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, 1998 or

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

                        Commission File Number: 333-22359

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

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

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

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

      ---------------------------------------------------------------------
      (Former name, former address and former fiscal year, if changed since
                                  last report)

          Indicate  by check  mark  whether  the  registrant  (1) has  filed all
reports  required to be filed by Section 13 or 15(d) of the Securities  Exchange
Act of 1934 during the preceding 12 months (or for such shorter  period that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.

                          Yes X              No___

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

          At August 10, 1998,  there were 8,922,076  shares of Common Stock, par
value $.0019 per share, outstanding.


<PAGE>





                     BIONX IMPLANTS, INC. AND SUBSIDIARIES

                                     INDEX




                                                                    Page

Part I. Financial Information

Item 1. Consolidated Financial Statements

    Consolidated Balance Sheets at December 31, 1997
             and June 30, 1998 (Unaudited)                            3

    Consolidated Statements of Operations for the Three and Six
             Months Ended June 30, 1997 and 1998 (Unaudited)          4

    Consolidated Statements of Cash Flows for the Six Months
             Ended June 30, 1997 and 1998 (Unaudited)                 5

    Notes to Consolidated Financial Statements (Unaudited)            6

Item 2. Management's Discussion and Analysis of Financial            10
         Condition and Results of Operations


Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds                   15

Item 4. Submission of Matters to a Vote of Security Holders          15

Item 6. Exhibits and Reports on Form 8-K                             17

Signatures                                                           18



<PAGE>

Item 1. Financial Statements

<TABLE>
<CAPTION>

                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                       December 31, 1997 and June 30, 1998
                      (in thousands, except share amounts)

                                                                          December 31,      June 30,
                                                                              1997           1998
                                                                                          (Unaudited)
Assets:
<S>                                                                       <C>                <C>
Current assets:

   Cash and cash equivalents                                              $ 22,632           19,566
   Inventory, net                                                            2,550            4,268
   Trade accounts receivable, net of
      allowance of $111 as of December 31,
      1997 and June 30, 1998                                                 3,070            3,655
   Grants receivable                                                           129              117
   Prepaid expenses and other current assets                                   158              593
   Deferred tax assets                                                         355              607
                                                                               ---              ---

Total current assets                                                        28,894           28,806
Investments                                                                     87               87
Plant and equipment, net                                                       849            1,825
Goodwill and intangibles, net                                                3,711            3,658
                                                                             -----            -----

          Total assets                                                    $ 33,541           34,376
                                                                          ========           ======

Liabilities and Stockholders' Equity
Current Liabilities:
    Trade accounts payable                                               $   1,775            2,350
     Long-term debt, current portion                                            43               43
     Related party                                                              74                -
     Current income tax liability                                              994              570
     Accrued and other current liabilities                                   1,459            1,406
                                                                             -----            -----

Total current liabilities                                                    4,345            4,369

Long-term debt                                                                 115              128

Stockholders' equity:
  Preferred stock, par value $0.001 per share
      8,000,000 authorized and none issued                                      -                -
  Common stock, par value, $0.0019 per share,
    31,600,000  shares  authorized,  8,916,812 and  8,922,076
    shares issued and outstanding as of December 31, 1997
    and June 30, 1998, respectively                                             17               17
Additional paid-in capital                                                  35,616           35,642
Accumulated deficit                                                         (5,527)          (4,755)
Foreign currency translation adjustment                                     (1,025)          (1,025)
                                                                            -------          -------

Total stockholders' equity                                                  29,081           29,879
                                                                            ------           ------

          Total liabilities and stockholders' equity                      $ 33,541           34,376
                                                                          ========           ======
</TABLE>

                     See accompanying notes to the unaudited
                       Consolidated Financial Statements.
<PAGE>

<TABLE>
<CAPTION>

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

                                                             Three Months Ended       Six Months Ended
                                                                 June 30,                  June 30,
                                                            1997           1998       1997          1998
                                                            ----           ----       ----          ----


Revenues:

<S>                                                       <C>              <C>     <C>              <C>  
Product Sales                                             $  3,822         5,057   $  7,040         9,516
Grant revenues                                                 108           108        108           162
                                                            ----           ---         ----           ---

