<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

         (mark one)

         [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

         FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999

                                       OR

         [  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM _______________ TO _____________

                         COMMISSION FILE NUMBER 0-20096

                                  GLIATECH INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                      34-1587242
(State or other jurisdiction               (I.R.S. Employer Identification No.)
 of incorporation or organization)

        23420 COMMERCE PARK ROAD
        CLEVELAND, OHIO                                  44122
(Address of principal executive offices)               (Zip Code)

                                 (216) 831-3200
              (Registrant's telephone number, including area code)

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

                                       YES X   NO
                                          ---    ---

The number of shares outstanding of the registrant's Common Stock, $0.01 par
value per share, as of AUGUST 10, 1999 WAS 9,539,462 SHARES.


<PAGE>   2


                         GLIATECH INC. AND SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

PART I.                                FINANCIAL INFORMATION                                            PAGE
<S>                                                                                                    <C>
Item 1        Financial Statements: (unaudited)

              Consolidated Balance Sheets -                                                                1
              December 31, 1998 and June 30, 1999

              Consolidated Statements of Operations -
              for the three months  and six months ended
              June 30, 1999 and 1998                                                                       2

              Consolidated Statements of Cash Flows -
              for the six months ended June 30, 1999 and 1998                                              3

              Notes to Consolidated Financial Statements                                                  4-5

Item 2        Management's Discussion and Analysis of Financial Condition                                6-12
              and Results of Operations

Item 3        Quantitative and Qualitative Disclosures About Market Risk                                  13


PART II.                               OTHER INFORMATION

Item 2        Changes in Securities and Use of Proceeds                                                   14

Item 4        Submission of Matters to a Vote of Security-Holder                                        15-16

Item 6        Exhibits and Reports on Form 8-K                                                            17
</TABLE>



<PAGE>   3


                         PART I - FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS

                         GLIATECH INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                                      JUNE 30,             DECEMBER 31,
                                                                        1999                   1998
                                                                   ------------           ------------
<S>                                                                <C>                    <C>
ASSETS
Current assets:
       Cash and cash equivalents                                   $  7,277,576           $  4,731,814
       Short-term investments                                        19,152,830             21,667,064
       Accounts receivable                                            3,647,165              2,995,548
       Government grants receivable                                     451,824                401,160
       Inventories                                                    1,840,876                776,057
       Prepaid expenses and other                                       465,293              1,016,098
                                                                   ------------           ------------
Total current assets                                                 32,835,564             31,587,741

Property and equipment, net                                           2,574,459              1,556,815
Other assets, net                                                       758,381                817,630
                                                                   ------------           ------------
TOTAL ASSETS                                                       $ 36,168,404           $ 33,962,186
                                                                   ============           ============
LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities:
       Accounts payable                                                 933,065                875,462
       Accrued expenses                                               2,130,061              2,083,273
       Accrued research contracts                                     1,472,928              1,418,653
       Accrued compensation                                             485,176                790,041
       Accrued clinical trial costs                                   2,062,556              1,127,991
       Deferred research contract revenue                                     0                514,194
                                                                   ------------           ------------
       Total current liabilities                                      7,083,786              6,809,614

Stockholders' equity:
       Common stock                                                      95,276                 94,109
       Additional paid-in capital                                    73,337,229             72,830,961
       Accumulated deficit                                          (44,347,887)           (45,772,498)
                                                                   ------------           ------------
       Total stockholders' equity                                    29,084,618             27,152,572
                                                                   ------------           ------------
       TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                   $ 36,168,404           $ 33,962,186
                                                                   ============           ============
</TABLE>



See notes to consolidated statements.

