UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

                                        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: 0-016607

                         ADVANCED TISSUE SCIENCES, INC.

               (Exact name of registrant as specified in charter)



                  Delaware                            14-1701513
      -------------------------------             -------------------
      (State or other jurisdiction of              (I.R.S. Employer
       incorporation or organization)             Identification No.)

  10933 North Torrey Pines Road, La Jolla, California                 92037
  ---------------------------------------------------               ----------
       (Address of principal executive offices)                     (Zip Code)

       Registrant's telephone number, including area code: (858) 713-7300

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 of the Registrant's Common Stock, par value $.01 per share,
outstanding at May 5, 2000 was 59,844,128.


<PAGE>


                         ADVANCED TISSUE SCIENCES, INC.

                 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000

                                      INDEX

Part I - Financial Information
------------------------------

<TABLE>
<CAPTION>

                                                                                              Page
                                                                                              ----
   <S>                                                                                        <C>

   Item 1 - Financial Statements

              Introduction to the Financial Statements..................................        1

              Consolidated Balance Sheets -
                March 31, 2000 and December 31, 1999....................................        2

              Consolidated Statements of Operations -
                Three Months Ended March 31, 2000 and 1999..............................        3

              Consolidated Statements of Cash Flows -
                Three Months Ended March 31, 2000 and 1999..............................        4

              Consolidated Statement of Stockholders' Equity -
                Three Months Ended March 31, 2000.......................................        5

              Notes to the Consolidated Financial Statements............................       6-10

   Item 2 - Management's Discussion and Analysis of Financial
              Condition and Results of Operations.......................................      11-15

   Item 3 - Quantitative and Qualitative Disclosures About Market Risk..................        15


Part II -  Other Information
----------------------------

   Item 5 - Other Information..........................................................       16-21

   Item 6 - Exhibits and Reports on Form 8-K............................................        22


Signatures..............................................................................        23
</TABLE>



<PAGE>



                         PART I - FINANCIAL INFORMATION
                         ------------------------------

ITEM 1 - FINANCIAL STATEMENTS

                    INTRODUCTION TO THE FINANCIAL STATEMENTS

The financial statements have been prepared by Advanced Tissue Sciences, Inc.
(the "Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the disclosures are adequate to
make the information presented not misleading when read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.

The financial information presented in this Quarterly Report on Form 10-Q
reflects all adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. The results for the interim periods are not
necessarily indicative of results to be expected for the full year.


                                      -1-

<PAGE>


                         ADVANCED TISSUE SCIENCES, INC.

                           CONSOLIDATED BALANCE SHEETS

                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                   March 31,       December 31,
                                                     2000             1999
                                               ---------------    -------------
                                                 (Unaudited)

      ASSETS
Current assets:
   Cash and cash equivalents                     $   20,288         $   16,091
   Short-term investments                             8,985              9,988
   Receivable from joint ventures                     8,533              2,185
   Inventory                                            170              4,295
   Other current assets                               1,727              1,664
                                                 ----------         ----------
       Total current assets                          39,703             34,223
Property - net                                       15,643             16,627
Patent costs - net                                    2,166              2,075
Restricted cash                                          --              5,000
Other assets                                          1,172              1,461
                                                 ----------         ----------
       Total assets                              $   58,684         $   59,386
                                                 ==========         ==========

   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                              $      570         $      755
   Payable to joint ventures                          3,033              3,550
   Accrued expenses                                   4,811              5,560
   Deferred revenue                                   2,696              3,595
   Current portion of long-term debt
     and capital lease obligations                   11,114             10,112
                                                 ----------         ----------
       Total current liabilities                     22,224             23,572
Long-term debt and capital lease obligations          8,340              8,987
Other long-term liabilities                             275                364
                                                 ----------         ----------
       Total liabilities                             30,839             32,923
                                                 ----------         ----------

Redeemable Convertible Series B Preferred
 Stock, $.01 par value; 1,000 shares
 authorized; issued and outstanding, no
 shares at March 31, 2000 and 100.8 shares
 at December 31, 1999 (aggregate redemption
 and liquidation value of $5,104 at December
 31, 1999)                                               --              5,040
                                                 ----------         ----------

Stockholders' Equity:
   Accrued cumulative preferred stock dividends          --                 64
   Common Stock, $.01 par value; 125,000,000
    shares authorized; issued and outstanding,
    59,844,128 shares at March 31, 2000 and
    56,600,544 shares at December 31, 1999              598                566
   Additional paid-in capital                       277,230            262,588
   Note received in connection with sale of
    Common Stock and deferred compensation
    applicable to Common Stock                       (1,916)            (2,033)
   Accumulated deficit                             (248,061)          (239,762)
   Accumulated other comprehensive income                (6)                --
                                                 ----------         ----------
       Total stockholders' equity                    27,845             21,423
                                                 ----------         ----------
       Total liabilities and stockholders'
        equity                                   $   58,684         $   59,386
                                                 ==========         ==========





        See accompanying notes to the consolidated financial statements.


                                      -2-

<PAGE>


                         ADVANCED TISSUE SCIENCES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                     2000             1999
                                                 ------------     -----------
                                                          (Unaudited)

Revenues:
   Product sales -
     Related parties                             $      3,622     $     3,071
   Contracts and fees -
     Related parties                                    2,754           7,637
     Others                                             1,034             162
                                                 ------------     -----------
     Total revenues                                     7,410          10,870
                                                 ------------     -----------

Costs and expenses:
   Research and development                             3,901           4,169
   Cost of goods sold                                   3,622           3,071
   Selling, general and administrative                  2,624           3,380
   Compensation related to variable stock option        1,991              --
                                                 ------------     -----------
     Total costs and expenses                          12,138          10,620
                                                 ------------     -----------
Income (loss) from operations before equity
 in losses of joint ventures                           (4,728)            250

Equity in losses of joint ventures                     (3,713)         (5,457)
                                                 ------------     -----------
Loss from operations                                   (8,441)         (5,207)

Other income (expense):
   Interest income and other                              602            455
   Interest expense                                      (460)          (554)
                                                 ------------     ----------
Net loss                                               (8,299)        (5,306)

Dividends on preferred stock                              (48)          (255)
                                                 ------------     ----------
Net loss applicable to common stock              $     (8,347)    $   (5,561)
                                                 ============     ==========
Basic and diluted loss per common share          $       (.14)    $     (.14)
                                                 ============     ==========
Weighted average number of common shares
 used in coomputation of basic and diluted
 loss per common share                                 58,183         40,957
                                                 ============     ==========



        See accompanying notes to the consolidated financial statements.


                                      -3-

<PAGE>


                         ADVANCED TISSUE SCIENCES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                     2000             1999
                                                 ------------     -----------
                                                          (Unaudited)
Operating activities:
   Net loss                                      $     (8,299)    $    (5,306)
   Adjustments to reconcile net loss to cash
    used in operating activities:
      Depreciation and amortization                     1,077           1,197
      Compensation for services paid in stock,
        options or warrants                             2,127              35
      Equity in losses of joint ventures                3,713           5,457
      Other adjustments to net loss                       (21)            126
      Deferred revenue                                   (899)         10,050
      Change in assets and liabilities:
        Receivables from joint ventures                (6,348)         (1,115)
        Inventory                                       4,125            (823)
        Other current assets                              (55)           (319)
        Accounts payable                                 (185)           (267)
        Payable to joint ventures                        (517)            815
        Accrued expenses                                 (749)          1,017
                                                 ------------     -----------
         Net cash (used in) provided by
           operating activities                        (6,031)         10,867
                                                 ------------     -----------
Investing activities:
   Purchases of short-term investments                 (2,000)         (5,000)
   Maturities and sales of short-term investments       2,997           5,003
   Acquisition of property                                (74)           (337)
   Investment in joint ventures                        (3,495)         (6,370)
   Distributions from joint ventures                      591           2,241
   Patent application costs                              (110)           (137)
   Other long-term assets                                (507)           (782)
                                                 ------------     -----------
         Net cash used in investing activities         (2,598)         (5,382)
                                                 ------------     -----------
Financing activities:
   Proceeds from borrowings                             1,000             240
   Payments of borrowings                                (645)           (698)
   Restricted cash                                      5,000              --
   Options and warrants exercised                       7,583              --
   Long-term obligations and other                       (112)            (10)
                                                 ------------     -----------
         Net cash provided by (used in)
           financing activities                        12,826            (468)
                                                 ------------     -----------
Net increase in cash and cash equivalents               4,197           5,017
Cash and cash equivalents at beginning of period       16,091          16,551
                                                 ------------     -----------
Cash and cash equivalents at end of period       $     20,288     $    21,568
                                                 ============     ===========




        See accompanying notes to the consolidated financial statements.


