<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                            ------------------------


                                  FORM 10-K/A1
                                Amending Item 7
                              and Amending Item 8


[X]  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 2000

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934 for the transition period from ____ to _____

                         Commission File Number 0-22401

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

<TABLE>
<S>                                      <C>
         Pennsylvania                                    22-3458598
(State or other jurisdiction of          (I.R.S. Employer Identification Number)
 incorporation or organization)
</TABLE>

                1777 Sentry Parkway West, Gwynedd Hall, Suite 400
                  Blue Bell, Pennsylvania 19422 (215-643-5000)
               (Address and telephone number, including area code,
                  of registrant's principal executive office)

        Securities registered pursuant to Section 12(b) of the Act: none.

          Securities registered pursuant to Section 12(g) of the Act:

                               Title of each class

                    Common Stock, par value $.0019 per share

         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
reporting requirements for the past 90 days.

                                 Yes   X     No
                                      ---       ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         Aggregate market value of voting stock held by non-affiliates as of
March 22, 2001 was approximately $6,400,000.

         Number of shares of Common Stock outstanding as of March 22, 2001:
10,819,464

         Documents incorporated by reference: Definitive proxy statement for the
registrant's 2001 annual meeting of shareholders (Part III).
<PAGE>   2
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
        FINANCIAL CONDITION


     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes thereto presented elsewhere herein.
The discussion in this Annual Report on Form 10-K contains Forward-Looking
Statements that involve risks and uncertainties. The Company's actual results
could differ materially from those discussed in the Forward-Looking Statements.
Factors that could cause or contribute to such differences include, without
limitation, those discussed in Exhibit 99.1, in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and under the
caption "Business" in this Annual Report on Form 10-K.

OVERVIEW

     The Company was founded in 1984 to develop certain resorbable polymers for
orthopedic uses. The Company has incurred substantial operating losses since its
inception and, as of December 31, 2000, had an accumulated deficit of
approximately $21.3 million. Such losses have resulted to a large extent from
expenses associated with the write off and reserve of impaired inventory, the
development and patenting of the Company's Self-Reinforcing technologies and
resorbable implant designs, preclinical and clinical studies, preparation of
submissions to the FDA and foreign regulatory agencies, the development of
sales, marketing and distribution channels, the write-off of acquired in-process
research and development and the development of the Company's manufacturing
capabilities. The Company has recorded losses in recent periods, including a
loss of approximately $12.5 million in 1999 and $4.6 million in 2000. Although
the Company's revenues grew significantly in the second half of 1996 and during
1997 and 1998, there was no revenue growth during 1999 and revenues decreased by
$2.8 million in 2000. No assurance can be given that revenues will grow in the
future or that revenues will exceed expenses. There can be no assurance that the
Company will be able to successfully commercialize its products or that the
Company will be profitable again.

     During 2000, the Company implemented initiatives to refocus its business
and reallocate critical resources. Management has implemented operation
improvement plans that have included: the addition of critical resources in
areas that will have the greatest impact on sales growth and profit improvement;
consolidation of the sales organization designed to improve sales efficiencies,
increase market coverage, and reduce the Company's cost of sales; and reduction
in sales administration to reduce the Company's overall selling costs.

     The Company's cash and cash equivalents improved from $3.2 million at
December 31, 1999 to $7.1 million at December 31, 2000. The increase was largely
a result of the $3.9 million of net proceeds from the rights offering that the
Company completed in the first quarter 2000. Thus, while funding research and
development at 15% of sales, the Company was able to make substantial
improvements in cash flow management compared to 1999 due to its continued
efforts to implement the management initiatives discussed above.

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

     During 2000 the Company began invoicing European customers in Euro's. The
Company invoices more than 85% of its consolidated revenues in US Dollars.
Approximately 72% of the expenses incurred by the Company are denominated in US
Dollars. The remaining portion of revenues and expenses are denominated in
European currencies, with revenues predominantly in the Euro and expenses
predominantly in the Finnish Markka. Foreign exchange transaction gains and
losses can vary significantly from period to period.

     While the Company's operating losses have resulted in net operating loss
carryforwards of approximately $6.2 million for Federal, foreign and state
income tax reporting purposes as of December 31,

                                     - 29 -
<PAGE>   3

2000, the extent to which such carryforwards are available to offset future U.S.
and Finnish taxable income may be limited as a result of various ownership
changes that have occurred in recent years. Additionally, because 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 these carryforwards for
income tax purposes. Furthermore, income earned by a foreign subsidiary may not
be offset against operating losses of U.S. entities. The statutory tax rates
applicable to the Company and its foreign subsidiaries vary substantially. Tax
rates have fluctuated in the past and may do so in the future. See Note 11 of
the Notes to the Company's Consolidated Financial Statements.

     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.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000


     The following table sets forth, for the periods indicated, the percentage
increase or decrease of certain items included in the Company's consolidated
statements of income.

                                       INCREASE (DECREASE) FROM
                                  PREVIOUS YEAR


<TABLE>
<CAPTION>
                                                      1999 COMPARED   2000 COMPARED
                                                         WITH 1998      WITH 1999

<S>                                                   <C>              <C>
Total Revenues                                              (0.2%)       (13.5%)
Cost of goods sold (note 3 to financial statements)         29.4%         41.7%
Gross profit                                               (45.9%)        10.7%
Selling, general, and administrative expenses               26.0%        (28.3%)
Research and development expenses                           59.2%        (28.6%)
</TABLE>


     Product Sales

     The Company's product sales decreased by 1% from $20.7 million in 1998 to
$20.5 million in 1999, and decreased by 12.3% to $17.9 million in 2000. The
decrease in product sales in 1999 reflected a reduction in sales of Sports
Medicine products, including the Meniscus Arrow, offset to a large degree by the
increase in sales of Orthopedic Trauma and Craniofacial products. Meniscus Arrow
sales were negatively impacted by a reduction in the number of arrows used per
surgery and the increase in non-Arrow sales reflects new products and market
opportunities. The decrease in product sales in 2000 reflected a 7.4% reduction
in sales of Sports Medicine products and a 23.5% reduction in Orthopedic Trauma
and Craniofacial products due to changes in distribution effectiveness and
reduced Meniscus Arrow sales as described above offset by new product sales.
Revenues generated from the sale of instrumentation systems and related loaner
fees represented 8%, 4% and 8% of total sales in 1998, 1999 and 2000, amounting
to $1.7 million in 1998, $.9 million in 1999 and $1.4 million in 2000.
Instrumentation revenues relating to the Meniscus Arrow during 1998, 1999 and
2000 were approximately $0.6 million, $0.3 million and $0.2 million
respectively. Sports Medicine products represented approximately 70% of the
Company's product sales in 2000.

     New products introduced in 2000 accounted for $1.7 million of sales in 2000
as the Company's product development, marketing and sales activities resulted in
a more diverse product line, in line with

                                     - 30 -

<PAGE>   4

the Company's strategy to satisfy surgeon needs by developing new and innovative
procedure specific products.


     During 1998, 1999 and 2000, international product sales represented
approximately 20%, 18%, and 18%, respectively, of the Company's total product
sales. See Note 15 of the Notes to the Company's Consolidated Financial
Statements.


     License and grant revenues. License and grant revenues increased by 48%
from $0.4 million in 1998 to $0.6 million in 1999 and decreased by 52% to $0.3
million in 2000. The fluctuations are the result of the increase in 1999, and
decrease in 2000, of government and university funding for research and
development projects.

     Gross profit; gross profit margins. The Company's gross profit decreased by
46% to $9.0 million in 1999, and increased by 11% to $9.9 million in 2000.
Overall, the Company's gross profit margin was 79% in 1998, 43% in 1999, and 55%
in 2000. The cost of goods sold in 1999 and 2000 includes $6.2 million and $1.5
million, respectively, of charges related to obsolete instrument and implant
inventory. The gross profit excluding these adjustments would have been $15.2
million in 1999 and $11.5 million in 2000. Excluding these adjustments the gross
profit margin would have been 72% in 1999 and 63% in 2000. The reduction in
gross profit margin as a percent of sales is attributable primarily to the
effect of fixed overhead spread over lower sales in 2000 as compared to 1999 and
a change in mix towards products with lower gross margins.