                                       1

<PAGE>   4




                         GLIATECH INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED                         SIX MONTHS ENDED
                                                                  JUNE 30                                   JUNE 30
                                                     ---------------------------------        -----------------------------------
                                                         1999                 1998                  1999                 1998
                                                      -----------          -----------           -----------          -----------
<S>                                                   <C>                  <C>                   <C>                  <C>
REVENUES
Product sales                                         $ 7,929,085          $ 1,150,870           $15,685,355          $ 1,662,370
Research contracts and licensing fees                     171,398              738,500               514,194            1,477,000
Government grants                                         245,168              259,923               430,851              410,257
                                                      -----------          -----------           -----------          -----------
          Total revenues                                8,345,651            2,149,293            16,630,400            3,549,627

OPERATING COSTS AND EXPENSES
Cost of products sold                                   1,147,525              297,832             2,294,655              464,666
Research and development                                3,360,182            2,451,013             7,300,551            4,767,179
Selling, general and administrative                     3,194,393            1,777,213             6,170,669            3,033,782
                                                      -----------          -----------           -----------          -----------
          Total operating costs and expenses            7,702,100            4,526,058            15,765,875            8,265,627
                                                      -----------          -----------           -----------          -----------
Operating income (loss)                                   643,551           (2,376,765)              864,525           (4,716,000)
Interest income, net                                      306,818              133,001               560,086              279,809
                                                      -----------          -----------           -----------          -----------
NET INCOME (LOSS)                                     $   950,369          $(2,243,764)          $ 1,424,611          $(4,436,191)
                                                      ===========          ===========           ===========          ===========
Earnings (loss) per share
          Basic                                       $      0.10          $     (0.28)          $      0.15          $     (0.57)
                                                      ===========          ===========           ===========          ===========
          Diluted                                     $      0.09          $     (0.28)          $      0.14          $     (0.57)
                                                      ===========          ===========           ===========          ===========
Average shares outstanding
          Basic                                         9,498,917            8,044,761             9,463,663            7,768,980
                                                      ===========          ===========           ===========          ===========
          Diluted                                      10,104,888            8,044,761            10,128,941            7,768,980
                                                      ===========          ===========           ===========          ===========
</TABLE>








See notes to consolidated financial statements.


                                       2


<PAGE>   5


                         GLIATECH INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                 SIX MONTHS ENDED
                                                                        ------------------------------------
                                                                             1999                   1998
                                                                         ------------           ------------
<S>                                                                      <C>                    <C>
OPERATING ACTIVITIES
Net income(loss)                                                         $  1,424,611           ($ 4,436,191)
Adjustments to reconcile net income (loss) to net cash provided
  by (used in) operating activities:
       Depreciation and amortization                                          275,006                185,338
       Patent Cost Write-off                                                  178,122                 49,998
       Compensation from issuance of stock and stock options                  187,400                      0
       Changes in operating assets and liabilities:
            Accounts receivable                                              (651,617)              (443,466)
            Inventory                                                      (1,064,819)              (514,605)
            Government grants receivable and other assets                     500,141                   (674)
            Accounts payable                                                   57,603                987,262
            Deferred contract research revenue                               (514,194)              (737,000)
            Other liabilities                                                 730,763                176,282
                                                                         ------------           ------------
Net cash provided by (used in) operating activities                         1,123,016             (4,733,056)
INVESTING ACTIVITIES
Sale  of investments, net                                                   2,514,233              4,935,130
Payment for patent rights and trademarks                                     (128,913)               (91,347)
Purchase of property and equipment                                         (1,282,610)              (260,057)
                                                                         ------------           ------------
Net cash (used in) provided by investing activities                         1,102,710              4,583,726
FINANCING ACTIVITIES
Proceeds from issuance of Common Stock, net                                         0             19,261,166
Proceeds from exercise of stock options                                       320,036                180,128
                                                                         ------------           ------------
Net cash provided by financing activities                                     320,036             19,441,294
                                                                         ------------           ------------
Decrease in cash and cash equivalents                                       2,545,762             19,291,964
Cash and cash equivalents at beginning of period                            4,731,814              5,601,398
                                                                         ------------           ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                               $  7,277,576           $ 24,893,362
                                                                         ============           ============
</TABLE>



See notes to consolidated financial statements.