Total revenues                                               3,930         5,165      7,148         9,678
                                                             -----         -----      -----         -----

Cost of goods sold                                             942         1,074      1,745         2,043
                                                               ---         -----      -----         -----

Gross profit                                                 2,988         4,091      5,403         7,635
                                                             -----         -----      -----         -----

Selling, general and administrative                          2,333         3,124      4,273         6,142
Research and development                                       220           630        401           931
                                                               ---           ---        ---           ---

Total operating expenses                                     2,553         3,754      4,674         7,073
                                                             -----         -----      -----         -----

Operating income                                               435           337        729           562
                                                               ---           ---        ---           ---

Other income and expense:
   Interest income                                             172           287        175           568
                                                             -----           ---       ----           ---

Income before provision for
   income taxes                                                607           624        904          1,130

Provision for income taxes                                     153           181        228            358
                                                              ----           ---       ----            ---

Net income                                                $    454           443   $    676            772
                                                          ========           ===   ========            ===


Pro forma earnings per share:
     Basic                                                 $  0.05          0.05       0.08           0.09
     Diluted                                               $  0.05          0.05       0.07           0.08


Shares used in computing pro forma earnings per share:

     Basic                                                  8,916          8,922      8,916          8,921
     Diluted                                                9,232          9,266      9,232          9,272
</TABLE>

   See accompanying notes to the unaudited Consolidated Financial Statements.



<PAGE>

<TABLE>
<CAPTION>


                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)
                                                                                      Six Months Ended
                                                                                          June 30,
                                                                                ----------------------------
                                                                                   1997                1998

Cash flows from operating activities:

<S>                                                                         <C>                         <C>
Net income                                                                  $       676                 772
Adjustments to reconcile net income
     to net cash (used in) provided by operating activities:
Depreciation and amortization                                                       203                 234
Change in assets and liabilities:
Increase in inventory, net                                                         (395)             (1,718)
Increase in trade accounts receivable, net                                         (604)               (585)
Decrease in grants receivable                                                        32                  12
Decrease in deferred offering costs                                                 195                   -
Decrease (increase) in prepaid expense and other current assets
                                                                                    122                (435)
Increase in deferred tax assets                                                       -                (252)
Increase in trade accounts payable                                                  749                 575
Decrease in related party                                                           (85)                (74)
Increase (decrease) in current income tax liability                                   7                (424)
Decrease in accrued and other current liabilities                                  (389)                (53)
                                                                                   -----                ----

                                                                                   (165)             (2,720)
                                                                                   -----             -------

Net cash (used in) provided by operating activities                                 511              (1,948)
                                                                                    ---              -------

Cash flows from investing activities
         Purchase of plant and equipment                                           (423)            (1, 096)
                                                                                   -----            --------

Cash flows from financing activities:

         Proceeds from initial public offering                                    24,150                  -
         Proceeds from issuance of long-term debt                                     -                  13
         Capitalization of patents                                                    -                 (61)
             Exercise of warrants                                                    552                  -
             Offering costs from initial public offering                          (3,050)                 -
             Repayment of long-term debt                                            (607)                 -
         Proceeds from exercise of employee stock options                             -                  26
                                                                                  -------               ----

Net cash provided by financing activities                                         21,045                (22)
Net effects of foreign exchange rate differences                                    (116)                 -

Net increase (decrease) in cash and cash equivalents                              21,017             (3,066)
Cash and cash equivalents at beginning of period                                   1,593             22,632
                                                                                   -----             ------
Cash and cash equivalents at end of period                                  $     22,610             19,566
                                                                            ============             ======
Supplementary cashflow information:
Cash paid for interest                                                               28                   1
Cash paid for taxes                                                                 221               1,034
Conversion of series A preferred shares to common shares upon
consummation of the initial public offering                                       5,000                   -

</TABLE>


   See accompanying notes to the unaudited Consolidated Financial Statements.