                                      -4-

<PAGE>



                         ADVANCED TISSUE SCIENCES, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                      Accrued
                                                                                                     Dividends/
                                                                                                        Note
                                                                                   Additional       Receivable/
                                                        Common Stock                 Paid-In          Deferred
                                                 -------------------------
                                                   Shares          Amount           Capital        Compensation
                                                 ----------      ---------         -----------     ------------
<S>                                              <C>               <C>             <C>              <C>
  Balance, December 31, 1999                     56,600,544        $   566         $  262,588       $   (1,969)

  Warrants exercised                              1,750,000             17              6,983

  Conversion of Preferred Stock                   1,354,539             14              5,026

  Compensation related to variable                                                      1,991
     stock option

  Options exercised                                 101,119              1               582

  Amortization of compensation
    on restricted stock award                                                                              132

  Preferred Stock dividends                          37,926             --                63               (63)

  Net loss

  Comprehensive income (loss) -
    unrealized loss on securities

  Other                                                                                     (3)            (16)
                                                 ----------        -------         -----------      ----------
  Balance, March 31, 2000                        59,844,128        $   598         $   277,230      $   (1,916)
                                                 ==========        =======         ===========      ==========
</TABLE>


<TABLE>
<CAPTION>
                                                                                     Total
                                                                    Other            Stock-
                                               Accumulated      Comprehensive       holders'
                                                 Deficit        Income (Loss)        Equity
                                               -----------      -------------       --------
<S>                                            <C>               <C>                <C>
  Balance, December 31, 1999                   $ (239,762)                          $ 21,423

  Warrants exercised                                                                   7,000

  Conversion of Preferred Stock                                                        5,040

  Compensation related to variable                                                     1,991
     stock option

  Options exercised                                                                      583

  Amortization of compensation
    on restricted stock award                                                            132

  Preferred Stock dividends                                                               --

  Net loss                                         (8,299)                            (8,299)

  Comprehensive income (loss) -
    unrealized loss on securities                                $       (6)              (6)

  Other                                                                                  (19)
                                               ----------        ----------        ---------

  Balance, March 31, 2000                      $ (248,061)       $       (6)       $  27,845
                                               ==========        ==========        =========
</TABLE>


        See accompanying notes to the consolidated financial statements.


                                      -5-
<PAGE>

                         ADVANCED TISSUE SCIENCES, INC.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

Organization - Advanced Tissue Sciences, Inc. (the "Company") is a leading
tissue engineering company utilizing its proprietary technology to develop and
manufacture human-based tissue products for tissue repair and transplantation.
The Company is focusing on the worldwide commercialization of tissue engineered
products for wound care, orthopedics, aesthetic, reconstructive and
cardiovascular applications. The Company's leading therapeutic products are
tissue engineered skin products for the temporary covering of severe and
partial-thickness burns, which is on the market in the United States, and for
the treatment of diabetic foot ulcers, which is in clinical trials in the United
States and on the market in the United Kingdom and several other European
countries, Canada, Australia and New Zealand. Both products are being
commercialized through a joint venture with Smith & Nephew plc ("Smith &
Nephew"). The Company also has a strategic alliance with Inamed Corporation
("Inamed") for the development of tissue-engineered products for the aesthetic
and reconstructive markets.

Principles of Consolidation - The consolidated financial statements include the
accounts of the Company, its wholly owned subsidiaries and DermEquip, L.L.C.
("DermEquip"), a limited liability company owned jointly with Smith & Nephew.
DermEquip is a special purpose entity established to finance an expansion of the
Company's manufacturing facility. All intercompany accounts and transactions
have been eliminated. The Company's other interests in joint ventures with Smith
& Nephew are accounted for under the equity method (see Notes 2 and 10).

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
related disclosures at the date of the financial statements, and the amounts of
revenues and expenses reported during the period. Actual results could differ
from those estimates.

Dependence on Certain Suppliers - Certain materials, such as the mesh frameworks
used by the Company in its therapeutic products, are sourced from single
manufacturers. Any significant supply interruption would adversely affect the
Company's product manufacturing. In addition, an uncorrected impurity or
supplier's variation in a raw material, either unknown to the Company or
incompatible with the Company's manufacturing process, could have a material
adverse effect on the Company's ability to manufacture its products.

Reclassification - Certain reclassifications have been made to prior year
amounts to conform to the presentation for the three months ended March 31,
2000.

NOTE 2 - STRATEGIC ALLIANCES

Smith & Nephew Joint Ventures
-----------------------------

In 1996, the Company entered into an agreement with Smith & Nephew to form a
joint venture for the worldwide commercialization of Dermagraft(R), the
Company's tissue-engineered dermal skin replacement, for the treatment of
diabetic foot ulcers (the "Dermagraft Joint Venture"). In 1998, the Company and
Smith & Nephew expanded the Dermagraft Joint Venture to include products to
treat venous ulcers, pressure ulcers, burns and other skin tissue wounds. Smith
& Nephew is a global medical device company with established sales in 90
countries. Smith & Nephew markets technically innovative products principally in
the areas of wound management, orthopedics and endoscopy.

As consideration for entering into the Dermagraft Joint Venture, Advanced Tissue
Sciences received a $10 million up front fee in 1996. In addition, as a part of
the agreement to expand the joint venture, Smith & Nephew purchased $20 million,
or 1,533,115 newly-issued shares, of the Company's Common Stock at approximately
$13.05 per share in 1998. The Company also received an additional $15 million as
consideration for the expansion of the joint venture in January 1999, and could
receive, subject to the achievement of certain milestones related to regulatory
approvals, reimbursement and sales levels, further payments of up to $136
million. The $15 million payment was recognized in contract revenues in 1999 as
the related financial commitments were met.

In February 2000, the Company and Smith & Nephew agreed in principle to
restructure certain payments associated with their Dermagraft Joint Venture as a
result of delays in the commercial introduction of Dermagraft in the United
States. The requirement for an additional clinical trial by the U.S. Food and
Drug Administration substantially


                                      -6-
<PAGE>

increased the partners' investments necessitating the restructuring. The
objective of the restructuring is to defer the potential payments of certain
milestones by Smith & Nephew while providing the Company a royalty stream and an
opportunity to increase its long-term return from the venture. Specifically,
except for $10 million in regulatory approval and reimbursement milestones
related to Dermagraft in the treatment of diabetic foot ulcers, the Company
agreed to make all other approval, reimbursement and sales milestones subject
to, and payable from, joint venture earnings exceeding certain minimum levels.
In return, the Dermagraft Joint Venture will pay the Company royalties on joint
venture product sales. In addition, as a part of the agreement, the Company sold
the Dermagraft manufacturing assets that it owned to DermEquip (see Note 1), and
sold its raw material inventories to the Dermagraft Joint Venture.

Under the joint venture, the Company and Smith & Nephew are sharing equally in
the expenses and revenues of the Dermagraft Joint Venture, except the Company
will fund the first $6 million of expenses for conducting clinical trials and
for regulatory support of Dermagraft and TransCyte in the treatment of venous
and pressure ulcers. In addition, the Company funded certain manufacturing and
distribution costs and certain costs related to post-market studies of TransCyte
through December 1999. However, such manufacturing and distribution costs are to
be returned to the Company out of future gross margin or net profits, if any,
from sales of TransCyte for burns in the United States. See Note 10 with respect
to related party transactions with the Dermagraft Joint Venture.

The Company and Smith & Nephew also agreed that certain of the proceeds from the
sale of the Company's manufacturing plant assets and raw material inventory
discussed above will be used to pay down a portion of the outstanding balance of
the loan from Smith & Nephew related to the NeoCyte Joint Venture. The remaining
outstanding principal and interest due at the June 30, 2000 maturity is to be
paid in the Company's Common Stock at the then current market price for the
Common Stock. See Note 4.

In 1994, Smith & Nephew and the Company entered into a separate joint venture
for the development of tissue-engineered cartilage for orthopedic applications
(the "NeoCyte Joint Venture"). Under the NeoCyte Joint Venture, Smith & Nephew
contributed the first $10 million in funding and the Company contributed certain
technology licenses. The NeoCyte Joint Venture's total funding since inception
reached $10 million in January 1997 and, as provided in the joint venture
agreement, the Company and Smith & Nephew began sharing equally in NeoCyte Joint
Venture revenues and expenditures. See Note 10 with respect to related party
transactions with the NeoCyte Joint Venture.

The results of operations of the joint ventures for the three months ended March
31, 2000 and 1999 are as follows (in thousands):

                                              Three Months Ended March 31,
                                            --------------------------------
                                                 2000              1999
                                            -------------     --------------
Dermagraft Joint Venture
------------------------

    Net sales                                 $    732          $    467
    Cost of goods sold                           2,924             4,474
    Other costs and expenses                     3,550             4,780
    Net loss                                    (5,741)           (8,787)

NeoCyte Joint Venture
---------------------

    Costs and expenses                        $  1,443          $  1,165
    Net loss                                    (1,443)           (1,165)

Inamed Agreements
-----------------

In May 1999, the Company and Inamed entered into a strategic alliance for the
development and marketing of several of the Company's human-based,
tissue-engineered products for certain aesthetic and reconstructive
applications. Specifically, Inamed licensed rights to further develop,
manufacture and sell tissue engineered products for use in cosmetic surgery as a
temporary covering after laser resurfacing or chemical peels, cartilage for
plastic and reconstructive surgery, and extracellular matrix for use in breast
reconstruction. In addition, in September 1999, Inamed also received license
rights to use extracellular matrix, including human collagen, from the Company's
three-dimensional culture system for soft tissue augmentation (wrinkles and
cosmetic correction) and as a bulking agent for the treatment of urinary
incontinence. Inamed is a global surgical and medical device company engaged in
the development, manufacturing and marketing of medical products for aesthetic
medicine, plastic and reconstructive surgery and the treatment of obesity.