                                       3






<PAGE>   6




                         GLIATECH INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (unaudited)

Note 1.   Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended June 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in the Annual Report on Form 10-K of Gliatech Inc. for the fiscal year
ended December 31, 1998 filed with the Securities and Exchange Commission.

Note 2.   Basic and Diluted Earnings (Loss) per Common Share

Basic earnings (loss) per common share is based on the weighted average number
of common shares outstanding for the three and six months ended June 30, 1999
and 1998. Diluted earnings (loss) per common share for the three and six months
ended June 30, 1999 is based on the weighted average number of common shares
outstanding plus the dilutive effect of stock options. Due to the net losses
incurred in 1998, the effect of stock options was not included in the diluted
loss per common share computation.

Note 3.   Business Segment

The Company operates in one business segment. It is engaged in the development
and commercialization of the Company's principal products, the ADCON(R) family,
which are medical devices designed to inhibit postsurgical scarring and adhesion
following surgery. The Company sells ADCON(R) products to independent
distributors in approximately 29 countries outside the United States and
directly to hospitals in the United States. In addition, the Company is pursuing
the development of small molecule drug candidates for the treatment of several
nervous system disorders, including Attention Deficit Hyperactive Disorder
("ADHD"), sleep disorders, anxiety and Alzheimer's disease ("AD"). The Company
does not have foreign facilities and therefore does not measure operating profit
or loss from foreign sales.


                                       4
<PAGE>   7

Domestic and foreign product sales are as follows:
<TABLE>
<CAPTION>
                                       Three Months Ended                        Six Months Ended
                                         June 30, 1999                              June 30, 1999
                                --------------------------------          --------------------------------
                                   1999                 1998                 1999                 1998
                                -----------          -----------          -----------          -----------
<S>                             <C>                  <C>                  <C>                  <C>
Domestic product sales          $ 7,085,620          $   621,720          $13,917,114          $   621,720
Foreign product sales               843,465              529,150            1,768,241            1,040,650
                                -----------          -----------          -----------          -----------
Total product sales             $ 7,929,085          $ 1,150,870          $15,685,355          $ 1,662,370
                                ===========          ===========          ===========          ===========
</TABLE>

Note 4: Reclassification

Certain prior year amounts have been reclassified to conform with current year
financial statement presentation.



                                       5
<PAGE>   8

ITEM 2                MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company is engaged in research, development and commercialization of the
ADCON(R) family of products, which are proprietary, resorbable, carbohydrate
polymer medical devices designed to inhibit surgical scarring and adhesions. The
Company is currently marketing ADCON(R)-L, which is designed to inhibit post
surgical scarring and adhesions following lumbar surgery, in 30 countries
including the U.S. It is also marketing ADCON(R)-T/N, which is designed to
inhibit scarring and adhesions following tendon and peripheral nerve surgeries,
in 28 countries outside of the U.S. through independent medical device
distributors, including the major countries in the European Union pursuant to
its CE Marking. The Company commenced sales of ADCON(R)-L in the U.S. in June
1998. In addition, the Company signed a development and exclusive license
agreement in December 1996 with Chugai for the sale of ADCON(R)-L and
ADCON(R)-T/N in Japan. Further, the Company is pursuing the development of small
molecule drug candidates for the treatment of several nervous system disorders,
including Attention Deficit Hyperactive Disorder ("ADHD"), sleep disorders,
anxiety and Alzheimer's disease ("AD"). In October 1994, the Company entered
into a strategic alliance with Janssen Pharmaceutica, N.V. of Belgium
("Janssen") to collaborate on the discovery and development of therapeutic
models to treat AD. In October 1998, this alliance was restructured to provide
for further research by the Company until May 1999. The Company expects that
Janssen will select a lead drug candidate during 1999 for preclinical testing.