<PAGE>


                     BIONX IMPLANTS, INC., AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.       Basis of Presentation

         The  accompanying  financial  statements  have been  prepared  by Bionx
Implants,  Inc.  (the  "Company")  and  are  unaudited.  In the  opinion  of the
Company's  management,  all adjustments  (consisting  solely of normal recurring
adjustments)  necessary to present fairly the Company's  consolidated  financial
position  as of  December  31,  1997  and  June  30,  1998,  and  the  Company's
consolidated  results of operations and cash flows for the six months ended June
30, 1997 and 1998, have been made. Certain information and footnote  disclosures
required under generally accepted  accounting  principles have been condensed or
omitted from the consolidated  financial  statements and notes thereto presented
herein  pursuant to the rules and  regulations  of the  Securities  and Exchange
Commission.  The consolidated  financial  statements and notes thereto presented
herein should be read in  conjunction  with the Company's  audited  consolidated
financial  statements  for the year ended  December  31, 1997 and notes  thereto
included in the Company's  Annual Report on Form 10-K (No.  33-22359) filed with
the Securities and Exchange  Commission.  The results of operations and the cash
flows for the three  and six  months  ended  June 30,  1998 are not  necessarily
indicative  of the results to be expected  for any other  interim  period or the
entire fiscal year.

2.       Inventory

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


                                               December 31,            June 30,
                                                  1997                  1998


Raw materials                                    $    437                422
Finished goods                                      2,778              4,596
                                                    -----              -----

                                                    3,215              5,018
Less reserves                                        (665)              (750)
                                                     -----              -----
                                                 $   2,550             4,268
                                                 =========             =====

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

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

         Effective  December 31, 1997,  the Company  adopted the  provisions  of
Statement of Financial Accounting  Standards No. 128 ("SFAS 128"),  Earnings per
Share (EPS).  SFAS 128  establishes  and  simplifies  the standards of computing
earnings per share previously  found in Accounting  Principles Board Opinion No.
15,  Earnings  per  Share,  and  makes  them  comparable  to  international  EPS
standards.  Under  SFAS 128,  basic  earnings  per share is  computed  using the
weighted average number of shares of common stock outstanding during the period.
Diluted  earnings  per share is computed  using the weighted  average  number of
common and  dilutive  potential  common  shares  outstanding  during the period.
Potential common shares consist of stock options and warrants using the treasury
stock method and are excluded if their effect is antidilutive.

         Pursuant to Securities and Exchange  Commission  (SEC) Staff Accounting
Bulletin  No. 98 and SEC staff  policy,  all  common  shares  issued  during the
periods  prior to the Company's  IPO for nominal  consideration  are presumed to
have  been  issued in  contemplation  of the IPO and are to be  included  in the
calculation  of basic  earnings  per share as if they were  outstanding  for all
periods presented.  Similarly,  common shares and potential common shares issued
during the period  prior to the IPO for nominal  consideration  are  presumed to
have  been  issued in  contemplation  of the IPO and are to be  included  in the
calculation  of diluted  earnings per share,  even though  anti-dilutive,  as if
outstanding  for all periods  presented.  The Company had no common or potential
common shares issued for nominal  consideration  during the periods prior to the
IPO.

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

         The following  table sets forth the  calculation of the total number of
shares used in the  computation  of pro forma  earnings per common share for the
three months ended June 30, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>

                                                                                    1997                     1998
                                                                                    ----                     ----

<S>                                                                                  <C>                     <C>  
Weighted average common shares outstanding                                           7,618                   8,922

Assumed conversion of Series A Mandatorily
         Redeemable Convertible Preferred Stock
         and related warrants using the
         if-converted method                                                         1,298                       -
                                                                                     -----                       -

Shares used in computing pro forma basic
         earnings per share                                                          8,916                   8,922

Incremental shares from assumed exercise of
         dilutive options and warrants                                                 316                     344
                                                                                       ---                     ---

Shares used in computing pro forma diluted
         earnings per share                                                          9,232                   9,266
                                                                                     =====                   =====

</TABLE>


The  following  table sets forth the  calculation  of the total number of shares
used in the  computation  of pro forma  earnings  per  common  share for the six
months ended June 30, 1997 and 1998 (in thousands):

<TABLE>
<CAPTION>

                                                                                      1997                   1998
                                                                                      ----                   ----

<S>                                                                                  <C>                     <C>  
Weighted average common shares outstanding                                           7,618                   8,921

