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 AND EXCHANGE ACT OF 1934

            FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

                                      OR

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

            FOR THE TRANSITION PERIOD FROM            TO
                                           ----------    ---------

                       COMMISSION FILE NUMBER:  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:  (619) 450-5730

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 April 30, 1997 was 37,509,577.

<PAGE>

                        ADVANCED TISSUE SCIENCES, INC.

                FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997



                                     INDEX
                                     -----

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

 Item 1 - Financial Statements

            Introduction to the Financial Statements                     1

            Consolidated Balance Sheets -
              March 31, 1997 and December 31, 1996                       2

            Consolidated Statements of Operations -
              Three Months Ended March 31, 1997 and 1996                 3

            Consolidated Statements of Cash Flows -
              Three Months Ended March 31, 1997 and 1996                 4

            Consolidated Statement of Stockholders' Equity -
              Three Months Ended March 31, 1997                          5

            Notes to the Consolidated Financial Statements              6-7

 Item 2 - Management's Discussion and Analysis of Financial
            Condition and Results of Operations                         8-10


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

 Item 6 - Exhibits and Reports on Form 8-K                               11


Signatures                                                               11


<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, 1996.

     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.

     The discussions in this Quarterly Report on Form 10-Q, particularly those
relating to strategic alliances (including potential revenues from certain
existing joint ventures), potential acceleration of the use of working
capital, the sufficiency and availability of funds to support operations, and 
commercialization of the Company's products, are forward-looking statements 
involving risks and uncertainties within the meaning of the Securities Act of
1933 and the Securities Exchange Act of 1934.  No assurance can be given that
the Company will successfully complete clinical trials, obtain U.S. Food and 
Drug Administration approval, scale up manufacturing processes, successfully 
market such products, achieve the milestones required to receive additional 
funding, or enter into new strategic alliances.  These and other risks are 
detailed in publicly available filings with the Securities and Exchange 
Commission such as the Company's Annual Report on Form 10-K for the year 
ended December 31, 1996 and a Registration Statement on Form S-3 (File 
No. 333-01185).  The forward-looking statements are qualified in their 
entirety by reference to the risks and risk factors described in such reports
and registration statement.


                                      -1-

<PAGE>

                        ADVANCED TISSUE SCIENCES, INC.

                          CONSOLIDATED BALANCE SHEETS
               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                   March 31,     December 31,
                                                     1997            1996
                                                   ---------     ------------
                                                  (Unaudited)      
   ASSETS    
<S>                                                <C>           <C>
Current assets:
   Cash and cash equivalents                       $   26,311    $   27,907
   Short-term investments                              11,312        12,310
   Other current assets                                 5,577         3,827
                                                   ----------    ----------
     Total current assets                              43,200        44,044
Property - net                                         12,215         9,734
Patent costs - net                                      1,365         1,310
Other assets                                            2,172         1,413
                                                   ----------    ----------
     Total assets                                  $   58,952    $   56,501
                                                   ==========    ==========

         LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of capital lease obligations    $       24    $       23
   Accounts payable                                     2,595         2,232
   Accrued expenses                                     5,129         5,805
                                                   ----------     ---------
     Total current liabilities                          7,748         8,060
                                                   ----------     ---------
Long-term debt and capital lease 
   obligations (Note 3)                                10,055            61
                                                   ----------     ---------
Stockholders'  equity:
   Preferred Stock, $.01 par value; 1,000,000  
    shares authorized; none issued                         --            --
   Common Stock, $.01 par value; 50,000,000  
    shares authorized; issued and outstanding,  
    37,507,547 shares at March 31, 1997 and  
    37,474,677 shares at December 31, 1996                375           375
   Additional paid-in capital                         188,307       188,006
   Accumulated deficit                               (146,614)     (139,082)
                                                    ---------     ---------
                                                       42,068        49,299

   Less note received in connection with 
    sale of Common Stock                                 (919)         (919)
                                                    ---------     ---------
     Total stockholders' equity                        41,149        48,380
                                                    ---------     ---------
     Total liabilities and stockholders' equity     $  58,952     $  56,501
                                                    =========     =========
</TABLE>

       See accompanying notes to the consolidated financial statements.