The Company has received and will continue to receive a significant portion of
its revenues from product sales particularly of ADCON(R)-L and, to a lesser
extent ADCON(R)-T/N. The Company also receives revenue from various government
grants awarded to the Company. In June 1998, the Company received net proceeds
of approximately $18.9 million in connection with the completion of a public
offering of 1,725,000 shares of Common Stock.



                                       6
<PAGE>   9

RESULTS OF OPERATIONS

For the three and six months periods ended June 30, 1999 and 1998.

REVENUES

Total revenues increased to $8.3 million in the second quarter of 1999 from $2.1
million in the second quarter of 1998 and increased to $16.6 million in the
first six months of 1999 from $3.6 million in the first six months of 1998. The
increase in total revenues is a result of an increase in product sales, which
increased to $7.9 million in the second quarter of 1999 from $1.2 million in the
second quarter of 1998. This increase in product sales resulted from the
commercialization in the U.S. of ADCON(R)-L., which was approved for marketing
by the FDA in May 1998. The Company commenced sales of ADCON(R)-L in the U.S. in
June 1998.

This increase in revenues was offset by a decrease in the Company's research
contract revenues of 76.8% to $171,398 in the second quarter of 1999 from
$738,500 in the second quarter of 1998. These research contract revenues were
from the Company's research contract with Janssen, which was restructured in
October 1998 to provide for further research by the Company and revenues from
Janssen until May 1999.

In addition the Company's government-funded grant revenues decreased slightly by
6% to $245,168 in the second quarter of 1999 from $259,923 in the second quarter
of 1998 and increased slightly by 5% to $430,851 in the first six months of 1999
from $410,257 in the first six months of 1998. This decrease in the second
quarter was a result of the completion of three government grants. The increase
in the first six months of 1999 is due to the timing of the government-funded
grants to the Company.

OPERATING COSTS AND EXPENSES

Total operating expenses increased by 70.2% to $7.7 million in the second
quarter of 1999, compared to $4.5 million in the second quarter of 1998 and
increased 90.7% to $15.8 million in the first six months of 1999 compared to
$8.3 million in the first six months of 1998. Cost of products sold increased to
$1.1 million in the second quarter of 1999 compared to $297,832 in the second
quarter of 1998, but decreased, as a percentage of product sales, in the second
quarter of 1999 to 14.5% from 25.9% in the second quarter of 1998. The cost of
products sold increased to $2.3 million in the first six months of 1999 compared
to $464,666 in the first six months of 1998, but decreased as a percentage of
product sales in the first six months of 1999 to 14.6% from 28% in the first six
months of 1998. The percentage decrease in both the second quarter and the first
six months of 1999 is due to: (1) increased production volumes and (2) the
favorable impact of the unit sales prices of ADCON(R)-L in the United States.
The Company is establishing a manufacturing operation in the United States and
expects that it will incur startup cost in conjunction with this effort over the
next year.



                                       7
<PAGE>   10

Research and development expenses increased by 37.1 % to $3.4 million in the
second quarter of 1999 from $2.5 million in the second quarter of 1998 and
increased 53.1% to $7.3 million in the first six months of 1999 from $4.8
million in the first six months of 1998. This increase was primarily due to: (1)
an increase in development expenses for the Company's lead compound for its
cognition modulation program, which commenced human clinical trials in the
fourth quarter of 1998 and (2) increased clinical research costs associated with
the U.S. pivotal clinical trial of ADCON(R)-P, which started in the first
quarter of 1999.

Selling, general and administrative expenses increased to $3.2 million in the
second quarter of 1999 compared to $1.8 million in the second quarter of 1998
and increased 103.4% to $6.2 million in the first six months of 1999 compared to
$3.0 million in the first six months of 1998. This increase was due to an
increase in the sales and marketing expenses and sales commissions resulting
from the sales and marketing of ADCON(R)-L in the U.S.

INTEREST INCOME

Interest income, net increased to $306,818 in the second quarter of 1999 from
$133,001 in the second quarter of 1998 and increased to $560,086 in the first
six months of 1999 from $279,809 in the first six months of 1998. This increase
in both periods is due to carrying higher cash, cash equivalents and short-term
investment balances due to the proceeds from the public offering in June 1998.