     During 1999 the Company changed its accounting estimate for instruments
consigned to hospitals. The net impact of the change in estimate for the
hospital instruments was $2.45 million. Additionally, the Company identified
certain distributor accounts that had been terminated by the Company and had
outstanding inventory balances. The Company wrote off $1.268 million of
inventory that had been placed with these distributors, used as samples and or
where it was cost prohibitive to pursue such accounts and retrieve the products.
During 1999 the Company also recorded a charge of $1.594 million for excess
implant and instrument inventory due to changes in technology and the
introduction of new and competing instruments.

     In aggregate, the foregoing charges resulted in a Special Charge of $6.241
million during 1999.

     In the fourth quarter of 2000 the Company identified and recorded a charge
for $1.5 million of instrument and implant inventory due to impending changes in
its distribution channel for certain products, including Craniofacial Surgery,
and also as a result of changes in technology and the introduction of new
products.


     The Company amortizes the cost of instrumentation inventory consigned to
distributors and dealers, and classifies this as accumulated amortization. The
Company's total amortization charge for these items was $0.3 million in 1999 and
$0.7 million in 2000. The increase is due to a related increase in the number of
instruments consigned versus the previous practice of selling the instruments.



     Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 26% to $15.9 million in 1999, and decreased
by 28% to $11.4 million in 2000. Such expenses were 78% of product sales in
1999, and 63% of product sales in 2000. The increase in the dollar amount of
selling, general and administrative expenses from 1998 to 1999 is partially
attributable to newly employed sales persons, costs incurred in the launch of
the craniofacial products, increased commission payment obligations and the
beginning of the restructuring of the Company's operations that lead to the
decrease in the dollar amount of selling, general and administrative expenses
during 2000. The decrease in the dollar amount of selling, general and
administrative expenses during 2000 is primarily attributable to reduced sales
expense as the Company restructured its operations and organization to a system
of managed sales agents and distributors from the previously utilized hybrid
structure that included sales employees and is also attributable to reduced
Craniofacial distributor commissions, with reduced sales administration and
marketing costs contributing to the reduction to a lesser extent.



                                     - 31 -
<PAGE>   5


     Research and development. Research and development expenses increased by
59% from $2.4 million in 1998 to $3.8 million in 1999 and decreased by 29% to
$2.7 million in 2000. Research and development as a percentage of product sales
increased during this period from 11% in 1998 to 18% in 1999, and decreased to
15% in 2000. The increase in 1999 reflected an increased volume of product
development work being performed by the Company and the decrease in 2000 is the
result of reduced spending on projects with longer time horizons as the Company
emphasized projects that appear to have shorter development cycles.


     Patents and litigation expense. The Company's fees of $0.3 million in 2000
are reduced significantly compared to fees of $2.1 million in 1999. The Company
incurred legal fees to prosecute (and in one instance settle) three patent
infringements suits during 1999. The patent litigation legal fees incurred
during 1999, and 2000, were part of the Company's efforts to protect and
strengthen its proprietary intellectual property position. As these actions were
not generally as active in 2000, the expenses were reduced.

     Other income and expense. Other income and expense consists of interest
income and expense and miscellaneous expense and income items. The Company
generated net interest income of $1.0 million in 1998, $0.2 million in 1999, and
$0.3 million in 2000. A foreign currency transaction loss of $0.2 million was
recorded in "other income" in 1998, compared to a foreign currency transaction
gain of $0.5 million during 1999 and a loss of $0.5 million in 2000.

     Income taxes. In 1998, the Company recorded an income tax provision of $0.7
million, or 37% of pretax income from operations, reflecting the income
generated by the Finnish subsidiary taxed at the rate of 28%. Although an
operating loss was recorded by the U.S. entity during 1998, no corresponding tax
benefit was recognized due to the net operating loss position in the U.S. During
1999 both the US and Finnish operations had net losses with no benefit recorded.
The tax charge of $63,000 in 1999 was under 1% and represented an adjustment to
the net deferred tax asset. In 2000 there were no charges as the Company had a
loss and there were no taxes required.

     Net income(Loss). The Company reported net income of $1.3 million in 1998,
and losses of $12.5 and $4.6 million in 1999 and 2000, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities " (SFAS 133). SFAS 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
companies to recognize all derivatives as either assets or liabilities on the
balance sheet and measure those instruments at fair value. Gains or losses
resulting from changes in the value of those derivatives would be accounted for,
depending on the use of the derivative and whether it qualifies for hedge
accounting under SFAS 133. Prospective application of SFAS 133, as amended, is
required commencing with the first quarter of the fiscal year beginning after
December 31, 2000, however, earlier application is permitted. The impact of SFAS
133 was not material to our financial position and results of operations.





                                       -32-
<PAGE>   6
QUARTERLY PRODUCT SALES

     The following table presents unaudited product sales information for the
quarters indicated. In the opinion of management, this information has been
prepared on the same basis as the product sales data included in the
Consolidated Financial Statements appearing elsewhere in this Annual Report on
Form 10-K. Product sales for any period are not necessarily indicative of
product sales to be expected for any future period.

<TABLE>
<CAPTION>
                                                                (in thousands)
<S>                                                             <C>
1999
Quarter ended March 31...................................        $  5,107
Quarter ended June 30....................................           4,907
Quarter ended September 30...............................           4,802
Quarter ended December 31................................           5,634

2000
Quarter ended March 31...................................           4,971
Quarter ended June 30....................................           4,397
Quarter ended September 30...............................           4,111
Quarter ended December 31................................           4,454
</TABLE>


     Revenue 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,
competitive sales practices, the ability of the Company to enter into strategic
alliances with corporate partners and the Company's ability to attract and
retain highly qualified technical, sales and marketing personnel. Accordingly,
there can be no assurance that future revenues will not vary significantly from
quarter to quarter.

LIQUIDITY AND CAPITAL RESOURCES

     Historically, the Company has relied upon bank loans, capital contributions
by its principal stockholders and government grants to fund its operations.


     On March 3, 2000, the Company completed a shareholder rights offering,
pursuant to which it raised $4,046,485 (before deducting expenses of
approximately $109,332) and issued 1,586,857 shares of Common Stock. The Company
distributed 0.173 of a subscription right for each share of Common Stock
outstanding on the January 10, 2000 record date for a total of 1,586,857 shares
offered in the rights offering. The subscription price of $2.55 per share was
established by the Board of Directors based on a 15% discount from the market
price on January 14, 2000, at the time the offering was priced.


     The Company's cash and cash equivalents improved from $3.2 million at
December 31, 1999 to $7.1 million at December 31, 2000 largely as a result of
the $3.9 million rights offering that the Company completed in the first quarter
2000 and improvement in maintaining cash flow management as compared to 1999 due
to management operations improvement plans and actions.

     Additionally, during the years 1998 and 1999 the Company used $5,773,131
and $9,349,366 of net cash from operating activities. During 2000, the Company
was able to implement actions to improve operations (as described in the next
paragraph) with the result that net cash in the amount of $70,919 was provided
from operating activities.

     During 2000, the Company implemented initiatives to refocus its business
and reallocate critical resources. Management has implemented an operations
improvement plan that included: addition of critical resources in areas that
will have the greatest impact on sales growth and profit improvement;
consolidation of sales designed to improve sales efficiencies, increase market
coverage, and reduce the Company's cost of

                                       -33-

<PAGE>   7

sales; reduction in sales administration to reduce the Company's overall selling
costs; refocus of R&D investments on new product introductions; consolidation of
global inventories to reduce the Company's overall investment in inventories and
improve customer service levels; reduction in inventory levels to improve
inventory turn rates thereby reducing the Company's cash requirements to support
inventory investments; increase in sales and marketing efforts designed to
expand sales contributions from markets outside of the US; and the
implementation of surgeon educational programs designed to increase surgeon
awareness and use of the Company's products.

     Thus, while funding research and development during 2000 at 15% of sales,
and investing in new treatment modalities and product development that at least
initially and until products are released and enter the market acceptance stage
do not result in dramatic sales increases, the Company was able to make
substantial improvements in cash flow management due to its continued efforts to
complete the management initiatives.