                                      -2-

<PAGE>

                        ADVANCED TISSUE SCIENCES, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                     1997            1996
                                                 ------------    ------------
                                                          (Unaudited)
<S>                                              <C>             <C>
Revenues:
  Contracts and fees - 
   Related parties                               $    2,639      $      648
   Others                                                10              10
  Product sales                                          --             302
                                                 ----------      ----------
     Total revenues                                   2,649             960
                                                 ----------      ----------

Costs and expenses:
  Research and development                            4,968           5,229
  Selling, general and administrative                 3,120           1,922
  Professional and consulting                           674             628
  Cost of goods sold                                     --             478
                                                 ----------      ----------
     Total costs and expenses                         8,762           8,257
                                                 ----------      ----------
Loss from operations before equity in 
  losses of joint ventures                           (6,113)         (7,297)
Equity in losses of joint ventures                   (1,707)             --
                                                 ----------      ----------
Loss from operations                                 (7,820)         (7,297)

Other income (expense):
  Interest income and other                             293             267
  Interest expense                                       (5)             (1)
                                                 ----------      ----------
Net loss                                         $   (7,532)     $   (7,031)
                                                 ==========      ==========
Net loss per share                               $     (.20)     $     (.21)
                                                 ==========      ==========
Weighted average number of common shares 
 used in computation of net loss per share           37,488          34,061
                                                 ==========      ==========

</TABLE>

       See accompanying notes to the consolidated financial statements.


                                      -3-

<PAGE>

                        ADVANCED TISSUE SCIENCES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                  Three Months Ended March 31,
                                                  ----------------------------
                                                      1997            1996
                                                  ------------    ------------
                                                           (Unaudited)
<S>                                               <C>             <C>
Operating  activities:
  Net loss                                        $   (7,532)     $   (7,031)
  Adjustments to reconcile net loss to 
   cash used in operating activities:
    Equity in losses of joint ventures                 1,707              --
    Depreciation and amortization                        510             412
    Compensation for services paid in stock, 
     stock options or warrants                            --              62
    Other adjustments to net loss                         56              45
    Change in assets and liabilities:
     Other current assets                             (1,750)            (21)
     Other assets                                       (561)           (154)
     Accounts payable                                    363            (143)
     Accrued expenses                                   (676)            436
                                                  ----------       ---------
     Net cash used in operating activities            (7,883)         (6,394)
                                                  ----------       ---------
Investing activities:
  Purchases of short-term investments                     --          (9,998)
  Maturities and sales of short-term investments         998              --
  Acquisition of property                             (3,012)           (392)
  Equity investment in joint ventures                 (1,905)             --
  Patent application costs                               (90)            (74)
                                                  ----------       ---------
     Net cash used in investing activities            (4,009)        (10,464)
                                                  ----------       ---------
Financing activities:
  Proceeds from borrowings                            10,000              --
  Payments of borrowings                                  (5)             (2)
  Net proceeds from sale of equity                        --          37,720
  Options and warrants exercised                         301             243
                                                  ----------       ---------
     Net cash provided by financing activities        10,296          37,961
                                                  ----------       ---------
Net increase (decrease) in cash and cash 
  equivalents                                         (1,596)         21,103
Cash and cash equivalents at beginning of period      27,907          18,929
                                                  ----------       ---------
Cash and cash equivalents at end of period        $   26,311       $  40,032
                                                  ==========       =========

</TABLE>
       
        See accompanying notes to the consolidated financial statements.


                                      -4-

<PAGE>


                        ADVANCED TISSUE SCIENCES, INC.

                CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                (IN THOUSANDS)
<TABLE>
<CAPTION>
  
                                                                                              Total
                                                       Additional                             Stock-
                                       Common Stock     Paid-In     Accumulated    Note      holders'
                                     ---------------- 
                                     Shares    Amount    Capital      Deficit   Receivable    Equity
                                     ------    ------   ---------   ----------- ----------   ---------
                                                                (Unaudited)
<S>                                  <C>       <C>      <C>         <C>          <C>         <C>

Balance, December 31, 1996           37,475    $  375   $ 188,006   $ (139,082)  $   (919)   $  48,380

Options exercised                        33                   301                                  301

Net loss                                                                (7,532)                 (7,532)
                                     ------    -------  ---------   ----------   --------    ---------

Balance, March 31, 1997              37,508    $  375   $ 188,307   $ (146,614)  $   (919)   $  41,149
                                     ======    ======   =========   ==========   ========    =========

</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 tissue
engineering company utilizing its proprietary technology to develop and
manufacture human-based tissue products for transplantation.  The Company is
focusing on the worldwide commercialization of skin, cartilage and
cardiovascular products.  The Company's leading therapeutic products are
tissue engineered skin products for the treatment of severe burns, approved
for marketing in the United States by the U.S. Food and Drug Administration
("FDA"), and for diabetic foot ulcers, for which the Company has filed an
application with the FDA for marketing approval and is performing multi-site
clinical trials in the United States.