NET INCOME (LOSS)

Gliatech's net income increased to $950,369 in the second quarter of 1999,
compared to a net loss of $2.2 million in the second quarter of 1998 and
increased to $1.4 million in the first six months of 1999 compared to a net loss
of $4.4 million in the first six months of 1998. The net income is a result of
ADCON(R)-L product sales in the U.S. significantly offset by an increase in
operating expenses. The diluted earnings per common share was $0.09 for the
second quarter of 1999, compared to a net loss per common share of $0.28 in the
second quarter of 1998, and the diluted earnings per common share was $0.14 for
the first six months of 1999 compared to a net loss per common share of $0.57 in
the first six months of 1998.

LIQUIDITY AND CAPITAL RESOURCES

In order to preserve principal and maintain liquidity, the Company's funds are
invested in commercial paper and other short-term investments. As of June 30,
1999 and December 31, 1998, the Company's cash and cash equivalents and
short-term investments totaled $26.4 million for each period. The Company
expects that its existing capital resources, interest earned thereon, and
revenues will enable the Company to maintain its current and planned operations
for the foreseeable future.


                                       8
<PAGE>   11

Historically, the Company has financed its operations primarily through the
private placement and public offering of its equity securities, research
contract licensing fees, and to a lesser extent, through federally sponsored
research grants. In June 1998, the Company raised additional funds through a
public offering of 1,725,000 shares of its Common Stock at a price of $12.00 per
share, including the exercise of the over-allotment option of 225,000 shares.
The Company also has established a $1.5 million line of credit with a bank. As
of June 30, 1999, the Company had no borrowings against the line of credit.

The Company's future capital requirements will depend on, and could increase as
a result of many factors, including, but not limited to, the commercial success
of its ADCON(R) family of products, the progress of the Company's research and
development, including the costs related to its Cognition Modulation and AD
programs, the scope, timing and results of preclinical studies and clinical
trials, the cost and timing of obtaining regulatory approvals, its success in
obtaining the strategic alliances required to fund certain of its programs, the
rate of technological advances, determinations as to the commercial potential of
certain of the Company's product candidates, the status of competitive products
and the establishment of additional manufacturing capacity.

The Company may raise additional funds through additional equity or debt
financing, government grants, future corporate alliances, collaboration
relationships or otherwise. The Company may engage in these capital raising
activities even if it does not have an immediate need for additional capital at
that time. There can be no assurance that any such additional funding will be
available to the Company or, if available, that it will be on acceptable terms.
If additional funds are raised by issuing equity securities, further dilution to
existing stockholders may result. If adequate funds are not available, the
Company may be required to delay, or reduce the scope of, or eliminate one or
more of its research, development or clinical trials. If the Company seeks to
obtain funds through arrangements with collaborative partners or others, such
partners may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize itself.

In April 1999, the Company was awarded its third Phase II Small Business
Innovation Research ("SBIR") program grant from the National Cancer Institute
for research evaluating gynecological adhesions. Each of these Phase II SBIR
grants has a two-year term and each may provide as much as $750,000 in funding.
The Company was also awarded a Phase I SBIR grant for up to $99,800 in the third
quarter of 1998 from the National Institute of General Medical Sciences to aid
in additional research studies. If the Company is successful in other Phase I
research, additional Phase II awards may be sought for funding to aid in further
development of pharmaceutical compounds, however there is no assurance that such
Phase I research will be successful or that additional funding will be obtained.

YEAR 2000. The Year 2000 issue results from computer programs and systems that
were created to accept only two digit dates. Such systems may not be able to
distinguish 20th century dates from 21st century dates. This could result in
miscalculations and system failures that could inhibit the Company's ability to
engage in normal business activities.