                                      -7-
<PAGE>

In total, under the agreements between the parties, in exchange for worldwide
licensing rights, Inamed has made a series of payments to the Company totaling
$10 million, including $5 million to purchase Advanced Tissue Sciences' Common
Stock. Inamed also received five-year warrants to purchase up to 500,000 shares
of Common Stock. In addition to royalties on product sales, the Company may
potentially receive up to a total of $10 million in milestones based on product
approvals in the United States.

The Company will be responsible for the funding and development of the products
and the related manufacturing processes while Inamed will be responsible for the
funding of clinical and regulatory activities. Advanced Tissue Sciences, or an
affiliate, may elect to manufacture the products developed under the agreement.
Fees for licensing rights and milestone payments will be recognized into
revenues as the related financial commitments for product development and the
development of manufacturing processes are incurred.

NOTE 3 - INVENTORIES

Inventories consist of the following components as of March 31, 2000 and
December 31, 1999 (in thousands):

                                           March 31,         December 31,
                                             2000                1999
                                         -----------         -----------

     Raw materials and supplies          $       170         $     3,618
     Work-in-process                              --                 677
                                         -----------         -----------
                                         $       170         $     4,295
                                         ===========         ===========

As part of the restructuring of certain payments of the Dermagraft Joint Venture
by the Company and Smith & Nephew (see Note 2), the Company sold its raw
material inventories to the Dermagraft Joint Venture. The Company continues to
maintain the supplies inventory necessary for product development and research
activities while the Dermagraft Joint Venture now carries the cost of the raw
materials for manufacturing.

NOTE 4 - LONG-TERM DEBT

During 2000, the Company borrowed $1 million from Smith & Nephew pursuant to a
commitment under the agreement to form the NeoCyte Joint Venture. Under the
terms of that joint venture agreement, the Company may borrow up to a total of
$10 million of which $8.5 million had been drawn as of March 31, 2000. The loan
is due and payable in June 2000. In February 2000, the Company and Smith &
Nephew agreed that the proceeds from the sale of the Company's manufacturing
plant assets and raw material inventory would be used to pay a portion of this
note, with the remaining outstanding principal and interest due at the June 30,
2000 maturity paid in the Company's Common Stock at the then current market
price for the Common Stock (see Note 2).

Debt and capital lease obligations as of March 31, 2000 and December 31, 1999
were as follows (in thousands):

                                           March 31,         December 31,
                                             2000                1999
                                         ------------        -------------

     Chase loan                          $  10,880           $  11,520
     Smith & Nephew note -
       NeoCyte Joint Venture                 8,525               7,525
     Obligations under capital
       leases and other                         49                  54
     Less current portion                  (11,114)            (10,112)
                                         ---------           ---------
                                         $   8,340           $   8,987
                                         =========           =========

NOTE 5 - CAPITAL STOCK

In March 2000, 100.8 shares, representing all of the Company's Convertible
Series B Preferred Stock (the "Series B Preferred Stock") as of December 31,
1999, were converted into 1,354,539 shares of the Common Stock at $3.72 per
share. All of the Company's Convertible Series B Preferred Stock has been
converted and no preferred stock remains outstanding as of March 31, 2000.
Further, in conjunction with a public offering in November 1999, the Company had
agreed that $5 million of the proceeds would be reserved for the redemption of
any of its Series B Preferred Stock submitted for conversion at or below $3.58
per share. As a result of the March conversion, the $5 million became available
to support the Company's operations.

In November 1999, the Company completed a public offering of 3,750,000 units at
$4.00 per unit, resulting in proceeds to the Company of $15 million. Upon
issuance, the units separated into 3,750,000 shares of the


                                      -8-
<PAGE>

Company's Common Stock and warrants to purchase an additional 1,750,000 shares
of Common Stock at $4.00 per share. In January 2000, the Company received an
additional $7.0 million from the exercise of warrants to purchase all 1,750,000
shares of Common Stock.

NOTE 6 - BASIC AND DILUTED LOSS PER SHARE

Basic earnings per common share are determined based on the weighted average
number of shares outstanding during the period. Diluted earnings per common
share include the weighted average number of shares outstanding and give effect
to potentially dilutive securities such as options and warrants outstanding.
Both the basic and diluted loss per common share for the three months ended
March 31, 2000 and 1999 are based on the weighted average number of shares of
Common Stock outstanding during the periods. Potentially dilutive securities
include options and warrants outstanding and debt and preferred stock
convertible into Common Stock; however, such securities have not been included
in the calculation of the diluted loss per share as their effect is
antidilutive. Since such securities are antidilutive, there is no difference
between basic and diluted loss per common share for the periods presented. The
net loss applicable to common shares used in the calculation of basic and
diluted loss per common share for the three months ended March 31, 2000 and 1999
includes dividends of $48,000 and $255,000, respectively, accrued or paid on the
Company's Convertible Series B Preferred Stock during such periods.

NOTE 7 - STOCK INCENTIVE PLANS

The following table summarizes activity under the Company's 1997 Stock Incentive
Plan (the "1997 Plan") and for other options and warrants for Common Stock for
the three months ended March 31, 2000:

<TABLE>
<CAPTION>
                                                       1997 Plan                    Other Options and Warrants
                                            -----------------------------        -----------------------------
                                                              Weighted                              Weighted
                                                Number      Average Price         Number         Average Price
                                              of Shares      Per Share           of Shares         Per Share
                                            --------------  -------------        ------------   -------------
   <S>                                         <C>              <C>               <C>                 <C>
   Outstanding, December 31, 1999              4,044,640        $8.64              3,759,640          $6.55
     Granted                                     750,145        $7.61                     --             --
     Exercised                                   (56,119)       $3.60             (1,795,000)         $4.11
     Canceled                                   (125,895)       $7.00                     --             --
                                               ---------                          ----------
   Outstanding, March 31, 2000                 4,612,771        $8.58              1,964,640          $8.78
                                               =========                          ==========
</TABLE>

Stock options exercised by the Company's Chairman and Chief Executive Officer in
1995 through the issuance of a note are being accounted for as variable stock
options which can result in significant increases and decreases in compensation
expense subject to the variability of the Company's stock price. During the
three months ended March 31, 2000, the Company charged $1,991,000 to expense for
such variable stock options.

NOTE 8 - LEASE COMMITMENTS

In March 2000, the Company exercised an option to extend the term of the leases
on its primary facility for manufacturing, research and administration from
September 2000 to December 2005. The following is a summary of the operating
lease commitments as of March 31, 2000 (in thousands):

                                                   OPERATING
                                                    LEASES
                                                   ---------
       Year Ending December 31:
          2000                                     $  3,125
          2001                                        3,218
          2002                                        2,942
          2003                                        2,514
          2004                                        2,607
       Thereafter                                     2,702
                                                   --------
       Total minimum lease payments                $ 17,108
                                                   ========

NOTE 9 - SUPPLEMENTAL CASH FLOW INFORMATION

During the first quarter of 2000, non-cash financing activities included the
conversion of $5 million of the Company's Series B Preferred Stock into
1,354,539 shares of Common Stock (see Note 5). Net cash from operating
activities reflects cash payments for interest expense of approximately $190,000
and $481,000 for the three-month periods ended March 31, 2000 and 1999,
respectively.


                                      -9-
<PAGE>


NOTE 10 - RELATED PARTY TRANSACTIONS

During the three months ended March 31, 2000 and 1999, the Company performed
services for its Dermagraft and NeoCyte Joint Ventures and has manufactured
products for the Dermagraft Joint Venture to sell to customers or for use in
clinical trials as described below (see Note 2). The Company has a fifty percent
interest in each of the Dermagraft and NeoCyte Joint Ventures.

Dermagraft Joint Venture
------------------------

During the three-month periods ended March 31, 2000 and 1999, the Company
recognized $1,792,000 and $7,014,000, respectively, in contract revenues for
research and development, marketing and other activities performed for the
Dermagraft Joint Venture, including $4,950,000 in the three-month period ended
March 31, 1999 related to the recognition of a $15 million milestone payment
(see Note 2). In addition, during the three-month periods ended March 31, 2000
and 1999, product sales to related parties include products sold to the
Dermagraft Joint Venture of $3,622,000 and $3,071,000, respectively.

As a purpose of the Dermagraft Joint Venture is to share the costs of
manufacturing and commercializing the Company's Dermagraft and TransCyte
products between the joint venture's partners, product sales to the Dermagraft
Joint Venture are equal to the Company's cost of goods sold for such products
including period costs. Period costs reflect overhead costs related to excess
production capacity and include rent, depreciation and quality control,
facilities, supplies and other such costs to support or related to the excess
production capacity. Due to costs related to excess production capacity, the
Dermagraft Joint Venture immediately writes the inventory down to estimated
market value at the date of purchase, which is the net realizable value at which
the joint venture believes it will be able to sell the products to its
customers. For the three-month periods ended March 31, 2000 and 1999 such
write-downs totaled $2,128,000 and $2,132,000, respectively.

As a result of restructuring the Dermagraft Joint Venture Agreement with Smith &
Nephew in February 2000, the Company also receives certain royalty payments from
the joint venture on product sales made by the joint venture (see Note 2). For
the three months ended March 31, 2000, these royalty payments were not material.