Principles of Consolidation - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries.  All inter-
company accounts and transactions have been eliminated.  The Company's
interest in joint ventures with Smith & Nephew plc ("Smith & Nephew") are
accounted for under the equity method (see Note 2).  

NOTE 2 - STRATEGIC ALLIANCES

In April 1996, the Company entered into an agreement with Smith & Nephew to
form a fifty-fifty 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").  Upon
signing, Smith & Nephew paid an up front fee of $10 million and agreed to pay
the Company up to an additional $60 million on the achievement of certain
milestones.  Smith & Nephew is a worldwide health care company with extensive
sales and distribution capabilities.  It manufactures a wide range of tissue
repair products, principally addressing the areas of bone, joints, skin and
other soft tissue.  The companies are sharing equally in the expenses and
revenues of the Dermagraft Joint Venture effective January 1, 1997.  During
the three months ended March 31, 1997, the Company recognized $1,695,000 in
contract revenues for research and development activities performed for the
Dermagraft Joint Venture.

In 1994, Smith & Nephew and the Company entered into a separate joint venture
for the development of tissue engineered cartilage for orthopedic applications
(the "Cartilage  Joint Venture").  Under the Cartilage Joint Venture, Smith &
Nephew contributed the first $10 million in funding and the Company
contributed certain technology licenses.  The Cartilage 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 are sharing
equally in Cartilage Joint Venture revenues and expenditures.  During the
three months ended March 31, 1997, the Company recognized $944,000 in contract
revenues for research and development activities performed for the Cartilage
Joint Venture compared with $648,000 for the corresponding period of 1996.

The results of operations of the joint ventures for the three months ended
March 31, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>

                        Dermagraft Joint Venture      Cartilage Joint Venture
                        ------------------------      -----------------------
                           1997          1996            1997         1996
                        ----------    ----------      ----------   ----------
<S>                      <C>           <C>             <C>          <C>
Costs and expenses       $ 2,109       $    --         $ 1,863      $ 1,256
Net loss                   2,109            --           1,863        1,256

</TABLE>
        
                                    -6-

<PAGE>

NOTE 3 - LONG-TERM DEBT

In March 1997, the Company borrowed $10 million from Smith & Nephew pursuant
to a commitment as a part of the agreement to form the Dermagraft Joint
Venture (see note 2).  The loan bears interest at the London Interbank Offered
Rate (LIBOR) plus 4% and is due on the earlier of (i) March 2000 or (ii) the
date on which the Company no longer has an ownership interest in the
Dermagraft Joint Venture.  At the option of the Company, the loan may be paid
in cash or Common Stock valued at the then current fair market value.

NOTE 4 - IN VITRO LABORATORY TESTING BUSINESS

In October 1996, the Company closed its In Vitro Laboratory Testing ("IVLT")
business and focused all of its resources on its therapeutic programs.
Although the Company was a leader in the in vitro testing business and
continuously broadened applications for its products, the market for the in
vitro laboratory testing products was evolving too slowly for the Company to
continue to devote its resources to this business. The statement of operations
for the three months ended March 31, 1996, includes product sales and costs
and expenses of $302,000 and $853,000, respectively, associated with the IVLT
business.

NOTE 5 - NET LOSS PER SHARE

Net loss per share for the three months ended March 31, 1997 and 1996 are
based on the weighted average number of shares of Common Stock outstanding
during the periods.  Shares to be issued under options and warrants have not
been included in the calculation of net loss per share as their effect is
antidilutive.

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted on
December 31, 1997.  At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods.  Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options and warrants will be excluded.
As their effect has been antidilutive, shares to be issued under options
and warrants have not been included in the calculation of earnings per share
for the three months ended March 31, 1997 and 1996 and, accordingly, the
adoption of Statement No. 128 will not have a material impact on the
calculation of earnings per share for such periods.

NOTE 6 - COMMITMENTS

As of March 31, 1997, the Company had commitments of approximately $4.8 
million in connection with the expansion of its manufacturing facilities and 
for related processing equipment.  These expenditures are expected to be made
during 1997.  The Company is currently pursuing financing for a portion of 
these expenditures with its joint venture partner, Smith & Nephew; however, 
there can be no assurance such funding will be obtained or will be available 
on terms favorable to the Company.