                                       9
<PAGE>   12

The following discussion of the implications of the Year 2000 issue for the
Company contains numerous forward-looking statements. The cost of the Company's
Year 2000 project and the date upon which the Company plans to complete its
internal modifications are based upon management's best estimates, which were
derived utilizing a number of assumptions of future events including the
continued availability of internal and external resources, third party
modifications and other factors. Although management believes it will be able to
make the necessary modifications in advance, there can be no guarantee that
these estimates and timetable will be achieved and actual results could differ
materially from those anticipated.

In addition, the Company relies upon the computer systems of certain third
parties such as customers, suppliers and financial institutions. Although the
Company is assessing the readiness of these third parties and preparing
contingency plans, there can be no guarantee that the failure of these third
parties to modify their systems in advance of December 31, 1999 would not have a
material adverse effect on the Company.

State of Readiness. In 1998, the Company commenced a program intended to
mitigate and prevent the adverse effect of the Year 2000 issue. This program
consists of the following phases:

         AWARENESS PHASE-development of a detailed strategic approach to address
         the Year 2000 issues;

         ASSESSMENT PHASE-an assessment of all computer systems, software,
         building infrastructure components and equipment with embedded
         technology to identify each item that will require date code
         remediation and an assessment and certification of third parties' Year
         2000 compliance;

         REMEDIATION PHASE-implementation of code enhancements, hardware and
         software upgrades, systems replacements, vendor and customer
         assurances, contingency planning and other associated changes; and

         VALIDATION PHASE-testing of systems for Year 2000 readiness. The
         Company believes that its network information systems, including
         Network Operating Systems (NOS) software and Enterprise Resource
         Planning (ERP) software have been thoroughly tested as Year 2000
         compliant, and should be able to process year and data information
         beyond the year 1999.

         RISKS. The Year 2000 issue presents a number of risks and uncertainties
         that could affect the Company, including failure of utilities,
         competition for skilled personnel and disruption of Company operations
         due to system failures or operational failures of third parties. With
         respect to risks associated with the Company's computer systems and
         equipment, management believes that it will be able to make the
         necessary modifications and conversions in advance of the Year 2000.
         With respect to risks associated with the failure of computer systems
         or equipment of third parties, the Company could experience a material


                                       10
<PAGE>   13

         adverse impact on its operations if such third parties fail to make
         timely conversions or modifications. The most serious impact on the
         Company operations in this regard would result if basic services such
         as telecommunications, electric power, financial services and other
         non-IT processes were disrupted.

The Awareness, Assessment and Remediation Phases have been completed. The
Company's Remediation Phase consisted of numerous individual projects that vary
in size, materiality and importance. The Company established a Year 2000 project
team that reviewed information technology ("IT") systems and non-IT systems that
could be affected by this issue. All necessary in-house computers have been
upgraded to be year 2000 compliant. The company is now currently in the
Validation Phase in which we are testing all systems for Year 2000 readiness.
While the manufacture of the Company's products are not dependent on computer
chip driven processes, any interruption in receipt of supplies, delivery of
goods by outside carriers, or processing of orders by distributors could have a
material adverse effect on the Company's business, prospects, financial
condition or results of operations. The Company has been communicating its Year
2000 status to all of its existing customers and vendors. In this communication,
the Company has requested that these same customers and vendors respond with
their Year 2000 status. The Company is maintaining a database of customers and
vendors who have and have not responded to such inquiry. The Company has
implemented a second mailing requesting Year 2000 status from its customer and
vendors. The Company will continue to maintain a database of customers and
vendors who have and have not responded to such inquiries. However, there can be
no guarantee that these measures will prevent any material adverse effect on the
operations and business of the Company if such suppliers and business partners
fail to convert their systems before December 31, 1999.