NeoCyte Joint Venture
---------------------

During the three-month periods ended March 31, 2000 and 1999, the Company
recognized $962,000 and $623,000, respectively, in contract revenues for
research and development activities performed for the NeoCyte Joint Venture.

The Company's share of the above costs incurred by the Company and charged to
the Dermagraft and NeoCyte Joint Ventures are reflected in the equity in losses
of joint ventures in the accompanying statement of operations and totaled
$2,884,000 and $3,905,000 in the three months ended March 31, 2000 and 1999,
respectively.


                                      -10-

<PAGE>



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

     This Quarterly Report on Form 10-Q may contain predictions, estimates and
other forward-looking statements that involve a number of risks and
uncertainties, including those discussed under Part II, Item 5 below. This
outlook represents our current judgment on the future direction of our business.
Such risks and uncertainties could cause actual results to differ materially
from any future performance suggested below. We undertake no obligation to
release publicly the results of any revisions to these forward-looking
statements to reflect events or circumstances arising after the date of this
Quarterly Report.

Advanced Tissue Sciences, Inc. (the "Company" or "Advanced Tissue Sciences") is
engaged in the development and manufacture of human-based tissue products for
tissue repair and transplantation using its proprietary tissue engineering
technology. The Company's leading therapeutic products are tissue-engineered
skin products, TransCyte(TM) for the temporary covering of severe and
partial-thickness burns and Dermagraft(R) for the treatment of severe skin
ulcers. In addition to its TransCyte and Dermagraft skin products, the Company
is also focusing its resources on the development of tissue-engineered products
for other wound care, orthopedic, aesthetic, reconstructive and cardiovascular
applications.

In 1997, the Company received marketing approval in the United States from the
U.S. Food and Drug Administration (the "FDA") for its first therapeutic product,
TransCyte, as a temporary covering for severe, full-thickness, or third degree,
burns and for partial-thickness, or second degree, burns. Through September
1998, TransCyte was marketed for burns by Advanced Tissue Sciences through a
direct sales force in the United States. Since October 1998, TransCyte has been
or will be marketed in the United States and throughout the rest of the world
consistent with regulatory approvals for burn and wound care applications under
a joint venture with Smith & Nephew plc ("Smith & Nephew").

Dermagraft for the treatment of diabetic foot ulcers was approved for sale in
Canada and was introduced in the United Kingdom and several other European
countries in 1997 through the joint venture with Smith & Nephew. The Company
also submitted a Premarket Approval (PMA) application to the FDA for approval to
market Dermagraft for the treatment of diabetic foot ulcers in the United
States. In January 1998, an FDA advisory panel recommended approval of
Dermagraft with the condition that the Company perform a post-marketing study to
confirm efficacy and provide physician training. However, the FDA decided the
PMA application was not approvable without supportive data from an additional
controlled clinical trial. The additional clinical trial began in late 1998 and
the results of a planned interim analysis of data from this trial were announced
in December 1999. These data showed that, although statistical significance was
not achieved at the interim analysis, Dermagraft was healing more ulcers than
the control treatment in those diabetic foot ulcers having a duration of greater
than six weeks.

In February 2000, the FDA approved an application for an amendment to the
Investigational Device Exemption (IDE) for the ongoing clinical trial of
Dermagraft in the treatment of diabetic foot ulcers. Based on the data from the
interim analysis, the IDE was amended to revise the enrollment criteria and the
statistical plan for data analysis. The amended IDE allowed for the modification
of the study inclusion criteria to limit future enrollment to patients with
ulcers of greater than six weeks duration. In addition, the amended statistical
plan allows the Company to integrate the interim analysis data with additional
data generated since that time from patients with ulcer duration of greater than
six weeks. If these additional data confirm the treatment benefit that was seen
in the interim analysis for patients with ulcer duration of greater than six
weeks, the Company believes it could submit an amendment to the PMA application
for approval of Dermagraft for the treatment of diabetic foot ulcers to the FDA
as early as mid-year.

In October 1998, the FDA approved the Company's application for a Treatment
Investigational Device Exemption (the "Treatment IDE") for Dermagraft, allowing
the Company to make Dermagraft for the treatment of diabetic foot ulcers
available to selected centers in the United States under an approved clinical
protocol. The Treatment IDE is a regulatory provision that (1) permits companies
to make available promising new products to patients with serious diseases for
which there is no satisfactory alternative, and (2) allows companies to recover
the costs of manufacturing and distributing the product. The Treatment IDE is
being conducted concurrently with the ongoing clinical trial of Dermagraft in
the treatment of diabetic foot ulcers in the United States.


                                      -11-

<PAGE>


In May 1999, the Company and Inamed Corporation ("Inamed") entered into a
strategic alliance for the development and marketing of several of the Company's
human-based, tissue-engineered products for aesthetic and certain reconstructive
applications. Specifically, Inamed licensed rights to further develop,
manufacture and sell certain of the Company's tissue-engineered products for use
in cosmetic surgery, cartilage for plastic and reconstructive surgery,
extracellular matrix for use in breast reconstruction, and extracellular matrix,
including human collagen, for soft tissue augmentation (wrinkle and cosmetic
correction) and as a bulking agent for the treatment of urinary incontinence. As
part of this alliance, the Company received certain payments in 1999 and will be
entitled to royalties on the future sales of the Company's tissue-engineered
products by Inamed. Under the related agreements, Advanced Tissue Sciences will
be responsible for the development of the products and related manufacturing
processes while Inamed will be responsible for clinical and regulatory
activities. Advanced Tissue Sciences or an affiliate has the right to
manufacture the products developed for Inamed. See Note 2 to the consolidated
financial statements.

In 1996, the Company entered into an agreement with Smith & Nephew to form a
joint venture (the "Dermagraft Joint Venture") for the worldwide
commercialization of Dermagraft in the treatment of diabetic foot ulcers. In
1998, Advanced Tissue Sciences and Smith & Nephew expanded the Dermagraft Joint
Venture to include additional technology for the treatment of skin tissue wounds
and applications such as venous ulcers, pressure ulcers and burns and to include
exclusive rights to TransCyte for full and partial-thickness burns in the United
States. In connection with the expanded joint venture, the Company received a
$15 million milestone payment in January 1999 which was recognized in contract
revenues in 1999 as the related financial commitments were met.

In February 2000, the Company and Smith & Nephew agreed in principle to
restructure certain milestone payments associated with the Dermagraft Joint
Venture as a result of delays in the commercial introduction of Dermagraft in
the United States. The requirement for an additional clinical trial by the FDA
substantially increased the partners' investments necessitating the
restructuring. The objective of the restructuring is to defer the potential
payment of certain milestones by Smith & Nephew while providing the Company a
royalty stream and an opportunity for an increase in its long-term return from
the venture. Specifically, except for $10 million in regulatory approval and
reimbursement milestones related to Dermagraft in the treatment of diabetic foot
ulcers, the Company agreed to make all other approval, reimbursement and sales
milestones subject to, and payable from, joint venture earnings exceeding
certain minimum levels. In return, the Dermagraft Joint Venture will pay the
Company royalties on joint venture product sales. In addition, as part of the
agreement, the Company sold the Dermagraft manufacturing assets that it owned to
a company jointly owned with Smith & Nephew, and also sold its raw material
inventories to the Dermagraft Joint Venture. The proceeds of these sales will be
used to pay down a portion of the outstanding balance of a loan from Smith &
Nephew, with the remaining outstanding principal and interest due at the June
30, 2000 maturity to be paid in the Company's Common Stock at the then current
market price. See Notes 2 and 4 to the consolidated financial statements.

Under the expanded joint venture, Advanced Tissue Sciences and Smith & Nephew
are sharing equally in the expenses and revenues of the Dermagraft Joint
Venture, except the Company is funding the first $6 million in expense for
conducting clinical trials and regulatory support of Dermagraft and TransCyte in
the treatment of venous ulcers and pressure ulcers. In addition, the Company
funded certain manufacturing and distribution costs and certain costs related to
post-market studies of TransCyte through December 1999. See Note 2 to the
consolidated financial statements.

In 1994, the Company and Smith & Nephew entered into a separate joint venture
(the "NeoCyte Joint Venture") for the worldwide development, manufacture and
marketing of human tissue-engineered cartilage for orthopedic applications. The
joint venture partners are sharing equally in the NeoCyte Joint Venture's
expenses. See Note 2 to the consolidated financial statements.

In October 1997, the Company was awarded a $2 million Advanced Technology
Program grant from the National Institute of Standards and Technology to fund
collaborative cardiovascular research with the University of California, San
Diego over a three-year period. Funding under the grant began in 1998 and
continues into 2000.

The Company has incurred, and expects to continue to incur, substantial
expenditures in support of the commercialization, development and clinical
trials of its TransCyte and Dermagraft products for burns and skin


                                      -12-

<PAGE>


ulcer applications, for manufacturing systems and in advancing other
applications of the Company's core technology. In particular, the Company will
incur, either directly or through the Dermagraft Joint Venture, substantial
costs for the additional clinical trial of Dermagraft in the treatment of
diabetic foot ulcers and in support of clinical trials and post-market studies
of Dermagraft and TransCyte in the treatment of venous, pressure and diabetic
ulcers and for full and partial thickness burns. The Company also expects to
incur additional costs for the development of products and manufacturing
processes under its strategic alliance with Inamed and, through the NeoCyte
Joint Venture, for the development and clinical trials of tissue-engineered
cartilage products; however, such costs are expected to be partially offset by
the recognition of licensing fees and milestone payments from Inamed and by
sharing such costs with partners.