     The Company's total use of cash and cash equivalents for 1998 and 1999 was
$8,418,284 and $11,026,881, respectively, and total generation of cash and cash
equivalents during 2000 was $3,863,591.

     To the extent that funds generated from the Company's operations, together
with its existing capital resources, and the net interest earned thereon, are
insufficient to meet current or planned operating requirements, the Company will
be required to obtain additional funds through equity or debt financings,
strategic alliances with corporate partners and others, or through other
sources. The terms of any further equity financing may be dilutive to
stockholders and the terms of any debt financing may contain restrictive
covenants, which limit the Company's ability to pursue certain courses of
action. The Company does not have any committed sources of 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.
Principal stockholders of the Company who previously provided funding to the
Company and provided guarantees to sources of credit have indicated that they do
not intend to continue furnishing such assistance. If adequate funds are not
available, the Company may be required to delay, scale-back or eliminate certain
aspects of its operations or attempt to obtain funds through arrangements with
strategic partners or others that may require the Company to relinquish rights
to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business, financial
condition and results of operations could be materially and adversely affected.
The Company's future capital requirements and the adequacy of available capital
resources will depend on numerous factors, including the Company's ability to
successfully perform management initiatives initiated in 1999 and 2000, market
acceptance of its existing and future products, the successful commercialization
of products in development, progress in its product development efforts, the
magnitude and scope of such efforts, acquisition opportunities, progress with
preclinical studies, clinical trials and product clearances by the FDA and other
agencies, the cost and timing of the Company's efforts to expand its
manufacturing capabilities, the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights, competing
technological and market developments, and the development of strategic
alliances for the marketing of certain of the Company's products. The
sufficiency of the Company's capital reserves with respect to operations beyond
2000 will depend primarily upon the Company's operating results and the extent
to which such results are capable of funding anticipated growth.

     The Company believes that existing capital resources, together with cash
flow from operations (if, and to the extent, generated), will be sufficient to
fund its operations during 2001. This statement constitutes a Forward-Looking
Statement. Actual results could differ materially from the Company's
expectations regarding its capital requirements and its sources of capital. The
Company's future capital requirements and the adequacy of available funds will
depend on numerous factors, including management's ability to reverse recent
trends, market acceptance of the Company's existing and future products, the
successful commercialization of products in development, progress in its product
development efforts, the magnitude and scope of such efforts, progress with
preclinical studies, clinical trials and product clearances by the FDA and other
agencies, the cost and timing of the Company's efforts to expand its
manufacturing capabilities, the cost of filing, prosecuting, defending and
enforcing

                                      - 34 -
<PAGE>   8

patent claims and other intellectual property rights, competing technological
and market developments, and the development of strategic alliances for the
marketing of certain of its products. The Company's operations did not produce
positive cash flows during 1994, 1995, 1996, 1998 or 1999, and produced $70,919
during 2000. To the extent that funds generated from the Company's operations,
together with its existing capital resources (including its credit facility),
and the net interest earned thereon, are insufficient to meet current or planned
operating requirements, the Company will be required to obtain additional funds
through equity or debt financing, strategic alliances with corporate partners
and others, or through other sources. No assurances can be given that such funds
will be made available to the Company on acceptable terms or otherwise.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company conducts operations in countries other than the United States,
primarily its manufacturing facility in Finland. The Company's consolidated
financial statements are denominated in U.S. dollars, and accordingly, changes
in exchange rates between foreign countries and the U.S. dollar will affect the
translation of financial results of foreign subsidiaries into U.S. dollars for
purposes of recording the Company's consolidated financial results. As of
December 31, 2000, the Company had no foreign currency contracts outstanding.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following financial information is set forth on the following pages
immediately following this page:

<TABLE>
<CAPTION>
                                                                         Page
<S>                                                                     <C>

Independent Auditors' Report                                             F-1

Consolidated Balance Sheets as of
    December 31, 1999 and 2000                                           F-2

Consolidated Statements of Operations
  for the Years Ended December 31,
  1998, 1999 and 2000                                                    F-3

Consolidated Statement of Stockholders'
  Equity and Comprehensive Income for the Years
  Ended December 31, 1998, 1999 and 2000                                 F-4

Consolidated Statements of Cash Flows
  for the Years Ended December 31,
  1998, 1999 and 2000                                                    F-5

Notes to Consolidated Financial Statements                               F-7

Schedule II - Valuation and Qualifying Accounts                          F-19
</TABLE>







                                      -35-
<PAGE>   9






                          INDEPENDENT AUDITORS' REPORT

 Board of Directors and Stockholders
 Bionx Implants, Inc. :

     We have audited the accompanying consolidated balance sheets of Bionx
Implants, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2000. In connection with our audits of the
consolidated financial statements, we also have audited the accompanying
financial statement schedule. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bionx
Implants, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with generally accepted
accounting principles in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.

                                                          KPMG LLP




Philadelphia, Pennsylvania
March 29, 2001





                                      F-1
<PAGE>   10




                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 2000

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,
                                                                                     1999            2000
                                                                                     ----            ----
<S>                                                                             <C>             <C>
ASSETS
Current assets:
    Cash and cash equivalents ...............................................   $  3,186,487    $  7,050,078
    Trade accounts receivable, net of allowance of ..........................      3,540,071       2,526,255
        $440,698 and $246,781 as of December 31, 1999
        and 2000, respectively
    Inventory, net (note 3) .................................................      7,773,882       4,679,082

    Grants receivable .......................................................        136,523         109,405
    Related party receivable (note 5) .......................................        320,549         402,400
    Other receivables .......................................................           --            77,021
    Prepaid expenses and other current assets, net of
              allowance of $223,325 .........................................        913,746         392,076
    Deferred tax asset ......................................................        797,908         797,908
                                                                                ------------    ------------
Total current assets ........................................................     16,669,166      16,034,225

Plant and equipment, net (note 4) ...........................................      2,810,173       2,229,470
Goodwill and intangibles, net ...............................................      3,941,836       3,915,040
                                                                                ------------    ------------
Total assets ................................................................   $ 23,421,175    $ 22,178,735
                                                                                ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Trade accounts payable ..................................................   $  2,940,217    $  2,672,316
    Long-term debt, current portion (note 7) ................................           --             7,007
    Accrued and other current liabilities (note 6)  .........................      2,172,888       1,637,881
                                                                                ------------    ------------
Total current liabilities ...................................................      5,113,105       4,317,204

Long-term debt (note 7) .....................................................         33,370         185,828
Subordinated debt (note 7) ..................................................           --           145,233
Deferred tax liability ......................................................        280,694            --
                                                                                ------------    ------------

Total liabilities ...........................................................      5,427,169       4,648,265
                                                                                ------------    ------------

Stockholders' equity (notes 8 and 10)
      Preferred stock, par value $0.001 per share,
           8,000,000 shares authorized,
           None issued and outstanding ......................................           --              --

     Common stock, par value $0.0019 per share, 31,600,000 shares authorized,
          9,199,085 and 10,819,464 shares issued as of
          December 31, 1999 and 2000, respectively ..........................         17,478          20,557

     Treasury stock, 26,500 shares as
          of December 31, 1999 ..............................................       (161,695)           --
     Additional paid-in capital .............................................     35,891,976      39,872,309
     Accumulated deficit ....................................................    (16,729,122)    (21,337,765)
     Accumulated other comprehensive income .................................     (1,024,631)     (1,024,631)
                                                                                ------------    ------------

Total stockholders' equity ..................................................     17,994,006      17,530,470
                                                                                ------------    ------------

Total liabilities and stockholders' equity ..................................   $ 23,421,175    $ 22,178,735
                                                                                ============    ============
</TABLE>



          See accompanying notes to consolidated financial statements.