NOTE 7 - STOCK OPTIONS

The following table summarizes activity under the Company's 1992 Stock
Option/Stock Issuance Plan (the "1992 Plan") and for other options and
warrants for Common Stock for the three months ended March 31, 1997:

<TABLE>
<CAPTION>

                                        1992 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, 1996   3,773,701     $ 9.58        1,469,640     $ 7.18
  Granted                          113,390     $12.16               --         --
  Exercised                        (32,870)    $ 9.18               --         --
  Canceled                         (50,810)    $ 8.79               --         --
                                 ---------                   ---------

Outstanding, March 31, 1997      3,803,411     $ 9.67        1,469,640     $ 7.18
                                 =========                   =========

</TABLE>
                                      -7-

<PAGE>


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

     Advanced Tissue Sciences, Inc. (the "Company") is engaged in the
development and manufacture of living human tissue products for therapeutic
applications using its proprietary tissue engineering technology.  In March
1997, the Company received marketing approval from the U.S. Food and Drug
Administration (the "FDA") for its first therapeutic product, 
Dermagraft-TC(TM), a temporary covering for severe burns.  In anticipation 
of the approval, the Company began building its sales and marketing 
capabilities and manufacturing product for inventory during the second half  
of 1996.

     In December 1996, the Company, in conjunction with its joint venture
partner, Smith & Nephew plc ("Smith & Nephew"), also submitted an application
for approval to market the Company's dermal skin replacement product,
Dermagraft(R) for the treatment of diabetic foot ulcers. The joint venture 
is currently enrolling fifty patients into a confirmatory trial which will be
submitted as an amendment to the marketing application, and is performing
additional trials in selected European countries.  In addition to its
Dermagraft-TC and Dermagraft skin products, the Company is focusing its
resources on the development of tissue engineered cartilage and cardiovascular
products.

     The Company has incurred, and expects to continue to incur, substantial
and increasing expenditures in support of the commercialization, development
and clinical trials of its Dermagraft-TC and Dermagraft products for burn and
skin ulcer applications, in developing manufacturing systems and facilities
for the production and commercialization of Dermagraft, in building its sales
and marketing capabilities, and in advancing other applications of the
Company's core technology.  These activities have been supported by a variety
of strategic relationships over the past several years.

     As noted above, in April 1996, the Company entered into an agreement with
Smith & Nephew to form a fifty-fifty joint venture (the "Dermagraft Joint
Venture") for the worldwide commercialization of Dermagraft in the treatment
of diabetic foot ulcers.  Beginning in January 1997, all expenses and revenues
associated with the development and commercialization of Dermagraft for
diabetic foot ulcers are being shared equally by the joint venture partners.
In May 1994, the Company and Smith & Nephew entered into a separate,
fifty-fifty joint venture (the "Cartilage Joint Venture") for the worldwide
development, manufacture and marketing of human tissue engineered cartilage
for orthopedic applications.  Smith & Nephew has been responsible for funding
the first $10 million in costs incurred in the Cartilage Joint Venture.
Beginning in January 1997, the joint venture partners are sharing equally in
the Cartilage Joint Venture's expenses.  See Note 2 to the consolidated
financial statements.

     In October 1996, the Company discontinued sales of its Skin2(R) 
laboratory testing kits.  See Note 4 to the consolidated financial statements.

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

     Total revenues increased $1,689,000 to $2,649,000 in the three months
ended March 31, 1997 as compared to the corresponding period of 1996 as
increased contract revenues more than offset the discontinuance of sales of
the Company's Skin2 in vitro laboratory testing kits.  The Company did 
not begin commercial sales of Dermagraft-TC until April 1997.  Skin2 product 
sales reached $302,000 in the first quarter of 1996.  See note 4 to the 
consolidated financial statements.

     Revenues from contracts and fees increased to $2,649,000 in the quarter
ended March 31, 1997 as compared to $658,000 in the corresponding period of
1996.  The increase primarily reflects higher contract revenues recognized for
research and development activities performed for the Dermagraft and the
Cartilage Joint Ventures (see Note 2 to the consolidated financial
statements).  Contract revenues from the joint ventures are expected to
continue to exceed 1996 levels throughout the balance of the year.  Contract
revenues in 1996 were primarily from the Cartilage Joint Venture.


                                      -8-

<PAGE>

     Cost of goods sold in the first quarter of 1996 represents the cost of
manufacturing the Company's Skin2 laboratory testing kits.  As noted above,
the Company discontinued its Skin2 business in October 1996.