Results of Operations
---------------------

Product sales to related parties totaled $3,622,000 for the three months ended
March 31, 2000, as compared to sales of $3,071,000 in the corresponding period
of 1999. Product sales to related parties reflect sales of Dermagraft and
TransCyte to the Dermagraft Joint Venture at cost (see Notes 2 and 10 to the
consolidated financial statements). The Company manufactures Dermagraft and
TransCyte to meet the Dermagraft Joint Venture's forecasted requirements. The
level of sales will continue to be sensitive to the Dermagraft Joint Venture's
success in obtaining regulatory approvals and product reimbursement from both
national healthcare systems and private insurers.

Revenues from contracts and fees were $3,788,000 for the three-month period
ended March 31, 2000, a decrease of $4,011,000 from the prior year's revenues in
the same period of $7,799,000. This decrease reflects the recognition in the
three months ended March 31, 1999 of $5 million of a $15 million milestone
payment received from Smith & Nephew associated with the expansion of the
Dermagraft Joint Venture. This decrease is partially offset by the recognition
of $899,000 in the three months ended March 31, 2000 in licensing payments
previously received from Inamed in 1999. Other contract and fee revenues are
principally for research and development activities performed for the Dermagraft
and NeoCyte Joint Ventures. See Note 2 to the consolidated financial statements.

Research and development expenditures in the three months ended March 31, 2000
decreased by $268,000 to $3,901,000, as compared to expenditures of $4,169,000
in the corresponding period of 1999. The lower research and development costs in
the three-month period ended March 31, 2000 reflect a decrease of $732,000 in
facility costs resulting from the Company terminating two building leases in the
second quarter of 1999 and consolidating its operations into its two remaining
buildings. The facility cost reduction was partially offset by increases of
$345,000 and $142,000 in outside services and salaries and benefits,
respectively, in the three months ended March 31, 2000 related to the increased
clinical trial activity in the first quarter of 2000 as compared to the same
period in 1999.

Cost of goods sold of $3,622,000 for the three months ended March 31, 2000
increased by $551,000 compared to $3,071,000 in the corresponding period in 1999
Cost of goods sold represents the cost of TransCyte and Dermagraft sold to the
Dermagraft Joint Venture. The increase in cost of goods sold primarily reflects
lower capitalization of overhead costs into inventory during the first quarter
of 2000. During the first quarter of 1999 inventory increased $823,000 as
compared to a $43,000 decline in the first quarter of 2000. As a result of the
FDA's decision to require additional clinical data for Dermagraft in the
treatment of diabetic foot ulcers, the Company is continuing to incur
significant costs associated with excess production capacity within its
manufacturing facility. Due to costs related to excess production capacity, the
Dermagraft Joint Venture immediately writes the inventory down to estimated
market value at the date of purchase, which is the net realizable value at which
the joint venture believes it will be able to sell the products to its
customers. For the three-month periods ended March 31, 2000 and 1999, such
write-downs totaled $2,128,000 and $2,132,000, respectively. To the extent the
Company does not sell such products to the Dermagraft Joint Venture, it will be
required to write such inventories down to net realizable value.

Selling, general and administrative costs were $2,624,000 for the three months
ended March 31, 2000 as compared to $3,380,000 in the corresponding period of
the prior year. This decrease is primarily due to a decline in facility costs of
$727,000 in three months ended March 31, 2000 as compared to the same period in
1999. The lower facility costs are related to the consolidation of the Company's
operations as discussed above. In addition, legal expenses during the three
months ended March 31, 2000 decreased by $134,000 as compared to the
corresponding period of the prior year.

Compensation expense related to variable stock option was $1,991,000 for the
three months ended March 31, 2000. Stock options exercised by the Company's
Chairman and Chief Executive Officer in 1995 through the issuance of a


                                      -13-

<PAGE>


note are being accounted for as variable stock options which can result in
significant increases and decreases in compensation expense subject to the
variability of the Company's stock price.

Equity in losses of joint ventures in the three months ended March 31, 2000 of
$3,713,000 was $1,744,000 lower than in the corresponding period of 1999. These
amounts represent the Company's share of the losses of the Dermagraft and
NeoCyte Joint Ventures. The equity in losses of joint ventures includes costs
incurred by the Company and charged to the Dermagraft and NeoCyte Joint Ventures
totaling $2,884,000 and $3,905,000 for the three months ended March 31, 2000 and
1999, respectively. The decrease in the 2000 loss reflects increased sales and
reductions in the Dermagraft Joint Venture's cost structure. Revenue increased
by 57% to $732,000, while the manufacturing costs decreased by $695,000
resulting in a $960,000 increase in the Dermagraft Joint Venture's gross margin
for the three month period ending March 31, 2000 as compared to the same period
in the prior year. Selling, general and administrative expenses were reduced by
$1,142,000 as such costs are reduced to reflect current sales volumes. In
addition, during 1999, the Company funded certain manufacturing and distribution
costs associated with the transfer of sales and marketing of TransCyte in the
United States to the Dermagraft Joint Venture. No such costs were included in
the equity in losses during the three month period ended March 31, 2000 as
compared to $867,000 during the same period in 1999.

Interest income and other was $602,000 and $455,000 for three-month periods
ended March 31, 2000 and 1999, respectively. The increase primarily reflects
higher interest income in the first quarter of 2000. Interest expense was
$460,000 in the three months ended March 31, 2000 as compared to $554,000 in the
corresponding period of 1999. The decrease primarily reflects the repayment of a
$10 million loan from Smith & Nephew in June 1999 partially offset by interest
on $2 million in additional borrowings from Smith & Nephew related to the
NeoCyte Joint Venture (see Note 4 to the consolidated financial statements).

Liquidity and Capital Resources
-------------------------------

As of March 31, 2000, the Company had available working capital of $17.5
million, an increase of $6.8 million from December 31, 1999. The increase
reflects an additional $7.6 million received from the exercise of warrants and
options and $5 million previously restricted for the redemption of outstanding
shares of Convertible Series B Preferred Stock (see Note 5 to the consolidated
financial statements), partially offset by the use of $2.2 million of working
capital to support operations and the net investment in the Company's joint
ventures with Smith & Nephew of $2.9 million. Capital expenditures and patent
application costs were $184,000 during the three months ended March 31, 2000.

The Company expects to continue to use working capital as it incurs substantial
research and development expenses; additional costs in support of clinical
trials; general and administrative costs in support of product
commercialization; expenditures for capital equipment and patents, and in
support of the Dermagraft and NeoCyte Joint Ventures and its strategic alliance
with Inamed. These uses of working capital are expected to be only partially
offset by revenues received from the Dermagraft and NeoCyte Joint Ventures with
Smith & Nephew and from the Inamed alliance. If, for any reason, Smith & Nephew
were to terminate the Dermagraft Joint Venture or, to a lesser extent, the
NeoCyte Joint Venture, the Company would experience a substantial increase in
the need for and use of its working capital to support the commercialization and
manufacture of its Dermagraft and TransCyte products or the development of its
orthopedic cartilage products.

The Company's working capital and capital requirements are dependent upon a
number of factors, including the timing and expense of the Company's preclinical
and clinical studies, the achievement and timing of regulatory approvals and
third-party reimbursement, sales and marketing efforts by the Company's
strategic partners, new technological innovations, market acceptance of the
Company's products and the establishment of new strategic alliances. The Company
currently believes it has sufficient funds to support its operations to the end
of fiscal 2000.

The further development of the Company's technology and commercialization of its
products, as well as any further development of manufacturing capabilities or
the establishment of any additional sales, marketing and distribution
capabilities, will require the commitment of substantial funds. In addition to
existing working capital, other sources of funds may include payments from
alliances with Smith & Nephew and Inamed, and up to $1.5 million of borrowing
capacity under the NeoCyte Joint Venture with Smith & Nephew. The Company may
also pursue additional public or private offerings of debt or equity securities.
Additional funding could potentially be obtained through new strategic alliances
or other collaborative arrangements, or through


                                      -14-

<PAGE>


the extension of existing strategic alliances. However, there can be no
assurance that funds from the sources outlined above will be available when
needed or on terms favorable to the Company, under existing arrangements or
otherwise, or that the Company will be successful in entering into any other
strategic alliances or collaborative arrangements.

The Company continually reviews its product development activities in an effort
to allocate its resources to those products the Company believes have the
greatest commercial potential. Factors considered by the Company in determining
the products to pursue include projected markets and need, potential for
regulatory approval and reimbursement under the existing healthcare system as
well as anticipated healthcare reforms, technical feasibility, expected and
known product attributes and estimated costs to bring the product to market.
Based on these and other factors that the Company considers relevant, the
Company may from time to time reallocate its resources among its product
development activities. Additions to products under development or changes in
products being pursued can substantially and rapidly change the Company's
funding requirements.