                                      F-2
<PAGE>   11




                      BIONX IMPLANTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000

<TABLE>
<CAPTION>
                                                                                              YEARS ENDED DECEMBER 31,
                                                                                    1998               1999                 2000
                                                                               ------------        ------------        ------------
<S>                                                                            <C>                 <C>                 <C>
Revenues:
  Product sales ........................................................       $ 20,682,965        $ 20,450,448        $ 17,932,871
  License and grant revenues (note 12) .................................            417,507             617,716             298,913
                                                                               ------------        ------------        ------------
        Total revenues .................................................         21,100,472          21,068,164          18,231,784
                                                                               ------------        ------------        ------------

Cost of goods sold (note 3) ............................................          4,527,301           5,857,189           8,299,048
Special charge related to instrument
    and  implant inventory .............................................                 --           6,241,000                  --
                                                                               ------------        ------------        ------------

Gross profit ...........................................................         16,573,171           8,969,975           9,932,736
                                                                               ------------        ------------        ------------

Selling, general and administrative ....................................         12,609,532          15,887,518          11,392,089
Research and development ...............................................          2,360,485           3,758,680           2,682,256
Severance charges ......................................................               --               296,082                --
Patents and litigation expense .........................................            350,000           2,141,332             333,782
                                                                               ------------        ------------        ------------

Total operating expenses ...............................................         15,320,017          22,083,612          14,408,127
                                                                               ------------        ------------        ------------

Operating income (loss) ................................................          1,253,154         (13,113,637)         (4,475,391)
                                                                               ------------        ------------        ------------

Other income and (expenses):
  Interest income net ..................................................            985,609             247,502             333,124
  Other, net ...........................................................           (236,002)            466,197            (466,376)
                                                                               ------------        ------------        ------------

  Total other income and (expenses), net ...............................            749,607             713,699            (133,252)
                                                                               ------------        ------------        ------------

Income (loss) before provision for income
  taxes ................................................................          2,002,761         (12,399,938)         (4,608,643)
Provision for income taxes (note 11) ...................................           (741,416)            (63,175)               --
                                                                               ------------        ------------        ------------

Net income (loss) ......................................................       $  1,261,345        $(12,463,113)       $ (4,608,643)
                                                                               ============        ============        ============

Earnings (loss) per share (note 2):
    Basic ..............................................................       $       0.14        $      (1.39)       $       (.44)
    Diluted ............................................................               0.14               (1.39)               (.44)
Shares used in computing Earnings (loss) per share (note 2):
    Basic ..............................................................          8,918,391           8,942,866          10,503,316
    Diluted ............................................................          9,243,369           8,942,866          10,503,316
</TABLE>


          See accompanying notes to consolidated financial statements.





                                      F-3

<PAGE>   12



                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000



<TABLE>
<CAPTION>
                                                                                                        FOREIGN
                                          COMMON                         ADDITIONAL                     CURRENCY          TOTAL
                                           STOCK         TREASURY         PAID-IN       ACCUMULATED    TRANSLATION     STOCKHOLDERS'
                                         PAR VALUE         STOCK          CAPITAL         DEFICIT       ADJUSTMENT         EQUITY
                                        ------------    ------------    ------------   ------------    ------------    ------------

<S>                                     <C> <C>         <C>             <C>            <C>             <C>             <C>
Balance, December 31, 1997              $     16,942            --      $ 35,616,254   $ (5,527,354)   $ (1,024,631)   $ 29,081,211


Treasury stock purchased                        --      $   (128,198)           --             --              --          (128,198)
Proceeds from the exercise of
   incentive stock options                        10            --            26,248           --              --            26,258
Comprehensive income                            --              --              --       1,261,345             --         1,261,345
                                        ------------    ------------    ------------   ------------    ------------    ------------


Balance, December 31, 1998              $     16,952    $   (128,198)   $ 35,642,502   $ (4,266,009)   $ (1,024,631)   $ 30,240,616


Treasury stock purchased                        --           (33,497)           --             --              --           (33,497)
Proceeds from the exercise
    of incentive stock options                   526            --           249,474           --              --           250,000
Comprehensive  (loss)                           --              --              --      (12,463,113)           --       (12,463,113)
                                        ------------    ------------    ------------   ------------    ------------    ------------

Balance, December 31, 1999              $     17,478    $   (161,695)   $ 35,891,976   $(16,729,122)   $ (1,024,631)   $ 17,994,006


Proceeds from Rights Offering                  3,015            --         4,046,485           --              --         4,049,500
Offering Costs                                  --              --          (109,332)          --              --          (109,332)
Issue of shares to employee
    investment plan                               64         161,695          43,180           --              --           204,939
Comprehensive (loss)                            --              --              --       (4,608,643)           --        (4,608,643)
                                        ------------    ------------    ------------   ------------    ------------    ------------
Balance, December 31, 2000              $     20,557    $       --      $ 39,872,309   $(21,337,765)   $ (1,024,631)   $ 17,530,470
</TABLE>




          See accompanying notes to consolidated financial statements.



                                      F-4
<PAGE>   13





                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000





<TABLE>
<CAPTION>
                                                                                               YEARS ENDED DECEMBER 31,
                                                                                          1998            1999            2000
                                                                                       ------------    ------------    ------------
<S>                                                                                    <C>             <C>             <C>
Cash flows from operating activities:
  Net income (loss) ................................................................   $  1,261,345    $(12,463,113)   $ (4,608,643)
                                                                                       ------------    ------------    ------------

  Adjustments to reconcile net income (loss) to net cash (used in) provided by
  operating activities:
 Depreciation and amortization .....................................................        815,781       1,391,646       1,264,632
 Consignment amortization ..........................................................        290,005         295,331         698,948

 Deferred tax provision ............................................................       (225,389)         63,175        (280,694)
 Provision for bad debts............................................................           --           297,815        (193,917)
 Special charge related to inventory (Note 3) ......................................           --         6,241,000            --
 Change in assets and liabilities:
  (Increase) decrease in inventory .................................................     (2,093,182)     (4,532,225)      2,395,852
  (Increase) decrease in accounts receivable, net ..................................     (7,228,460)        805,394       1,207,733
  (Increase) decrease in grant receivable ..........................................        (59,935)         52,365          27,118
  (Increase) decrease in prepaid expense, related
    party and other assets .........................................................       (576,878)       (269,191)        362,798
  Increase (decrease) in accounts payable ..........................................      2,401,446      (1,236,189)       (267,901)
  (Decrease) in related party payables .............................................        (74,358)           --              --
  (Decrease) in current tax liability ..............................................       (664,951)       (577,673)           --
  Increase (decrease) in accrued and other
     liabilities ...................................................................        381,445         582,299        (535,007)
                                                                                       ------------    ------------    ------------


Net cash provided by (used in) operating
  activities .......................................................................   $ (5,773,131)   $ (9,349,366)   $     70,919
                                                                                       ------------    ------------    ------------
</TABLE>





                                      F-5

<PAGE>   14



                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000


<TABLE>
<CAPTION>
                                                                                                                        Continued

                                                                                1998                 1999                   2000
                                                                           ------------          ------------          ------------
<S>                                                                        <C>                   <C>                   <C>
Cash flows from investing activities:
  Purchases of plant and equipment ...............................         $ (2,044,271)         $ (1,192,436)         $   (251,702)
  Purchases of intangibles .......................................             (455,627)             (619,583)             (405,431)
                                                                           ------------          ------------          ------------

Net cash used in investing activities ............................           (2,499,898)           (1,812,019)             (657,133)
                                                                           ------------          ------------          ------------

Cash flows from financing activities:
  Proceeds from increase of long-term debt .......................                 --                    --                 304,698

  Repayment of long-term debt ....................................              (43,315)              (81,999)                 --
  Purchase of treasury shares ....................................             (128,198)              (33,497)
  Proceeds from rights offering ..................................                 --                     --               3,940,168
  Proceeds from employee investment plan .........................                 --                     --                 204,939
  Proceeds from exercise of employee
    stock options ................................................               26,258               250,000                  --
                                                                           ------------          ------------          ------------


Net cash provided by (used in) financing activities ..............         $   (145,255)         $    134,504          $  4,449,805
                                                                           ------------          ------------          ------------


Net increase (decrease) in cash and
  cash equivalents ...............................................         $ (8,418,284)         $(11,026,881)         $  3,863,591


Cash and cash equivalents at beginning of year ...................         $ 22,631,652          $ 14,213,368          $  3,186,487
                                                                           ------------          ------------          ------------

Cash and cash equivalents at end of year .........................         $ 14,213,368          $  3,186,487          $  7,050,078
                                                                           ============          ============          ============



Supplemental disclosure of cash flow information:
Cash paid for interest ...........................................         $      1,423          $      3,258          $      5,033
Cash paid for taxes ..............................................         $  1,631,756          $    275,321          $       --
                                                                           ============          ============          ============
</TABLE>


           See accompanying notes to consolidated financial statements






                                      F-6
<PAGE>   15



                      BIONX IMPLANTS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1) ORGANIZATION

     Reincorporation

     On August 27, 1999, the Company reincorporated, changing its state of
incorporation from Delaware to Pennsylvania. The reincorporation was approved by
the Company's stockholders at the Company's annual meeting of stockholders on
August 13, 1999. There was no change in the name, business, management, benefit
plans, location, assets, liabilities or net worth of the Company as a result of
the reincorporation.