Assumed conversion of Series A Mandatorily
         Redeemable Convertible Preferred Stock
         and related warrants using the
         if-converted method                                                         1,298                       -
                                                                                     -----                       -

Shares used in computing pro forma basic
         earnings per share                                                          8,916                   8,921

Incremental shares from assumed exercise of
         dilutive options and warrants                                                 316                     351
                                                                                       ---                     ---

Shares used in computing pro forma diluted
         earnings per share                                                          9,232                   9,272
                                                                                     =====                   =====

</TABLE>


4.       Foreign Currency Translation

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

Effective  January 1, 1998,  the  functional  currency of the Company's  foreign
subsidiaries was changed from the Finnish Marrka to the U.S. dollar.  The change
in functional  currency was based on changes in certain salient economic factors
of the foreign  subsidiaries  including cash flows, sales prices of the products
being  manufactured,  the sales  markets for the  products  being  manufactured,
expenses being incurred,  sources of financing,  and intercompany  transactions.
The change in these economic factors is primarily due to the increased  reliance
of the foreign  subsidiaries on the U.S. marketplace for sales of products being
manufactured.

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


5.       Reporting Comprehensive Income

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

Following are the components of comprehensive income for the three month periods
ended June 30, 1997 and 1998 (in thousands): 

                                                                June 30, 
                                                       1997                 1998
                                                       ----                 ----


Net income                                            $ 454                 443
Foreign currency translation adjustments                 42                   -
                                                      -----                ----

Comprehensive income                                  $ 496                 443
                                                        ===                 ===


Following are the components of  comprehensive  income for the six month periods
ended June 30, 1997 and 1998 (in thousands): 

                                                            June 30, 
                                                    1997                  1998
                                                    ----                  ----

Net income                                         $ 676                   772
Foreign currency translation adjustments            (116)                    -
                                                    ----                  ----

Comprehensive income                               $ 560                   772
                                                     ===                   ===

<PAGE>


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

Business

         Statements  regarding  future  performance in this Quarterly  Report on
Form 10-Q constitute  forward-looking  statements  under the Private  Securities
Litigation  Reform  Act of 1995.  The  Company's  actual  results  could  differ
materially from those anticipated by such forward-looking statements as a result
of certain  factors,  including those set forth in Exhibit 99.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.

         The Company was founded in 1984 to develop certain  resorbable  polymer
implants for orthopaedic  uses. The Company had incurred  substantial  operating
losses from its inception through December 31, 1996, with an accumulated deficit
of  approximately  $7.7 million as of December 31,  1996.  Such losses  resulted
principally  from  expenses  associated  with  the  development,  patenting  and
clinical testing of the Company's  Self-Reinforcing  technologies and resorbable
implant  designs,   preparation  of  submissions  to  the  U.S.  Food  and  Drug
Administration (the "FDA") and foreign regulatory  agencies,  the development of
sales, marketing and distribution channels, the write-off of acquired in-process
research and development, and the development of its manufacturing capabilities.
As of June 30, 1998, the  accumulated  deficit has been reduced to $4.8 million.
Although the  Company's  revenues  have grown  significantly  in certain  recent
periods,  no  assurance  can be given  that this  trend  will  continue  or that
revenues of any  magnitude  will exceed  expenses  incurred in  anticipation  of
future growth.  Accordingly,  the Company may incur significant operating losses
in the future as it  continues  its  product  development  efforts,  expands its
marketing,  sales and  distribution  activities and scales up its  manufacturing
capabilities.  There  can be no  assurance  that  the  Company  will  be able to
continue  to   successfully   commercialize   its  products  or  that  continued
profitability will be achieved.