Financial Condition
-------------------

Cash, cash equivalents and short-term investments as of March 31, 2000 increased
by approximately $3.2 million as compared to December 31, 1999 principally
reflecting $7.6 million received from the exercise of warrants and options and
$5 million previously restricted for the redemption of outstanding shares of
Convertible Series B Preferred Stock (see Note 5 to the consolidated financial
statements), partially offset by $6 million of cash used to fund operations and
net an investment of $2.9 million to support the Dermagraft and NeoCyte Joint
Ventures. Receivables from joint ventures increased by $6 million and inventory
decreased by $4.1 million principally reflecting the sale of raw material
inventories by the Company to, and the timing of payments from, the Dermagraft
Joint Venture (see Note 2 to the consolidated financial statements). The current
portion of long-term debt at March 31, 2000 has increased by $1 million from
December 31, 1999 reflecting additional borrowings from Smith & Nephew (see Note
4 to the consolidated financial statements). All of the Company's Series B
Preferred Stock outstanding at December 31, 1999 was converted into Common Stock
in March 2000 (see Note 5 to the consolidated financial statements).

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in interest rates primarily from its long-term
debt arrangements and, secondarily, its investments in certain securities.
Although the Company's short-term investments are available for sale, the
Company generally holds such investments until maturity. The Company does not
utilize derivative instruments or other market risk sensitive instruments to
manage exposure to interest rate changes. The Company believes that a
hypothetical 100 basis point adverse move in interest rates along the entire
interest rate yield curve would not materially affect the fair value of the
Company's interest sensitive financial instruments at March 31, 2000.


                                      -15-

<PAGE>


                           PART II - OTHER INFORMATION
                           ---------------------------

ITEM 5 - OTHER INFORMATION

FACTORS THAT MAY EFFECT FUTURE RESULTS

     The following is a summary description of some of the many risks we face in
our business. You should carefully review these risks in evaluating our business
and the businesses of our subsidiaries. You should also consider the other
information described in this report.

RISKS RELATED TO OUR BUSINESS
-----------------------------

     WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE. To date, we have
experienced significant operating losses in funding the research, development,
testing and marketing of our products and expect to continue to incur
substantial operating losses. To March 31, 2000, we had incurred cumulative net
operating losses of $248.1 million. Our ability to achieve profitability depends
in part upon our ability to successfully manufacture and market Dermagraft and
TransCyte for skin ulcers and burns. We may never achieve a profitable level of
operations or even if we achieve profitability, we may not be able to sustain it
on an ongoing basis.

     IF OUR PRODUCTS FAIL IN CLINICAL STUDIES, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL AND WILL NOT BE ABLE TO SELL THOSE PRODUCTS. In order to sell our
products that are under development, and our existing products for additional
applications, we must receive regulatory approval for our products. To obtain
those approvals, we must conduct clinical studies demonstrating that our
products are safe and effective. If we cannot obtain FDA approval for a product
or any additional application of a product, that product cannot be sold and
revenues will suffer.

     Early in 1998, an FDA Advisory Panel recommended the FDA approve Dermagraft
for marketing in the United States for the treatment of diabetic foot ulcers.
The Advisory Panel's recommendation included certain conditions we would have
needed to satisfy after the commercial introduction of Dermagraft. However, in
June 1998, the FDA requested we complete an additional controlled clinical trial
to support our application for approval to market Dermagraft for the treatment
of diabetic foot ulcers. The clinical trial began in late 1998 and the results
of a planned interim analysis of data from this trial were announced in December
1999. These data showed that, although statistical significance was not achieved
at the interim analysis, Dermagraft was healing more ulcers than the control
treatment in those diabetic foot ulcers having a duration of greater than six
weeks. In February 2000, the FDA approved an application for an amendment to the
Investigational Device Exemption (IDE) for the clinical trial of Dermagraft in
the treatment of diabetic foot ulcers. Based on the data presented to the FDA in
December, the IDE has been amended to revise the enrollment criteria and the
statistical plan for data analysis. We are currently still conducting this
additional pivotal clinical trial. Commercial introduction within the United
States is subject to successful completion of the additional clinical trial and
FDA approval.

     Although Dermagraft appears promising based on clinical studies to date, it
may not be successful in this additional clinical trial or other future clinical
trials. Our ongoing clinical study of Dermagraft, and clinical studies of our
other products, may be delayed or halted for various reasons, including:

     -  the product is not effective, or physicians think that it is not
        effective;
     -  patients experience severe side effects during treatment;
     -  patients do not enroll in the study at the rate we expect; or
     -  product supplies are not sufficient to treat the patients in the study.

     In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that we have demonstrated that Dermagraft, or any of our other
products, are safe and effective after we complete clinical trials.

     WE WILL NEED ADDITIONAL FUNDS TO SUPPORT OPERATIONS. IF WE ARE UNABLE TO
OBTAIN THEM, WE WOULD BE UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT PROGRAMS AND
WOULD HAVE TO REDUCE OR CEASE OPERATIONS, OR ATTEMPT TO SELL SOME OR ALL OF
OPERATIONS OR TO MERGE WITH ANOTHER ENTITY. The further development of our
technology and products as well as any further development of manufacturing
capabilities or the establishment of additional sales, marketing and
distribution capabilities will require the commitment of substantial funds. Our
existing working capital will not be sufficient to meet our needs. Potential
sources of additional funds include


                                      -16-

<PAGE>


payments from our alliances with Smith & Nephew and Inamed Corporation. If, for
any reason, Smith & Nephew were to terminate the Dermagraft Joint Venture or, to
a lesser extent, the NeoCyte Joint Venture, we would experience a substantial
increase in the need for and use of our working capital to support the
commercialization and manufacture of our Dermagraft and TransCyte products or
the development of our orthopedic cartilage products. We may pursue additional
public or private offerings of debt or equity securities or other means to
obtain funds. We could also acquire additional funding through collaborative
arrangements or the extension of existing arrangements, which could require the
issuance of additional equity interests in us.

     We may not satisfy the milestones for additional funds under the joint
ventures with Smith & Nephew or the Inamed alliance. We also may not be able to
obtain adequate funds under other existing or future arrangements when such
funds are needed or, if available, on terms acceptable to us.

     Insufficient funds may require us to delay, scale back or eliminate certain
of our research and product development programs or that we license third
parties the right to commercialize products or technologies that we would
otherwise commercialize ourselves or that we attempt to merge with another
entity.

     OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET AND MAY NOT BE SUCCESSFULLY
COMMERCIALIZED BECAUSE PHYSICIANS AND PATIENTS MAY NOT PURCHASE OR USE THEM. Our
products are based on new and innovative technologies and the medical community
or the general population may not broadly purchase or use our products as
alternatives to existing methods of treatment. Sales of our products may be
adversely affected by:

     - their respective cost;
     - concerns related to efficacy;
     - the effectiveness of alternative methods of treatment; and
     - the insufficiency of third-party reimbursement.

     Any future negative events or other unfavorable publicity involving the use
of our products could also adversely affect acceptance of our products. Both we
and Smith & Nephew have limited direct experience marketing or obtaining
third-party reimbursement for these types of products.

     Additionally, TransCyte has only been marketed and sold in the United
States for a limited period of time and may not achieve commercial acceptance in
the United States. Similarly, Dermagraft has only been sold internationally and
may never achieve commercial acceptance in the United States even if it receives
FDA approval.

     WE RELY ON THIRD PARTIES TO MARKET, DEVELOP AND SELL OUR PRODUCTS AND THOSE
THIRD PARTIES MAY NOT PERFORM SUCCESSFULLY. OUR DEPENDENCE ON THIRD PARTIES AND
OUR LACK OF SALES AND MARKETING PERSONNEL COULD LIMIT OUR ABILITY TO DEVELOP OUR
PRODUCTS OR TO GENERATE REVENUES FROM PRODUCT SALES. We are particularly
dependent on Smith & Nephew with respect to the Dermagraft Joint Venture and
NeoCyte Joint Venture. The amount and timing of resources to be devoted by Smith
& Nephew is not within our control. In addition, the Dermagraft and NeoCyte
Joint Venture agreements provide that they may be terminated prior to their
expiration under certain circumstances that are outside our control. If Smith &
Nephew does not perform its obligations as expected or if Smith & Nephew has a
strategic shift in its business focus, it would be difficult for us to
successfully complete the development efforts of the Dermagraft Joint Venture
and NeoCyte Joint Venture. We are relying on Smith & Nephew and others to market
our products both domestically and internationally.

     Our success in generating market acceptance of Dermagraft and TransCyte
will depend on the marketing efforts of Smith & Nephew. We cannot control the
amount and timing of resources that Smith & Nephew or others may devote to
marketing and selling our products. Smith & Nephew may not perform its
obligations under the Dermagraft Joint Venture as expected. Our failure to
achieve broad use of Dermagraft for the treatment of diabetic foot ulcers and,
to a lesser extent, TransCyte for burn care, would hurt our ability to generate
revenues and any future profits.

     To the extent that we choose not to or are unable to establish such
arrangements, we would experience increased capital requirements to undertake
research, development and marketing of our proposed products at our own expense.
If we are not able to meet these expenses we may be unable to continue our
operations.

     IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE TO
PREVENT OTHER COMPANIES FROM USING OUR TECHNOLOGY IN COMPETITIVE PRODUCTS. IF WE
INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY BE PREVENTED FROM
DEVELOPING OR MARKETING OUR PRODUCTS. Our ability to compete effectively will
depend,


                                      -17-

<PAGE>

in part, on our ability to maintain the proprietary nature of our technology and
manufacturing processes. Our competitors may develop similar products that are
the same as our products and market those products after our patents expire, or
may design around our existing patents. If this happens, sales of our products
would suffer and our ability to generate revenues will be severely impacted.
Furthermore, patents may be issued to others that prevent the manufacture or
sale of our products. We may have to pay significant fees or royalties to
license those patents in order to continue marketing our products. This would
cause any future profits on sales of our products to decline.

     Our dependence upon having exclusive rights to the technology covered under
our owned or licensed patents and patent applications is subject to the
following risks:

     -  applications may not result in issued patents;
     -  current or future issued or licensed patents, trade secrets or know-
        how may not afford protection against competitors with similar
        technologies or processes;
     -  any patents issued may be infringed upon or designed around by others;
        or
     -  others may independently develop technologies or processes that are the
        same as or substantially equivalent to ours.

     In addition to patent protection, we also rely on trade secrets, know-how
and technology advances. We enter into confidentiality agreements with our
employees and others, but these agreements may not be effective in protecting
our proprietary information. Others may independently develop substantially
equivalent information or obtain access to our know-how.

     Litigation, which is very expensive, may be necessary to enforce or defend
our patents or rights and may not end favorably for us. Any of our licenses,
patents or other intellectual property may be challenged, invalidated, canceled,
infringed or circumvented and may not provide any competitive advantage to us.

     IF THE THIRD-PARTY SUPPLIERS THAT SUPPLY THE MATERIALS NECESSARY TO
MANUFACTURE OUR PRODUCTS DO NOT SUPPLY QUALITY MATERIALS IN A TIMELY MANNER, IT
MAY DELAY OR IMPAIR OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS ON A
TIMELY AND COMPETITIVE BASIS OR ADVERSELY AFFECT OUR POTENTIAL FUTURE
PROFITABILITY. Although most of the raw materials used in the manufacture of our
Dermagraft and TransCyte products are available from more than one supplier,
changes in certain critical components could cause the FDA to require us to
prove equivalency of the materials or potentially to modify or perform
additional clinical trials for our Dermagraft and TransCyte products, which
could have the effect of restricting our ability to commercialize our products.

     The mesh framework used by us in the manufacture of Dermagraft is available
from only one FDA-approved manufacturing source. Similarly, the synthetic mesh
framework used by us in the manufacture of TransCyte is only available from a
different FDA-approved manufacturing source. Because the FDA approval process
requires manufacturers to specify their proposed suppliers of active ingredients
and certain component parts and packaging materials in their applications, FDA
approval of a new supplier would be required if these materials become
unavailable from the current suppliers.

     Interruptions in supplies for the manufacture of our Dermagraft and
TransCyte products may occur in the future and we may have to obtain substitute
vendors for these materials. Any significant supply interruption would delay our
clinical trials as well as our product development and marketing programs. In
addition, an uncorrected impurity or supplier's variation in a raw material,
either unknown to us or incompatible with our manufacturing process, could
prevent or delay our ability to manufacture products.

     IF OUR PRODUCTS THAT ARE IN AN EARLY STAGE OF DEVELOPMENT ARE NEVER
SUCCESSFULLY COMMERCIALIZED WE MAY NOT HAVE REVENUES TO CONTINUE OPERATIONS. We
have products that are in an early stage of development. To date, only TransCyte
has been approved for commercial sale and only Dermagraft has advanced to
clinical trials in the United States. However, Dermagraft will still require
further marketing approvals from the FDA, and all of our other products are at
earlier stages of research, development and testing. These products, including
additional indications for Dermagraft and TransCyte, will require significant
additional research and development, as well as extensive preclinical and
clinical testing.

     Since our products are based on innovative technologies, there are many
reasons why our products may not advance beyond their early stage of
development. These reasons include the possibilities that:


                                      -18-
<PAGE>

     -  any or all of these products will be found to be unsafe or ineffective
        or otherwise fail to receive necessary regulatory approvals;
     -  our products are uneconomical to market;
     -  third parties may hold legal rights that preclude us from marketing
        such products; or
     -  our products fail to achieve market acceptance in light of competing
        technologies and products.

RISKS RELATED TO OUR INDUSTRY
-----------------------------

     IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR
SELL ANY OF OUR PRODUCTS, OR IF APPROVAL IS DELAYED, IT COULD INCREASE THE COST
OF PRODUCT DEVELOPMENT, OR ULTIMATELY PREVENT OR DELAY OUR ABILITY TO SELL OUR
PRODUCTS AND GENERATE REVENUES. We and our collaborators are subject to
extensive government regulation. The FDA and other state and foreign regulatory
authorities require rigorous preclinical testing, clinical trials and other
product approval procedures for our products. Numerous regulations also govern
the manu-facturing, safety, labeling, storage, record keeping, reporting and
marketing of our products. The process of obtaining these approvals and
complying with applicable government regulations is time consuming and
expensive. The FDA and other state or foreign regulatory authorities have
limited experience with our technology and products. As a result, our products
are susceptible to requests for clinical modifications or additional supportive
data, or changes in regulatory policy, which could substantially extend the test
period for our products resulting in delays or rejections. Even after
substantial time and expense, we may not be able to obtain regulatory product
approval by the FDA or any equivalent state or foreign authorities. If we obtain
regulatory product approval, the approval may limit the uses for which we may
market the product.

     For example, in June 1998, the FDA indicated that our marketing application
for Dermagraft for the treatment of diabetic foot ulcers was not approvable
without supportive data from an additional clinical trial. We are currently
conducting the additional clinical trial as requested by the FDA. If the trial
is not successful or if we do not receive FDA approval at the conclusion of the
clinical trial it will prevent or at least delay sales of Dermagraft.

     In addition, although the FDA has classified TransCyte as a medical device,
the state of California and the state of New York have notified us that we must
register as a tissue bank in order to manufacture or distribute TransCyte in
those states. Although some states do not regulate tissue banks, there are
certain other states besides California and New York that do. Such states could
take a position similar to California and New York with regard to the regulatory
status of TransCyte. In June 1997, we submitted a petition to the FDA requesting
an advisory opinion that the FDA's federal regulation of this product as a
medical device preempts conflicting New York statutes (laws) from regulating the
product as banked human tissue. In January 2000, the FDA denied our petition to
pre-empt applicable New York statutes. In view of the FDA's decision, the
Company has initiated discussions at the individual state level, beginning with
the State of California in an attempt to resolve this matter. Subject to the
outcome of these discussions, we and our customers could be subjected to a
costly new layer of regulation. In addition, under the laws of some states that
regulate tissue, including New York and Florida, the sale of human tissues for
valuable consideration is prohibited. We are currently distributing TransCyte in
California and New York under a provisional tissue banking license. Due to the
similarities of our products, regulations applicable to TransCyte are also
expected to apply to our Dermagraft product and potentially to our NeoCyte
product as well.

     After regulatory approval is obtained, our product, its manufacture and
related manufacturing facilities will be subject to continual review and
periodic inspections. Any subsequent discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
For example, after inspecting the manufacturing facility early in 1998 in
conjunction with our application for the approval of Dermagraft for the
treatment of diabetic foot ulcers, the FDA notified us of numerous objectionable
conditions under a Form FDA 483 list of observations. These observations
concerned our manufacturing processes and systems for Dermagraft and TransCyte.
In March 1998, the FDA issued a warning letter requiring us to investigate and
correct the conditions identified by the FDA. In September 1998, we successfully
completed a reinspection by the FDA of our manufacturing facility and quality
systems. However, we must continue to pass future facility inspections by the
FDA and foreign regulatory authorities.

     Our research and development activities and operations involve the
controlled use of small quantities of radioactive compounds, chemical solvents
and other hazardous materials. In addition, our business involves the growth of
human tissues. In the event of an accident, we could be held liable for any
damages that result. In addition, these research activities and operations are
subject to continual review under the Occupational Safety and


                                      -19-
<PAGE>


Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other federal, state or local
laws and regulations which impact our ability to develop and market our
products.

     HEALTHCARE REFORM MEASURES AND REIMBURSEMENT PROCEDURES MAY PREVENT US FROM
OBTAINING AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS THAT IN TURN WOULD
DECREASE OUR ABILITY TO GENERATE REVENUES. Our ability to commercialize products
successfully will depend in part on the extent to which reimbursement for the
costs of such products and related treatments will be available from government
health administration authorities, private health insurers and other
organizations. In the United States, government and other third-party payors are
increasingly attempting to contain healthcare costs by limiting both coverage
and the level of reimbursement for new products approved for marketing by the
FDA. In some cases, such payors may refuse to provide any coverage for uses of
approved products for indications that the FDA has not granted marketing
approval. Initiatives to reform healthcare delivery are increasing these cost
containment efforts. As managed care organizations continue to expand as a means
of containing healthcare costs, we believe there may be attempts by such
organizations to restrict the use of, delay authorization to use, or limit
coverage and the level of reimbursement for, new products, such as those being
developed and commercialized by us, pending completion of cost/benefit analyses
of such products by those managed care organizations. Internationally, where
national healthcare systems are prevalent, little if any funding may be
available for new products, and cost containment and cost reduction efforts can
be more pronounced than in the United States.