COSTS. The Company is primarily utilizing internal resources to reprogram,
replace and test its computer systems, software, equipment and building
infrastructure components for Year 2000 modifications. The Company estimates
that Year 2000 expenditures will be less than $100,000 and will be funded by
normal operating cash flow. All Year 2000 expenditures are expensed as incurred
and are not expected to have a material effect on results of operations,
liquidity or capital resources. As of June 30, 1999 approximately $25,000 of the
estimated project cost has been incurred. The remaining costs are expected to be
incurred evenly over the period up through January 31, 2000. These cost
estimates may change as the Validation Phase and testing efforts progress.

CONTINGENCY PLANS. The Company is in the process of developing business
resumption contingency plans specific to the Year 2000. These plans will address
the actions that would be taken if critical business functions cannot be carried
out in the normal manner upon entering the next century due to systems or third
party failures. Management estimates that these contingency plans will be
developed by the end of the third quarter of 1999.

EURO CONVERSION. On January 1, 1999, eleven of the fifteen countries (the
"Participating Countries") that are members of the European Union established a
new uniform currency know as the "Euro." The current currency existing prior to
such date in the Participating Countries will be phased out during the
transition period commencing January 1, 1999 and ending January 1, 2002. During
such



                                       11
<PAGE>   14

transition period both the Euro and the existing currency will be available
in the Participating Countries. Although certain of the Company's products are
being sold in the Participating Countries through independent distributors, the
Company receives revenues from such sales in U.S. dollars. As a result, the
Company does not anticipate that the use of the Euro will materially affect the
Company's business, prospects, and results of operations or financial condition.

FORWARD-LOOKING STATEMENTS. Certain statements in this Quarterly Report on Form
10-Q constitute "forward-looking statements." When used in this report, the
words "believes," "anticipates," "expects," "intends" and other predictive,
interpretive and similar expressions are intended to identify such
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual results
of the Company to be different from expectations expressed or implied by such
forward-looking statements. Such factors included, but are not limited to,
commercial uncertainty of market acceptance of the Company's ADCON(R) family of
products, other than ADCON(R)-L, including the timing and content of decisions
made by the FDA, delays in product development of additional ADCON(R) products,
uncertainty due to the early stage of development for the therapeutic programs,
the possible need for additional funding, the ability of the Company to
establish and maintain collaborative arrangements with others, the potential
market size of ADCON(R) products, the ability of the Company, its customer and
vendor to appropriately address Year 2000 issues, the productivity of
distributors of the ADCON(R) products, shortages of supply of ADCON(R) products
from the Company's sole manufacturer, the ability of the Company to commence
manufacturing of its ADCON(R) products at its manufacturing facility located in
the U.S., the lack of supply of raw materials for the Company's products,
uncertainty of future profitability, uncertainties related to the Company's
proprietary rights in its products, the loss of key management, and personnel
and technological change. These statements are based on certain assumptions and
analysis made by the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
subject to a number of other assumptions, risks, uncertainties, general economic
and business conditions, and the business opportunities (or lack thereof) that
may be presented to and pursued by the Company. Prospective investors are
cautioned that any such statements are not guarantees of future performance and
that actual results or developments may differ materially from those projected
in the forward-looking statements.



                                       12
<PAGE>   15



ITEM 3               QUANTITATIVE AND QUALITATIVE DISCLOSURES
                                ABOUT MARKET RISK

The Company does not enter into derivative financial instruments. The Company
primarily invests in commercial paper and corporate bonds that have short-term
maturities. The Company has no outstanding debt. Exposure to foreign currency
has been minimal because the Company's foreign product sales are in U.S.
currency. As a result, the Company believes that its market risk exposure is not
material to the Company's financial position, liquidity or results of
operations.