          The Company first  introduced its  polyglycolic  acid ("PGA")  polymer
pins in 1984 and its PGA screws in 1986.  In 1987,  the Company  introduced  its
first poly-l-lactic acid ("PLLA") polymer products,  PLLA pins. PLLA screws were
introduced in 1989.  Since the  introduction of these products,  the Company has
expanded  its PGA and PLLA pin and screw  product  lines to  address  additional
clinical indications. The Company's PGA membrane product was introduced in 1992,
and, in 1995, the Company  launched its Meniscus Arrow,  PLLA tacks, and PGA and
PLLA urology stents.  During the first six months of 1998, the Company  received
approval to market four  additional  products;  a tack for  shoulder  repair,  a
cannulated  screw for wrist  fractures,  a screw for  cosmetic  surgery,  and an
anchor for shoulder repair. Prior to 1996, the Company derived substantially all
of its  revenue  from sales of its PLLA and PGA screws and pins.  A  substantial
portion of the Company's  revenues in more recent periods has resulted from U.S.
sales of the Meniscus  Arrow,  which  received FDA  clearance in March 1996.  To
date, all products sold by the Company have been launched first in international
markets.  During the three  months ended June 30,  1998,  international  product
sales  represented 19% of the Company's total product sales compared with 15% in
the second quarter of 1997.

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

         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.  product sales to total product sales is likely
to  continue  to  increase.  Since the Company  pays  commissions  on sales made
through its U.S.  network,  an increased  percentage of U.S. sales in the future
will  likely  result in an increase in the  percentage  of selling,  general and
administrative  expenses to total sales.  This increase will be partially offset
by the higher gross margins received on products sold in the U.S.

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

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

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

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

Results of Operations

         Product sales.  The Company's  product sales increased by 32% from $3.8
million  during the  quarter  ended  June 30,  1997 to $5.1  million  during the
quarter ended June 30, 1998,  and by 35% from $7.0 million  during the first six
months of 1997 to $9.5  million  during  the first six  months of 1998.  Product
sales are comprised of three specific product categories; Meniscus Arrows, Other
Implants (screws, pins, tacks, stents) and Instruments and other product-related
revenue.

          Meniscus Arrow  revenues  increased by 30% worldwide from $2.6 million
during the second  quarter of 1997 to $3.4 million  during the second quarter of
1998,  and  increased by 9% from the first  quarter 1998 level of $3.1  million.
Revenues  from  Meniscus  Arrow sales for the first six months of 1998 were $6.5
million, a 34% increase over revenues of the comparable period in 1997. Meniscus
Arrow performance in the U.S. continues to be impacted by competitive  pressures
in the marketplace.

          Other implant revenues increased by 62% worldwide from $676,000 during
the second quarter of 1997 to $1,090,000  during the second quarter of 1998, and
by 54% worldwide  from $1.3 million  during the first six months of 1997 to $2.0
million  during the first six months of 1998.  The 1998 product sales  increases
reflect  increased  utilization of the Company's  managed network of independent
sales agents in the U.S. and increased sales of the Company's  existing products
in  international  markets.   

          Instruments and other  product-related  revenues  remained  relatively
unchanged from $577,000  during the second quarter of 1997, and $948,000  during
the  first  six  months  of 1997  to  $568,000,  and $ 1.0  million  during  the
comparable 1998 periods.

          Grant revenues.  Grant revenues  totaled $108,000 for the three months
ended June 30, 1998,  compared  with the same amount  recorded  during the three
month period ended June 30, 1997.  Grant  revenues  increased  slightly from the
first six  months of 1997 to the  comparable  period in 1998.  This  revenue  is
generated from grants obtained from a Finnish government research  organization,
which funds certain research and development projects.

          Gross profit;  gross margin. The Company's gross profit increased from
$3.0 million during the second quarter of 1997 to $4.1 million during the second
quarter of 1998,  and from $5.4  million  during the first six months of 1997 to
$7.6 million during the first six months of 1998. The increases in the Company's
gross  profit  primarily  resulted  from the general  increase in product  sales
volume.  Overall,  the Company's  gross margin  (including  the effects of grant
revenue)  increased from 76% during the second quarter of 1997 to 79% during the
second  quarter of 1998,  and from 76% to 79% during  the  comparable  six month
periods. The increases in gross margin in 1998 are primarily attributable to the
leveraging of certain  fixed  manufacturing  costs over the  Company's  expanded
revenue base.