     Business Purpose

     The Company is a leading developer, manufacturer and marketer of
self-reinforced, resorbable polymer implants, including screws, pins and arrows,
for use in a variety of applications which include orthopedic surgery, dentistry
and craniofacial surgery. The Company's proprietary manufacturing processes
self-reinforce a resorbable polymer, modifying the gel-like or brittle polymer
structure into a physiologically strong structure with controlled, variable
strength retention (ranging from three weeks to six months depending upon the
medical indication). The Company currently markets its product lines through
managed networks of independent agents, distributors and dealers.


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation

     The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

     Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

     Cash and Cash Equivalents

     The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. Cash and
cash equivalents include cash on hand and in the bank as well as short-term
securities. The carrying amount of cash and cash equivalents approximates its
fair value due to its short-term nature.

     Inventory

     Inventory is valued at the lower of cost or market, with cost being
determined under a first-in, first-out (FIFO) method. Reserves are generally
established for excess and obsolete inventory on a specific identification
basis. The instrument inventory, to the extent it is released on consignment to
dealers and distributors, is amortized over its estimated useful life of three
years.



                                      F-7
<PAGE>   16


     Plant and Equipment

     Major additions and replacements of assets are capitalized at cost.
Maintenance, repairs, and minor replacements are expensed as incurred. Machinery
and equipment are depreciated using the straight-line method over a five to
fifteen-year period. Software costs are stated at cost, and are amortized using
the straight-line method over 5 to 7 years. Leasehold improvements are amortized
using the straight-line method over the estimated useful life of the asset or
the lease term, whichever is shorter. Upon retirement or sale, the cost of the
asset disposed of and the related accumulated depreciation are removed from the
accounts and any resulting gain or loss is credited or charged to operations.

     Intangibles

     Patents and rights are stated at cost. Amortization of patents is recorded
using the straight-line method over the remaining legal lives of the patents,
generally for periods ranging up to 12 years. Accumulated amortization related
to intangibles was $616,398 and $748,026 at December 31, 1999 and 2000,
respectively.

     The Company's policy is to evaluate the appropriateness of the carrying
value of the unamortized balances of intangible assets on the basis of estimated
future cash flows (undiscounted) and other factors. If such evaluation were to
indicate an impairment of these intangible assets, such impairment would be
recognized by a write-down of the applicable assets. The Company continues to
evaluate the continuing value of patents and patent applications, particularly
as expenses to prosecute or maintain these patents come due. Through this
evaluation, the Company may elect to continue to maintain these patents, seek to
out-license them or abandon them.

     Goodwill


     Goodwill, representing costs in excess of the fair value of assets
acquired, is amortized on a straight-line basis over 20 years. On a periodic
basis, the Company evaluates the carrying value of intangible assets based upon
expectations of undiscounted cash flows. Accumulated amortization related to
Goodwill was $536,473 and $837,072 at December 31, 1999 and 2000, respectively.
Goodwill was $3,939,763 at December 31, 1999 and 2000.



     Certain Risks and Concentrations

     The Company extends unsecured trade credit in connection with its
commercial sales to a diversified customer base comprised of both foreign and
domestic entities, most of which are concentrated in the healthcare industry.

     The Company invests its excess cash in deposits with major U.S. financial
institutions and money market funds. To date, the Company has not experienced
any losses on its cash equivalents and money market funds.

     The Company's products require approvals or clearances from the U.S. Food
and Drug Administration (FDA) and international regulatory agencies prior to
commercialized sales. There can be no assurance that the Company's products will
receive any of the required approvals or clearances. If the Company was denied
such approvals or clearances, or such approvals or clearances were delayed, it
would have a material adverse impact on the results of operations and financial
position of the Company.

     Fair Value of Financial Instruments

     Financial Accounting Standards Board Statement No. 107, Disclosures About
Fair Value of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. Cash, trade accounts receivable, prepaid
expenses and other current assets, trade accounts payable, long term debt, and
accrued expenses


                                      F-8

<PAGE>   17

reported in the balance sheets equal or approximate fair value due to their
short maturities. Based on the borrowing rates currently available to the
Company, the fair value of all of the Company's loans is approximately their
carrying value.

     Stock Option Plan

     Effective January 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosures required by SFAS No. 123.

     Revenue Recognition

     Revenue from product sales is recognized upon shipment and passage of title
to the customer. Revenue from license fees is recognized when the required
milestones are met. Revenue from grant agreements is recognized in the period in
which the related expenses are incurred and in accordance with the Company's
obligations under the terms of the respective grants.

     Shipping and Handling Costs


     The company records shipping and handling costs in selling, general and
administrative expenses. Such costs amounted to $420,000, and $459,000 in 1999
and 2000. Charges to customers for shipping and handling are included in total
revenues.


     Research and Development

     All research and development costs are expensed as incurred.

     Other Income and Expenses

     Other Income and Expenses includes interest income and the effect of the
remeasurement of foreign currency accounts of the Company's subsidiary in
Finland. Net foreign currency remeasurement gains of $466,197 were recorded in
"other income and expenses" in 1999 and net foreign currency remeasurement
losses of $466,376 were recorded in "other income and expenses" in 2000.


     Foreign Currency Translation

     Effective January 1, 1998, the Company changed the functional currency of
its Finnish subsidiary, from the Finnish Markka to the US Dollar. This change
arose due to certain changes in the economic conditions of the Finnish
operations. The underlying economic factors, which influenced the Company's
decision to change the functional currency, was derived from an analysis of the
indicators outlined in FAS 52, Appendix A. This included an analysis of the
currency denominations of the related assets, cash flows, revenues and expenses
of the Finnish operating subsidiary.

     Accounting for Income Taxes

     Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when such
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits, which are
not expected to be realized. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that such tax rate change
is enacted.


                                      F-9


<PAGE>   18


     Earnings (Loss) Per Share

     Basic earnings (loss) per share is computed using the weighted average
number of shares of common stock outstanding during the period, giving effect to
any treasury shares. Diluted earnings (loss) per share are computed using the
weighted average number of common and potential dilutive common shares
outstanding during the period. Potential dilutive common shares consist of stock
options and warrants using the treasury stock method and are excluded if their
effect is antidilutive.

     The following table sets forth the calculation of the total number of
shares used in the computation of earnings (loss) per common share for the years
ended December 31, 1998, 1999 and 2000:

<TABLE>
<CAPTION>
                                                                                  1998                 1999                  2000
                                                                              ----------            ----------            ----------
<S>                                                                           <C>                   <C>                  <C>
Shares used in computing basic
        earnings (loss) per share                                              8,918,391             8,942,866            10,503,316

Incremental shares from assumed exercise of
        dilutive options and warrants                                            324,978                  --                    --
                                                                              ----------            ----------            ----------

Shares used in computing pro forma diluted
        earnings (loss) per share                                              9,243,369             8,942,866            10,503,316
                                                                              ==========            ==========            ==========
</TABLE>


     During the year ended December 31, 1999 and 2000 there were 718,043 and
805,038, respectively, stock options that were considered antidilutive and,
accordingly, excluded in the calculation of earnings (loss) per share.