     We have supported health economics studies and research and have developed
cost offset or cost-effectiveness models with respect to our TransCyte and
Dermagraft products in an effort to help obtain appropriate and adequate third
party coverage and reimbursement for these products. However, these products are
novel and as such are subject to inherent uncertainty in the area of
reimbursement. Adequate government or private payor coverage or levels of
reimbursement may not be available for any of our products and we may not be
able to maintain price levels sufficient for the realization of an appropriate
return on our investment in such products. Failure to obtain sufficient coverage
and reimbursement levels for uses of our products could decrease the market
acceptance of such products.

     DISCOVERIES OR DEVELOPMENT OF NEW TECHNOLOGIES BY OUR COMPETITORS OR OTHERS
MAY MAKE OUR PRODUCTS LESS COMPETITIVE OR MAKE OUR PRODUCTS OBSOLETE. The
biomedical technology industry is subject to rapid, unpredictable and
significant technological change. Competition from universities, research
institutions and pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities and manufacturing and marketing
experience than we do. In general, the first biomedical product to be
commercialized for a particular therapeutic indication is often at a significant
competitive advantage relative to later entrants to the market. Accordingly, the
relative speed with which we can develop products, complete clinical trials,
obtain regulatory approvals and develop commercial manufacturing capability may
affect our competitive position.

     Other factors such as our ability to secure regulatory approval for our
products, to implement production and marketing plans, and to secure adequate
capital resources will also impact our competitive position. We may not have the
resources to compete successfully.

     IF WE ARE NOT ABLE TO ATTRACT KEY PERSONNEL AND ADVISORS OR IF OUR CURRENT
MANAGEMENT AND TECHNICAL PERSONNEL LEAVE THE COMPANY, IT MAY ADVERSELY AFFECT
OUR ABILITY TO OBTAIN FINANCING OR TO DEVELOP OUR PRODUCTS. Our success will
depend in large part upon our ability to attract and retain qualified
scientific, administrative and management personnel as well as the continued
contributions of our existing senior management and scientific and technical
personnel. We face strong competition for such personnel and we cannot give any
assurance that we will be able to attract or retain such individuals. In
particular, if we lose the services of either Arthur J. Benvenuto, our Chairman
and Chief Executive Officer, or Dr. Gail K. Naughton, our President and Chief
Operating Officer, it will limit our ability to achieve our business objectives
and could make it difficult to raise additional funds or to attract partners.

     WE MAY NOT HAVE ADEQUATE INSURANCE AND IF WE BECOME SUBJECT TO PRODUCT
LIABILITY CLAIMS, IT MAY RESULT IN REDUCED DEMAND FOR OUR PRODUCTS OR DAMAGES
THAT EXCEED OUR INSURANCE LIMITATIONS. The use of any of our products, whether
for commercial applications or during clinical trials, exposes us to an inherent
risk of product liability claims in the event such products cause injury,
disease or result in adverse effects. Such liability might


                                      -20-

<PAGE>


result from claims made directly by healthcare institutions, contract
laboratories or others selling or using such products. We currently maintain
product liability insurance coverage; however, such insurance coverage might not
be sufficient to fully cover any potential claims. Such insurance can be
expensive and difficult to obtain. Adequate insurance coverage may not be
available in the future at an acceptable cost, if at all, or in sufficient
amounts to protect us against any such liability. Any product liability claim in
excess of insurance coverage would have to be paid out of our cash reserves
which would have a detrimental effect on our financial condition.

     DISCOVERY OF PREVIOUSLY UNKNOWN PROBLEMS WITH A PRODUCT, MANUFACTURER, OR
FACILITY, COULD RESULT IN PRODUCT RECALLS OR WITHDRAWALS AND SIGNIFICANTLY
REDUCE OUR RESOURCES. Our tissue repair and transplantation products are complex
and must be manufactured under well-controlled and sterile conditions, in
addition to meeting strict product release criteria. Any manufacturing errors or
defects, or uncorrected impurity or variation in a raw material, either unknown
or undetected by us, could affect the quality and safety of our products. If any
of the defects were material, we could be required to undertake a market
withdrawal or recall of the affected products. The cost of a market withdrawal
or product recall could significantly reduce our resources.

RISKS RELATED TO FINANCING
--------------------------

     OUR STOCK PRICE COULD CONTINUE TO BE VOLATILE AND ANY INVESTMENT COULD
SUFFER A DECLINE IN VALUE, ADVERSELY AFFECTING OUR ABILITY TO RAISE ADDITIONAL
CAPITAL WHICH COULD IN TURN DELAY COMMERCIALIZATION OF OUR PRODUCTS. The market
price of our Common Stock has fluctuated significantly in recent years and is
likely to fluctuate in the future. For example, from April 1998 to March 2000,
our Common Stock has closed as high as $12.13 per share and as low as $1.97 per
share. Factors contributing to this volatility have included:

     -  the results of research or scientific discoveries by us or others;
     -  progress or the results of preclinical and clinical trials;
     -  new technological innovations;
     -  the approval and commercialization of products;
     -  developments concerning technology rights;
     -  litigation and related developments; and
     -  public perception regarding the safety and efficacy of our products.

Fluctuations in our financial performance from period to period, the issuance of
analysts' reports and general industry and market conditions also tend to have a
significant impact on the market price of our Common Stock.

     FUTURE SALES OF OUR SECURITIES IN THE PUBLIC MARKET COULD LOWER OUR STOCK
PRICE AND IMPAIR OUR ABILITY IN NEW STOCK OFFERINGS TO RAISE FUNDS TO CONTINUE
OPERATIONS. The market price of our securities could drop due to sales of a
large number of our securities or the perception that these sales could occur.
Such sales also might make it more difficult for us to sell equity securities in
the future at a price that we deem appropriate.

     OUR CHARTER DOCUMENTS AND STOCKHOLDER RIGHTS PLAN MAY PREVENT US FROM
PARTICIPATING IN TRANSACTIONS THAT COULD BE BENEFICIAL TO STOCKHOLDERS. Our
stockholder rights plan and provisions in our certificate of incorporation and
bylaws may discourage transactions involving an actual or potential change in
our ownership, including transactions in which you might otherwise receive a
premium for your shares over the then-current market prices. These provisions
also may limit our stockholder's ability to approve transactions that they deem
to be in their best interest. In addition, our Board of Directors may issue
shares of preferred stock without any further action by stockholders. Such
issuances may have the effect of delaying or preventing a change in our
ownership.


                                      -21-

<PAGE>


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

<TABLE>
<CAPTION>

   Exhibit
      No.                       Title                                     Method of Filing
   -------                      -----                                     ----------------
   <S>          <C>                                             <C>

     3.1        Restated Certificate of Incorporation of        Incorporated by Reference to Exhibit 3.1 to the
                Advanced Tissue Sciences, Inc. as in effect     Registrant's Annual Report on Form 10-K for the
                on February 16, 1999                            Year Ended December 31, 1998

     3.2        Restated By-Laws of the Registrant Dated        Incorporated by Reference to Exhibit 3 to the
                September 17, 1991                              Registrant's Form 10-Q for the Quarter Ended
                                                                October 31, 1991

     4.1        Rights Agreement, Dated as of January 6,        Incorporated by Reference to Exhibit 1 to the
                1995, between the Company and Chemical          Registrant's Current Report on Form 8-K Dated
                Trust Company of California, including the      January 5, 1995
                Certificate of Determination for the Series
                A Junior Participating Preferred Stock as
                Exhibit A, the Form of Summary of Rights to
                Right Certificate as Exhibit B and the
                Purchase Preferred Shares as Exhibit C

     4.2        First Amendment to Rights Agreement entered     Incorporated by Reference to Exhibit 1 to the
                into as of November 8, 1999, between            Registrant's Form 8-A, as amended, dated
                ChaseMellon Shareholder Services, L.L.C.        November 10, 1999
                and Advanced Tissue Sciences, Inc.

     4.3        Second Amendment to Rights Agreement            Incorporated by Reference to Exhibit 1 to the
                entered into as of December 13, 1999,           Registrant's Form 8-A, as amended, dated March
                between ChaseMellon Shareholder Services,       28, 2000
                L.L.C. and Advanced Tissue Sciences, Inc.

    27          Financial Data Schedule                         Filed With Electronic Copy Only

</TABLE>

(b)  Reports on Form 8-K - The Company did not file any reports on Form 8-K
     during the three months ended March 31, 2000.


                                      -22-

<PAGE>



                                   SIGNATURES

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

                                               ADVANCED TISSUE SCIENCES, INC.


Date:         May 11, 2000                       /s/  Arthur J. Benvenuto
         --------------------------            -------------------------------
                                               Arthur J. Benvenuto
                                               Chairman of the Board and Chief
                                                 Executive Officer




Date:         May 11, 2000                       /s/  Michael V. Swanson
         --------------------------            ------------------------------
                                               Michael V. Swanson
                                               Senior Vice President and Chief
                                                 Financial Officer


                                      -23-