          Selling,  general and administrative  expenses.  Selling,  general and
administrative  expenses  increased by 34% from $2.3  million  during the second
quarter of 1997 to $3.1 million  during the second  quarter of 1998,  and by 44%
from $4.3 million during the first six months of 1997 to $6.1 million during the
first six months of 1998.  Such  expenses  were 61% of product  sales during the
second  quarter of 1997, 62% of product sales during the second quarter of 1998,
61% of product  sales  during  the first six months of 1997,  and 65% of product
sales during the first six months of 1998.  Selling,  general and administrative
expenses consist  primarily of distributor  commissions paid on product sales in
the U.S., patent and license related expenses, costs incurred in connection with
the  regulatory  process,  expenses  associated  with  supporting  the Company's
managed  networks of  independent  sales  agents,  distributors  and dealers and
amortization  of goodwill and patents  associated  with the Company's  September
1996   reorganization   (such   amortization  and   depreciation   amounting  to
approximately $65,000 per quarter and expected to be approximately  $255,000 per
year through 2017).  The increases in the dollar amount of selling,  general and
administrative  expenses were  primarily  attributable  to increased  commission
payment obligations reflecting the Company's increased product sales in the U.S.
and increased  expenses  associated with  establishing  and supporting a managed
network of independent  sales agents in the U.S. The increases in the percentage
relationship  of such  expenses to product  sales  reflect  certain  general and
administrative  expenses  incurred  in  anticipation  of new  product  launches.

          Research and development.  Research and development expenses increased
by 186% from $220,000  during the second quarter of 1997 to $630,000  during the
second quarter of 1998, and by 132% from $401,000 during the first six months of
1997 to $931,000 during the comparable period in 1998. These increases reflected
an increased  volume of product  development work being performed by the Company
and increased staffing levels in this area.

          Interest income.  In the second quarter of 1998, the Company generated
interest  income of  $287,000,  compared to  interest  income of $172,000 in the
comparable period of 1997. For the six month periods,  interest income increased
from  $175,000 to  $568,000.  Funds  obtained  from the  proceeds of the initial
public offering in late April 1997 generated the interest income in the 1997 and
1998 periods.

          Income taxes. The provision for income taxes during the second quarter
and first six months of 1998 reflects the Company's profitable operations during
the periods  presented.  Due to the utilization of certain Finnish net operating
loss carryforwards during 1997, the effective tax rate increased from 25% during
the second quarter and first six months of 1997 to 29% during the second quarter
and 32% during the first six months of 1998.

          Net income.  The Company  reported  net income of $443,000 or $.05 per
share (basic and diluted) for the second  quarter of 1998,  as compared with net
income of $454,000 or $0.05 per share  (basic and  diluted)  for the  comparable
period in 1997.  For the six month periods,  diluted income per share  increased
from $.07 per share in 1997 to $.08 per share in 1998. No assurance can be given
that the Company will continue to be profitable during future periods.

          Per Share  Calculations.  In February 1997,  the Financial  Accounting
Standards  Board issued  Statement of Financial  Accounting  Standards  No. 128,
Earnings per Share ("Statement No. 128"),  effective for fiscal years 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.  See note 3 of the
Notes to the Consolidated Financial Statements.

Liquidity and Capital Resources

          In September 1996, the Company  completed a private  placement of $5.0
million in preferred  stock (all of which was  converted  into Common Stock upon
consummation  of the  Company's  initial  public  offering  in April  1997)  and
warrants (all of which were exercised  during April 1997). The net proceeds were
used to repay  bank debt,  to pay down trade  debt,  to fund  manufacturing  and
product development efforts and for other working capital purposes. During April
1997,  the Company  consummated  its initial public  offering.  In May 1997, the
Underwriters exercised in full their over-allotment option granted in connection
with the initial public offering.  Net proceeds from the initial public offering
(including  the  exercise  of the  over-allotment  option)  and the  exercise of
warrants  during April 1997 were $21.7  million.  In addition,  the Company made
arrangements for a $2 million credit line,  secured by the personal  property of
Bionx Implants, Inc. and its Biostent,  Inc. subsidiary.  Amounts to be advanced
thereunder  are subject to the lender's  discretion  and are limited to specific
percentages of certain domestic  receivables and inventory.  To date, no amounts
have been borrowed pursuant to this facility.

          At December  31,  1997 and June 30,  1998,  cash and cash  equivalents
totaled $22.6 million and $19.6 million,  respectively. The decrease in cash and
cash equivalents of  approximately  $3,000,000 is attributable to investments of
$1.1 million in machinery and equipment in the Finnish  manufacturing  facility,
as well as a $ 1.8 million  increase in inventory  levels in anticipation of new
product launches.