     Reclassifications

     Certain amounts in the 1998 and 1999 financial statements have been
reclassified to conform to the current year presentation.


                                      F-10
<PAGE>   19


(3) INVENTORY

     Inventory consists of the following components as of December 31, 1999 and
2000:

<TABLE>
<CAPTION>
                                                                           1999                     2000
                                                                      ------------              ------------

<S>                                                                   <C>                       <C>
Raw materials                                                         $  1,121,084              $    745,191
Finished goods - Implants                                                2,844,216                 2,698,371
Instruments                                                              4,504,934                 3,854,701
Instruments on consignment                                               3,099,711                 2,494,858
                                                                      ------------              ------------
                                                                        11,569,945                 9,793,121
       Less:
             Inventory reserve for obsolete and excess
                  instruments and implants                              (2,700,972)               (3,320,000)
             Accumulated amortization
              - consigned instruments                                   (1,095,091)               (1,794,039)
                                                                      ------------              ------------
                                                                      $  7,773,882              $  4,679,082
                                                                      ============              ============
</TABLE>

The Company amortizes the cost of instrumentation inventory consigned to dealers
and distributors over the estimated economic life of the instruments, generally
over 3 years.

In the fourth quarter of 1999, the Company changed its accounting estimate for
instruments consigned to hospitals. Since the Company can not control future
purchases from such hospitals and it is cost prohibitive to return the
instruments, the Company began expensing the instruments on the initial sale to
the hospital. In accordance with APB Opinion 20, the Company wrote off $ 4.0
million of hospital gross inventory and added back an associated $1.6 million of
accumulated amortization, for a net $2.45 million write off.


                                      F-11
<PAGE>   20


Additionally, in the fourth quarter of 1999, the Company identified certain
distributor accounts that had been terminated by the Company and had outstanding
inventory balances. The Company wrote off $382,000 of gross implant inventory
and $886,000 of gross instrument that had been placed with these distributors,
used as samples and or it is cost prohibitive to pursue such accounts and
retrieve the products.

In the second quarter of 1999, the Company recorded a charge of $929,000 for
excess implant and instrument inventory due to changes in technology and the
introduction of new and competing instruments. This charge was increased by
$1,594,000 in the fourth quarter as these continued changes in technology
created excess inventory.

In aggregate, the foregoing charges resulted in a Special Charge of $6.241
million during 1999.

In the fourth quarter of 2000 the Company recorded a charge of $1,534,000 for
excess implant and instrument inventory primarily due to a change that is
occurring in the Company's distribution channel for Craniofacial Surgery
products and, to a lesser extent, Orthopedic Trauma products and changes in
technology and the introduction of new and competing instruments.

(4) PLANT AND EQUIPMENT

     Plant and equipment consist of the following components as of December 31,
1999 and 2000:

<TABLE>
<CAPTION>
                                                     1999                2000
                                                  -----------       -----------
<S>                                               <C>               <C>
Machinery and production equipment                $ 2,718,278       $ 2,776,541
Construction in progress                               98,773             8,039
Furniture and fixtures                                983,744         1,129,181
Capitalized software costs                            566,056           611,625
Computer equipment                                    260,986           350,657
                                                  -----------       -----------
                                                    4,627,837         4,876,043
Less accumulated depreciation                      (1,817,664)       (2,646,573)
                                                  -----------       -----------
                                                  $ 2,810,173       $ 2,229,470
                                                  ===========       ===========
</TABLE>

(5) RELATED PARTY TRANSACTIONS

     The Company's product development efforts are dependent upon Dr. Tormala,
who is a founder, director, and executive officer of the Company and is
currently an Academy Professor at the Technical University in Tampere, Finland
and as such is permitted by the University to devote his efforts to developing
new products for the Company. This executive 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 impacting the Company's technology and processes. This arrangement,
partially funded by the Company and permitted in Finland as a means of
encouraging the commercialization of technological development, has resulted in
substantial cost savings to the Company while substantially expanding its
product development effort. The Company's funding obligation, which amounted to
$328,000, $417,000 and $315,000 during the years ended December 31, 1998, 1999
and 2000 respectively, consists of providing the University with reasonable
compensation for University resources (including graduate students) utilized by
the Company. In addition, Dr. Tormala has a non-interest bearing loan from the
Company. As of December 31, 1998, 1999 and 2000, the amount of the loan was
$36,180 for expenses paid on his behalf.

During 1998 the Company made advances of $9,158 (50,000 Finnish Markka) on
behalf of a related party, Bioabsorbable Concepts, Inc., which is owned by
certain shareholders, directors, and officers of the Company. This amount
was outstanding as of December 31, 1998, 1999 and 2000.

The Company has paid certain administrative expenses on behalf of Bionix B.V.,
which is owned by certain shareholders, directors, and officers of the Company,
a related party. The loan amounts outstanding were $229,791, $259,311 and
$357,062 as of December 31, 1998, 1999 and 2000, respectively.



                                      F-12
<PAGE>   21


(6) ACCRUED AND OTHER CURRENT LIABILITIES

     Accrued and other current liabilities consist of the following components
as of December 31, 1999 and 2000:


<TABLE>
<CAPTION>
                                                      1999               2000
                                                   ----------         ----------
<S>                                                <C>                <C>
Commissions ..............................         $   85,727         $   42,466
Royalties ................................            290,345            284,211
Wages and Benefits .......................          1,065,976            552,826
Taxes withheld ...........................            281,810            111,100
Interest .................................                --               5,547
Professional fees ........................             15,000             57,715
Research .................................             18,750            215,487
Severance ................................             94,203                --

Patents ..................................            127,123             67,080
Returns and Allowances ...................                --              31,352
Employee Investment Plan .................                --              81,062
Other ....................................            193,954            189,035
                                                   ----------         ----------
                                                   $2,172,888         $1,637,881
</TABLE>


During the second quarter of 1999, the Company incurred a one-time severance
charge of $275,000 and incurred further charges of $21,000 during the remainder
of the year related to additional employee severances. These severance charges
relate to the organizational restructuring of the Company, including severance
payments to the Company's former chief executive officer, chief financial
officer and vice president of sales. The majority of the severance charges were
paid prior to December 31, 1999.


(7) LONG-TERM DEBT

     Long-term debt consists of the following components as of December 31, 1999
and 2000:



<TABLE>
<CAPTION>
                                                     1999                2000
                                                  ---------           ---------
<S>                                              <C>                 <C>
Subordinated debt.......................               --             $ 145,233
Other debt .............................          $  33,370             192,835
                                                  ---------           ---------
                                                     33,370             338,068
Less current portion ...................               --                (7,007)
                                                  ---------           ---------
                                                  $  33,370           $ 331,061
                                                  =========           =========
</TABLE>



Long-term debt represent the following:


(1)  Subordinated loan, from the National Technology agency, is borrowed at an
     interest rate of 1% below the agency's short term base rate of 4.5% at
     December 31, 2000. The amount is 990,000 Finnish marks, equivalent to
     145,233 US dollars at 12/31/00 and are due in annual installments through
     2006. The loan is subordinated to long-term debt.


(2)  Long Term loans represents the aggregate of such loans payable to National
     Technology agency at an interest rate of 3% below the agency's short term
     base rate of 4.5% at December 31, 2000 and are due in annual installments
     through 2006.







                                      F-13
<PAGE>   22



(8) COMMON STOCKHOLDERS' EQUITY


     During the second quarter of 1997, the Company completed its IPO of
2,300,000 shares of Common Stock (including the exercise of the underwriters'
over-allotment of 300,000 shares) at $10.50 per share. Upon consummation of the
IPO, the 2,000,000 shares of Series A Preferred outstanding automatically
converted into 1,052,638 shares of common stock on a 1 for 1.9 basis. An
additional 245,065 shares of Common Stock were issued upon the exercise of all
outstanding warrants. The net proceeds of the IPO, after underwriting discounts
and costs in connection with the sale and distribution of the securities and the
exercise of the warrants, were approximately $21.7 million.

