the Company to seek clearance or approval
from  the  FDA.  There  can be no  assurance  that  such  development  would  be
successful or that, if developed by the Company or licensed from third  parties,
products   containing  such  alternative   materials  would  receive  regulatory
approvals on a timely basis, or at all.

     Ability  to  Maintain  Third-Party  Reimbursement.  In the U.S.  and  other
markets, health care providers, such as hospitals and physicians,  that purchase
medical devices, such as the Company's products, generally rely upon third-party
payors,  including  Medicare,  Medicaid and private health  insurance  plans, to
reimburse all or part of the cost of the procedures in which the medical devices
are being used. The Company  believes that, to date,  U.S. health care providers
have  been  reimbursed  in full for the cost of  procedures  which  utilize  the
Company's  products.  However,  there  can  be  no  assurance  that  third-party
reimbursement  for  such  procedures  will  be  consistently  available  for the
Company's  products or that such  third-party  reimbursement  will be  adequate.
There  is  significant  uncertainty  concerning  third-party  reimbursement  for
procedures  which  utilize  any medical  device  incorporating  new  technology.
Reimbursement  by a  third-party  payor  may  depend  on a  number  of  factors,
including the payor's  determination  that the use of the Company's  products is
clinically useful and  cost-effective,  medically necessary and not experimental
or  investigational.  Since  reimbursement  approval is required from each payor
individually,  seeking such approvals can be a time consuming and costly process
which,  in  the  future,   could  require  the  Company  to  provide  supporting
scientific,  clinical and  cost-effectiveness  data for the use of the Company's
products to each payor separately.  Federal and state governmental  agencies are
increasingly  considering  limiting health care expenditures.  For example,  the
United  States   Congress  is  currently   considering   various   proposals  to
significantly  reduce Medicaid and Medicare  expenditures.  Such  proposals,  if
enacted,  could  have a  material  adverse  effect  on the  Company's  business,
financial  condition and results of  operations.  Outside the U.S.,  the Company
relies on distributors to establish  reimbursement  from  third-party  payors in
their  respective  territories.  Health  care  reimbursement  systems  vary from
country to country and, accordingly,  there can be no assurance that third-party
reimbursement  available  under any one system will be available for  procedures
utilizing the Company's products under any other  reimbursement  system. Lack of
or inadequate  reimbursement  by governmental and other  third-party  payors for
procedures utilizing the Company's products would have a material adverse effect
on the Company's business, financial condition and results of operations.

     Uncertainties  Relating to Strategic Partners. The Company anticipates that
it may be necessary for it to enter into arrangements  with corporate  partners,
licensees 

<PAGE>

or others, in order to efficiently  market,  sell and distribute  certain of its
products.  Such  strategic  partners  may also be  called  upon to assist in the
support of such  products,  including  support of  certain  product  development
functions.  As a result,  the success of such  products may be dependent in part
upon the efforts of such third  parties.  The Company  has  negotiated  one such
agreement  with Ethicon  GmbH, a  subsidiary  of Johnson & Johnson,  pursuant to
which Ethicon GmbH has the right to market and sell in Europe certain  products,
based upon the Company's  membrane patent,  in dentistry and two other unrelated
field  of use.  There  can be no  assurance  that  the  Company  will be able to
negotiate additional acceptable arrangements with strategic partners or that the
Company will realize any meaningful revenues pursuant to such arrangements.

     Volatility  of Stock Price.  The stock markets have  experienced  price and
volume   fluctuations  that  have  particularly   affected  medical   technology
companies,  resulting  in  changes  in the  market  prices of the stocks of many
companies  that have not been directly  related to the operating  performance of
these  companies.  Such broad market  fluctuations  may materially and adversely
affect  the  market  price  of the  Company's  Common  Stock.  Factors  such  as
variations  in the  Company's  results of  operations,  comments  by  securities
analysts,   underperformance  against  analysts'  estimates,   announcements  of
technological  innovations  or new  products by the Company or its  competitors,
changing government  regulations and developments with respect to FDA or foreign
regulatory  submissions,   the  results  of  regulatory  inspections,   patents,
proprietary  rights or  litigation  may have a  material  adverse  effect on the
market price of the Company's Common Stock.

Part II. Other Information

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

     On February 24, 1997,  holders of a majority of the  Company's  outstanding
Common  Stock and a majority  of the  Company's  outstanding  Series A Preferred
Stock  executed  written  consents  authorizing   amendments  to  the  Company's
Certificate of Incorporation which had the effect of changing the Company's name
to "Bionx Implants, Inc." and effecting a one for 1.9 stock split.

     On  March  17,  1997,   the  Company   conducted  its  annual   meeting  of
shareholders. At the meeting, the shareholders:

     (i) elected  David W.  Anderson  and Terry D. Wall as  directors  for terms
expiring in 1998;

     (ii)  elected  David J. Bershad and Pertti  Tormala as directors  for terms
expiring in 1999;

     (iii)  elected  Anthony J. Dimun and David H.  MacCallum as  directors  for
terms expiring in 2000;

<PAGE>

     (iv)  approved a  Restated  Certificate  of  Incorporation  and  subsequent
Amendment to such Restated Certificate of Incorporation; and

     (v)  approved  certain  amendments  to  the  Company's  Stock  Option/Stock
Issuance Plan.

Copies of the  restated  Certificate  of  Incorporation  and Stock  Option/Stock
Issuance Plan reflecting all changes approved by the Company's shareholders were
filed as  exhibits  to the  Company's  Registration  Statement  on Form S-1 (No.
333-22359).  At the annual meeting of shareholders,  a total 5,165,981 shares of
Common  Stock and a total of 1,520,000  shares of Series A Preferred  Stock were
voted in favor of the above - mentioned  matters.  No shares were voted  against
such matters or were subject to  abstentions  or broker non - votes with respect
to such matters.

Item 6.  Exhibits and Reports on Form 8-K

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

         No. 11.1    Computation of Primary and Fully Diluted Earnings per Share
         No. 27.1    Financial Data Schedule

     (b) There  were no  Current  Reports  on Form 8-K  filed by the  Registrant
during the quarter ended March 31, 1997.












                                   SIGNATURES

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

                           BIONX IMPLANTS, INC.




                           By: /s/David W. Anderson
                               _______________________
                               David W. Anderson
                               President and Chief Executive Officer




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

Dated:  June 9, 1997

<PAGE>

Exhibit No.

No. 11.1         Computation of Primary and Fully Diluted Earnings per Share

No. 27.1         Financial Data Schedule