          As of June 30, 1998, the Company had working capital of $24.4 million,
compared with $24.5 million as of December 31, 1997.  Long-term debt of $171,000
increased slightly from the level at the beginning of the year of $158,000. This
debt represents loans obtained from the Finnish government, and carries interest
rates ranging from 1 - 3% per annum.

          The Company believes that existing capital  resources from its initial
public  offering,  its  September  1996 private  placement  and its $2.0 million
credit line,  together  with cash flow from  operations  (if, and to the extent,
generated), will be sufficient to fund its operations through 2000. However, the
Company's  future capital  requirements and the adequacy of available funds will
depend on numerous  factors,  including  market  acceptance  of its existing and
future products,  the successful  commercialization  of products in development,
progress in its product  development  efforts,  the  magnitude and scope of such
efforts,   progress  with  preclinical  studies,  clinical  trials  and  product
clearances by the FDA and other agencies,  the cost and timing of its efforts to
expand  its  manufacturing  capabilities,   the  cost  of  filing,  prosecuting,
defending and enforcing  patent claims and other  intellectual  property rights,
competing  technological  and  market  developments,   and  the  development  of
strategic alliances for the marketing of certain of its products.  The Company's
operations  did not produce  positive cash flows during 1994,  1995 and 1996. To
the extent that funds generated from the Company's operations, together with its
existing  capital  resources  (including  such  credit  facility),  and  the net
interest earned thereon,  are insufficient to meet current or planned  operating
requirements,  the Company will be required to obtain  additional  funds through
equity or debt  financings,  strategic  alliances  with  corporate  partners and
others,  or through other  sources.  The terms of any equity  financings  may be
dilutive  to  stockholders  and the  terms of any debt  financings  may  contain
restrictive  covenants  which  limit the  Company's  ability  to pursue  certain
courses of action. The Company does not have any committed sources of additional
financing  beyond  that  described  above,  and there can be no  assurance  that
additional funding,  if necessary,  will be available on acceptable terms, if at
all. If adequate funds are not available,  the Company may be required to delay,
scale-back or eliminate  certain  aspects of its operations or attempt to obtain
funds through  arrangements  with strategic  partners or others that may require
the  Company  to  relinquish  rights to  certain  of its  technologies,  product
candidates,  products or potential markets. If adequate funds are not available,
the Company's  business,  financial condition and results of operations could be
materially and adversely affected.

Year 2000 Compliance

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


<PAGE>


Part II. Other Information

Item 2.  Changes in Securities and Use of Proceeds

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

          From April 25, 1997 through  June 30,  1998,  the Company has used the
following amount of such net proceeds for the following categories enumerated by
the SEC:

                                                    Reasonable Estimated Amount
                                                          (in thousands)
       Category

       Construction of plant, building and facilities          $    200

       Purchase and installation of machinery and equipment       1,100

       Purchases of real estate                                     -

       Acquisition of other businesses                              -

       Repayment of indebtedness                                    655

       Working capital                                              -

       Short term investments                                    19,245

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

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

Item 4. Results of Votes of Security Holders

          The Annual Meeting of  Stockholders  was held on May 19, 1998, in Blue
Bell,  Pennsylvania.  A class of two  directors  was  nominated  by the Board of
Directors to serve for a three year term and was elected at the meeting. At such
meeting, 5,809,779 shares were voted and a plurality of the votes was needed for
election. The table below discloses the vote which was recorded for each nominee
for office.

                                      For                     Authority Withheld

David W. Anderson                  5,805,304                         4,275
Terry D. Wall                      5,805,604                         3,975


Item 6. Exhibits and Reports on Form 8-K

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

          No. 27.1 Financial Data Schedule

          (b) The  Registrant did not file any Current Report on Form 8-K during
the quarter ended June 30, 1998.



<PAGE>


                                   SIGNATURES

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

                                       BIONX IMPLANTS, INC.





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


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


Dated: August 14, 1998


<PAGE>


                                 EXHIBIT INDEX


Exhibit No.

Exhibit No. 27.1 Financial Data Schedule