     During the fourth quarter of 1998, the Company's board of directors
announced a buy-back program to repurchase its common stock from time to time.
During 1998 and 1999, the Company repurchased 20,500 shares and 6,000 shares,
respectively for a purchase price of $128,198 and $33,497, respectively. These
shares were purchased by and issued to employees under the Bionx Investment Plan
during 2000, see Note (13).


     On March 3, 2000, the Company completed a shareholder rights offering,
pursuant to which it raised $4,046,485 (before deducting expenses of $109,332)
and issued 1,586,857 shares of Common Stock. The Company distributed 0.173 of a
subscription right for each share of Common Stock outstanding on the January 10,
2000 record date for a total of 1,586,857 shares offered in the rights offering.
The subscription price of $2.55 per share was established by the Board of
Directors based on a 15% discount from the market price on January 14, 2000, at
the time the offering was priced.



(9) COMMITMENTS AND CONTINGENCIES

     The Company leases offices and laboratory facilities, equipment, and
vehicles under various non-cancelable operating lease arrangements. Future
minimum rental commitments required by such leases are as follows:



<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
<S>                       <C>
      2001               $475,705
      2002                455,930
      2003                285,033
      2004                183,977
</TABLE>


     Rental expense for the years ended December 31, 1998, 1999 and 2000
aggregated $454,702, $421,609, and $377,599, respectively.

(10) STOCK OPTION PLANS

     In September 1996, the Board of Directors adopted a stock option plan (the
1996 Option Plan) under which the number of common shares that may be issued
under the Option Plan, as amended, cannot exceed 850,000 shares. On June 9, 2000
an amendment to the plan was adopted with shareholder approval to the effect
that the number of common shares that may be issued under the Option Plan, as
amended, cannot exceed 850,000 shares plus an annual increase equal to the
lessor of 5% of the annual outstanding shares (on a non-diluted basis) or a
number of shares to be determined by the Board of Directors. The 1996 Option
Plan permits the granting of both incentive stock options and non-qualified
options. Options are exercisable over a period determined by the Board of
Directors, but no longer than ten years after the grant date.

     At December 31, 2000, there were 44,962 additional shares available for
grant under the 1996 Option Plan. The per share weighted-average fair value of
stock options granted in 1998, 1999 and 2000

                                      F-14
<PAGE>   23

was $12.43, $2.47 and $1.66 respectively, on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions for
the years ended December 31:


<TABLE>
<CAPTION>
                                           1998            1999          2000
                                           ----            ----          ----
<S>                                       <C>            <C>          <C>
Risk-free interest rate                     5.30%          6.25%        5.77%
Expected dividend yield                     --             --           --
Volatility of stock price                  84.7%          100.0%        91.6%
Expected life of options                   10              3.5          3.5
</TABLE>


     The Company applies APB Opinion No. 25 in accounting for its 1996 Option
Plan and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net loss would have been increased and net income
decreased as indicated below:


<TABLE>
<CAPTION>
                                                 1998            1999             2000
                                                 ----            ----             ----
<S>                                       <C>               <C>             <C>
Net income (loss):
        As reported                        $ 1,261,345       $ (12,463,113)  $ (4,608,643)
        Pro forma                              913,106         (12,768,154)    (4,951,068)

Basic earnings (loss) per common share:
        As reported                               0.14             (1.39)         (0.44)
        Pro forma                                 0.10             (1.43)         (0.47)

Dilutive earnings (loss) per common share:
        As reported                               0.14             (1.39)         (0.44)
        Pro forma                                 0.10             (1.43)         (0.47)
</TABLE>





     A summary of activity under the 1996 Option Plan from January 1, 1997 to
December 31, 2000 is as follows:


                                      F-15
<PAGE>   24



<TABLE>
<CAPTION>
                                                                   RANGE OF EXERCISE
                                                        SHARES     PRICES PER SHARE
                                                        ------     ----------------
<S>                                                    <C>          <C>
Balance, December 31, 1997 .....................       658,726       0.90-25.00

  Granted ......................................        91,350       6.38 -22.00
  Exercised ....................................        (5,264)      4.75 -9.50
  Forfeited ....................................      (240,210)      4.75-25.00
                                                      --------       -----------
Balance, December 31, 1998 .....................       504,602       4.75-22.00

  Granted ......................................       507,500       2.38 -5.50
  Exercised ....................................      (277,009)           0.9025
  Forfeited ....................................       (17,050)      15.50-22.00
                                                      --------       -----------
Balance, December 31, 1999......................       718,043       2.38-22.00

  Granted ......................................       290,891       2.77-4.68
  Exercised ....................................          --                --
  Forfeited ....................................      (203,896)      3.19-22.00
                                                      --------       -----------
Balance, December 31, 2000 .....................       805,038       2.77-22.00

Shares exercisable at December 31, 2000 ........       143,390       2.25-22.00
                                                      --------
</TABLE>


     The following table summarizes information about stock options outstanding
under the 1996 Option Plan at December 31, 2000:

<TABLE>
<CAPTION>
                        OPTIONS OUTSTANDING                  OPTIONS EXERCISABLE
                        -------------------                  -------------------
                             Weighted
  Range of                   Average       Weighted                       Weighted
  Exercise      Number      Remaining       Average                       Average
   Prices     Outstanding  Contractual     Exercise          Number       Exercise
                           Life (Years)      Price        Exercisable      Price
-----------   -----------  ------------    ---------      -----------     ---------
<S>           <C>          <C>            <C>             <C>             <C>
$ 2.25-3.31      269,660        9.3        $  2.96            14,000      $   2.63
  4.13-4.75      470,212        8.7           4.16           102,528          4.17
  5.50-9.50       21,316        7.8           6.62             9,052          6.74
15.50-22.00       43,850        7.5          18.25            17,810         18.21
                  ------                                      ------

$2.25-22.00      805,038        8.8        $  4.59           143,390      $   5.93
                 =======                                     =======
</TABLE>


(11) INCOME TAXES


At December 31, 2000, the Company and its subsidiaries had available U.S.
federal net operating loss carryforwards ("NOL") of approximately $4,700,000 and
U.S. state net operating loss carryforwards of approximately $1,500,000 for
income tax reporting purposes, which are available to offset future federal and
state taxable income, if any, through 2020 and 2010, respectively. Additionally,
the Company had an NOL of approximately $3,200,000 for foreign income tax
purposes which is available to offset future foreign taxable income, if any,
through 2010.


The Tax Reform Act of 1986 (the "Act") provides for a limitation on the annual
use of U.S. NOL carryforwards (following certain ownership changes, as defined
by the Act) that could significantly limit the Company's ability to utilize
certain carryforwards. As defined by the Act the utilization of a corporation's
net operating loss carryforward is limited following a greater than 50% change
in ownership. Due to the Company's prior and current equity transactions, the
Company's net operating loss carryforwards may be subject to an annual
limitation generally determined by multiplying the value of the Company on the
date of the ownership change by the federal long-term tax exempt rate. Any
unused annual limitation may be carried forward to future years for the balance
of the net operating loss carryforward period.


Income tax expense attributable to the income (loss) before provision for taxes
was $741,416, $63,175 and $0 for the years ended December 31, 1998, 1999
and 2000, respectively, and differed from


                                      F-16
<PAGE>   25

the amounts computed by applying the U.S. federal income tax rate of 35 percent
to pretax income (loss) as a result of the following:



<TABLE>
<CAPTION>
                                                                                  1998                  1999                2000

<S>                                                                           <C>                  <C>                  <C>
Computed "expected" tax (benefit) expense                                     $   700,966          $(4,362,090)         $(1,613,028)
Increase (reduction) in income taxes resulting from:
  Difference in the foreign tax rates                                            (303,800)              20,246              118,446
  Net change in the valuation allowance for
     deferred tax assets                                                          218,936            4,308,076            1,463,323
  Permanent Items                                                                 106,831              115,011              103,935
  Other, net                                                                       18,483              (18,068)            (72,676)
                                                                              -----------          -----------          -----------
Income tax expense (benefit)                                                  $   741,416          $    63,175          $         0
                                                                              ===========          ===========          ===========
</TABLE>


The income tax expense for the years ended December 31, 1998, 1999, and 2000
relate to the foreign operations of the Company. There were no federal or state
income taxes in the United States for the years ended December 31, 1998, 1999
and 2000 due to the operating losses in such jurisdictions.