                                       13
<PAGE>   16



                                     PART II
                                OTHER INFORMATION

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS

The Company registered 2,300,000 shares of Common Stock in connection with its
initial public offering on a Registration Statement on Form S-1, which went
effective on October 18, 1995. The data below reflects the use of proceeds from
such offering to the date of this Quarterly Report on Form 10-Q. All such
proceeds were directly or indirectly paid to others pursuant to Rule
701(f)(4)(vii):

<TABLE>
<CAPTION>
<S>                                                                      <C>
Construction                                                             0
Machinery and Equipment                                                  0
Real Estate                                                              0
Acquisition                                                              0
Repayment of Debt                                                        0
Working Capital                                                    942,000
Temporary Investments (specify)
         Commercial paper                                          000,000
         Corporate Bonds                                           000,000
         Other Short-Term Investments                              000,000
         Other:
         Clinical Trials                                         4,140,000
         Research and Development                               11,209,000
         Sales and Marketing                                     3,283,000
         General Corporate Purposes                                 73,000
</TABLE>



                                       14
<PAGE>   17


                                     PART II
                                OTHER INFORMATION

ITEM 4:           SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

On May 19, 1999, at the Annual Meeting of Stockholders of Gliatech Inc., the
stockholders took the following actions:

(1)      Elected as Directors all nominees designated in the Proxy Statement
         dated April 12, 1999.

(2)      Approved the appointment of the independent certified public
         accountants of the Company for the current fiscal year.

(3)      Amending and restating the Amended and Restated 1989 Stock Option Plan.

(4)      Amending and restating the Amended and Restated 1995 Non-employee
         Directors Stock Option Plan.


The Directors were elected pursuant to the following vote:
<TABLE>
<CAPTION>
                                                                                BROKER
NOMINEE                                    FOR         WITHHELD      ABSTAIN    NON-VOTE
-------                                    ---         --------      -------    --------

<S>                                     <C>             <C>           <C>      <C>
William A. Clarke                       8,193,995       261,165        ----      ----

Theodore E. Haigler, Jr.                8,193,995       261,165        ----      ----

Ronald D. Henriksen                     8,193,995       261,165        ----      ----
</TABLE>

In addition, the following Directors' term of office continued after the
meeting:, Thomas O. Oesterling, Ph.D., Robert P. Pinkas, Allen H. Ford, Irving
S. Shapiro, and John L. Ufheil.

The approval of appointment of Ernst & Young LLP as independent certified public
accountants to the Company for its current fiscal year was approved by the
following vote:

<TABLE>
<CAPTION>
                                                          BROKER
FOR                  AGAINST        WITHHELD   ABSTAIN    NON-VOTE
---                  -------        --------   -------    --------
<C>                  <C>              <C>      <C>         <C>
7,745,810            684,382          0        21,968      ----
</TABLE>



                                       15
<PAGE>   18

The approval of the Amended and Restated 1989 Stock Options Plan:

<TABLE>
<CAPTION>
                                                           BROKER
FOR                  AGAINST        WITHHELD   ABSTAIN    NON-VOTE
---                  -------        --------   -------    --------
<C>                  <C>              <C>      <C>         <C>

2,506,090          1,921,333           0         42,450      3,942,202
</TABLE>



The approval of the Amended and Restated 1995 Non-employee Directors Stock
Options Plan:

<TABLE>
<CAPTION>
                                                           BROKER
FOR                  AGAINST        WITHHELD   ABSTAIN    NON-VOTE
---                  -------        --------   -------    --------
<C>                  <C>              <C>      <C>         <C>
4,176,216            254,162            0       39,495    3,942,202
</TABLE>


                                       16
<PAGE>   19

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         27.1     Financial data schedule

(b)      Reports on Form 8-K

         The Company did not file any Current Reports on Form 8-K for the period
         covered by this Quarterly Report on Form 10-Q



                                       17
<PAGE>   20
                                   SIGNATURES

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

Date: August 16, 1999        GLIATECH INC.

                             By:    /s/Rodney E. Dausch
                                --------------------------------------------
                                Rodney E. Dausch
                                Vice President, Chief Financial Officer
                                      and Secretary
                                (Duly Authorized Officer and Principal
                                      Financial and Accounting Officer)





                                       18
<PAGE>   21

                                  EXHIBIT INDEX

Exhibit No.           Description of Exhibit               Page Number
-----------           ----------------------               -----------

27.1                  Financial Data Schedule                  20



                                       19