Income tax expense consisted of the following:


<TABLE>
<CAPTION>
                                                                             1998                    1999                    2000

<S>                                                                        <C>                     <C>                   <C>
Current Provision                                                          $ 966,805               $       0               280,694
Deferred (benefit) expense                                                  (225,389)                 63,175             $(280,694)
                                                                           ---------               ---------              ---------
Total income tax (benefit) expense                                           741,416                  63,175                      0
                                                                           =========               =========              =========
</TABLE>


The tax effects of temporary differences that give rise to significant portions
of the Federal, foreign and state deferred tax assets at December 31, 1999 and
2000 are presented below:



<TABLE>
<CAPTION>
                                                                                                  1999                        2000
<S>                                                                                            <C>                      <C>
Deferred tax assets:
  Net operating loss carryforwards                                                             $ 2,122,125              $ 2,663,772
  Research & development costs                                                                     109,890                  109,890
  Deferred intercompany profits                                                                  1,723,861                1,616,008

  Recognition of accrued expenses or reserves for
   financial statement reporting purposes but not for
   income tax reporting purposes                                                                 3,390,245                3,520,010
   Depreciation & Other                                                                                                      76,134
  Total gross deferred tax assets                                                              $ 7,346,121              $ 7,985,814

Deferred tax liability:
  Depreciation expense                                                                            (289,702)                       0

Total net deferred tax assets                                                                    7,056,419                7,985,814

  Less valuation allowance                                                                      (6,539,205)              (7,187,906)

Net deferred tax assets                                                                        $   517,214              $   797,908
</TABLE>




                                      F-17
<PAGE>   26



Realization of net deferred tax assets is dependent on future earnings, which
are uncertain. Accordingly, a valuation allowance was recorded by the Company
against certain assets at December 31, 1999 and 2000. The total valuation
allowance increased by $5,150,968 and $648,701 for the years ended December 31,
1999 and 2000, respectively.


The Company's subsidiary in Finland incurred a net operating loss for the year
ended December 31, 2000 which can be carried forward to future years. A net
deferred tax asset of $797,908 was established for the prior year net operating
loss carryforward since it is the opinion of management that the subsidiary will
more likely than not be able to realize this benefit.

(12) LICENSE AND GRANT REVENUE

     The Company has applied for grants from the Finnish government to conduct
research on resorbable polymers. The revenue from such grants was $417,507,
$617,716 and $298,913 for the years ended December 31, 1998, 1999 and 2000,
respectively. In connection with such grants, the Company typically commits to
perform research projects and to report on the status of, and the conclusions
drawn from, its projects.

(13) EMPLOYEE BENEFIT PLANS

     The Company provides a 401(K) Retirement Plan (The Bionx Implants, Inc.
401(K) Retirement Savings Plan) for all full-time U. S. based employees.
Employees can contribute up to 15% of their total W-2 income. The Company
matches 20% of the first 6% of defined income that the employee contributes.
The Company's contributions were $22,927 and $20,431 in 1999 and 2000,
respectively.

     During 2000 the Company established The Bionx Investment Plan for all full
time employees. Employees may purchase Company Stock at fair market value during
15 day window periods established by the Board of Directors, intended to be at
six month intervals. For each share purchased the employee will be granted
between one and three stock options with an exercise price equal to fair market
value, a term of 10 years and a vesting period of 2 years; assuming the employee
remains employed by the Company for these periods. During the 2 window periods
in 2000, options were issued on a one option for one share basis for the first
period and a two options for one share basis for the second period.



(14) QUARTERLY FINANCIAL SUMMARY



<TABLE>
<CAPTION>
                                             1st Quarter  2nd Quarter   3rd Quarter  4th Quarter
                                             -----------  -----------   -----------  -----------
<S>                                          <C>          <C>           <C>          <C>
1999
        Revenue                                    5,284        4,997         4,892        5,895
        Gross Profit                               3,936        2,614         3,860      (1,440)
        Net Loss                                   (865)      (3,560)       (1,337)      (6,702)
        EPS:
               Basic                              (0.10)       (0.40)        (0.15)       (0.74)
               Diluted                            (0.10)       (0.40)        (0.15)       (0.74)

2000
        Revenue                                    5,076        4,466         4,254        4,436
        Gross Profit                               3,355        2,776         2,884          918
        Net Loss                                   (376)        (784)         (867)      (2,582)
        Loss per share:
               Basic                              (0.04)       (0.07)        (0.08)        (.25)
               Diluted                            (0.04)       (0.07)        (0.08)        (.25)
</TABLE>



     The Company recorded a charge of $1.534 million in the fourth quarter of
2000 for excess inventory. A fourth quarter charge in 1999 of $6.241 million is
included in special charges related to inventory. See Note (3) to the
Consolidated Financial Statements.



                                      F-18
<PAGE>   27



(15) GEOGRAPHIC SEGMENT INFORMATION


<TABLE>
<CAPTION>
Sales
(In millions)                                             Year ended December 31

                                                         1998       1999       2000
<S>                                                    <C>       <C>        <C>
Third party sales (by location of customer)

        United States                                  $  16.5    $  16.8    $  14.7
        All other countries                                4.2        3.7        3.2

Total Sales                                            $  20.7    $  20.5    $  17.9
</TABLE>





<TABLE>
<CAPTION>
Long lived assets
(In millions)                                              December 31
                                                       1999           2000
<S>                                                   <C>            <C>

        United States                                 4,340            3,806
        All other countries                           2,412            2,338


Total long lived assets                               6,752            6,144
</TABLE>



                                      F-19

<PAGE>   28
                                                                     Schedule II


                          Financial Statement Schedule
                      Bionx Implants Inc. and Subsidiaries

                        Valuation and Qualifying Accounts
              For the years Ended December 31, 1998, 1999 and 2000



<TABLE>
<CAPTION>
                      INVENTORY RESERVES       ACCOUNTS RECEIVABLE RESERVES
                      ------------------       ----------------------------
<S>                   <C>                      <C>
Balance at
12/31/1997                  665,325                      110,707

Expenses                    310,000                       70,205

Deductions                       --                      (38,029)
                         ----------                     --------
Balance at
12/31/1998                  975,325                      142,883

Expenses                  8,144,000                      471,393

Deductions               (5,323,262)                    (173,578)
                         ----------                     --------

Balance at
12/31/1999                3,796,063                      440,698

Expenses                  2,936,959                       42,817

Deductions               (1,618,983)                    (236,734)
                         ----------                     --------
Balance at
12/31/2000                5,114,039                      246,781
                         ==========                     ========
</TABLE>



                                      F-20
<PAGE>   29




                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this amendment
to its report to be signed on its behalf by the undersigned, thereunto duly
authorized, this 5th day of April, 2001.



                                  BIONX IMPLANTS, INC.


                                  By: /S/ Gerard S. Carlozzi
                                      ----------------------------------------
                                       Gerard S. Carlozzi
                                       (President and Chief Executive Officer)



     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this amendment to the Annual Report on Form 10-K has been signed by the
following persons in the capacities and on the dates indicated:



<TABLE>
<CAPTION>
        Signature                           Title                                  Date
<S>                          <C>                                                <C>
/S/Gerard S. Carlozzi
    ------------------
Gerard S. Carlozzi           President, Chief Executive Officer and
                             Director (Principal Executive Officer)             April 5, 2001


/S/ David J. Bershad *
    ------------------
David J. Bershad             Director                                           April 5, 2001


/S/ Anthony J. Dimun *
    ------------------
Anthony J. Dimun             Director                                           April 5, 2001


/S/ Pertti Tormala *
    ------------------
Pertti Tormala               Director                                           April 5, 2001


/S/ Terry D. Wall *
    ------------------
Terry D. Wall                Director                                           April 5, 2001


/S/ Drew Karazin *
    ------------------
Drew Karazin                 Chief Financial Officer                            April 5, 2001
</TABLE>




*  By:  /S/ Gerard S. Carlozzi
            ------------------
            Gerard S. Carlozzi
            Attorney in Fact





                                      F-23