     Research and development expenditures decreased to $4,968,000 in the
quarter ended March 31, 1997 as compared to $5,229,000 in the first quarter of
1996.  The decrease in research and development costs primarily reflects lower
costs for both clinical trials and production for clinical trials of
Dermagraft-TC and Dermagraft.  The decrease was partially offset by increased
research and development costs to support the development of tissue 
engineered cartilage and other programs.

     Selling, general and administrative costs were $3,120,000 for the quarter
ended March 31, 1997, as compared to $1,922,000 in the corresponding period of
the prior year.  The increase in selling, general and administrative expenses
principally reflects higher sales and marketing costs related to the
commercialization of Dermagraft-TC and costs to establish marketing and
administrative support for Dermagraft.  These increases are reflected
primarily in higher costs for instructional and promotional materials and
personnel and associated costs.

     Professional and consulting costs for legal, accounting and other
consulting services incurred in the three months ended March 31, 1997 were
$674,000 as compared to $628,000 for the first quarter of 1996.  The increase
in professional and consulting fees in the three months ended March 31, 1997
principally reflects costs for marketing consultants partially offset by lower
fees for regulatory consultants and for the recruitment of personnel.

     Interest and other income increased to $293,000 in the quarter ended
March 31, 1997 as compared to $267,000 in the corresponding quarter in 1996.
The increase primarily reflects interest income from higher cash balances
reflecting funds raised in a March 1996 public offering and from the receipt
of a $10 million up front fee in April 1996 from Smith & Nephew in connection
with the formation of the Dermagraft Joint Venture.

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

     As of March 31, 1997, the Company had available working capital of
$35,452,000, a decrease of $532,000 from December 31, 1996.  The decrease
principally reflects the use of funds for operations and for capital
expenditures offset by the Company's receipt of a $10 million loan from 
Smith & Nephew (see note 3 to the consolidated financial statements).  
Capital expenditures of $3,012,000 in the first three months of 1997 relate 
primarily to the expansion of the Company's manufacturing facility and for 
related process equipment.  As of March 31, 1997, the Company had 
approximately $4.8 million in commitments for additional capital expenditures
relating to the manufacturing expansion.  The Company is currently pursuing 
financing for a portion of these expenditures with its joint venture partner,
Smith & Nephew; however, there can be no assurance such funding will be 
obtained.

     The Company expects to use working capital at an accelerated rate as it
continues to incur substantial research and development expenses, increasing
selling, general and administrative costs in support of product
commercialization, and additional expenditures for capital equipment and
patents.  These increases are expected to be only partially offset by revenues
received from the Cartilage and Dermagraft Joint Ventures with Smith & Nephew.

     In addition to available working capital, the Company has entered into a
two-year equity line which could provide up to $50 million in funding through
the sale of Common Stock and, subject to certain conditions, is available
through February 1998.  Any decision to draw any funds under the equity line
and the timing of any such draw are solely at the Company's discretion.  The
Company currently believes it has sufficient funds, including those available
under the equity line and from borrowings available under a joint venture
arrangement, to support its operations through 1998.  To the extent
necessary, further sources of funds may include existing or future
strategic alliances or other joint venture arrangements which provide funding
to the Company, and additional public or private offerings of debt or equity
securities, among others.  There can be no assurance, however, that any
additional funds 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 joint 
ventures.

                                   -9-

<PAGE>

     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 health
care system as well as anticipated health care reforms, technical feasibility,
expected and known product attributes and estimated costs to bring the product
to market.  Based on these and other factors which 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, 1997
decreased from December 31, 1996 reflecting the use of cash to fund operations
and capital expenditures during the quarter substantially offset by proceeds
from the loan from Smith & Nephew (see note 3 to the consolidated financial
statements).  Other current assets increased over 1996 as inventories of
Dermagraft-TC were built in anticipation of product approval.  Accounts
payable at March 31, 1997 increased from 1996 principally due to
manufacturing, sales and marketing costs associated with the 
commercialization of Dermagraft-TC.  Accrued expenses at March 31, 1997 
declined from 1996 principally due to lower accruals for wages and benefits. 
Long-term debt increased by $10 million reflecting the March 1997 borrowing 
from Smith & Nephew.

                                     -10-

<PAGE>

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


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

 Exhibit
   No.           Title                                     Method  of  Filing
 -------         -----                                     ------------------

  10.1     Promissory Note between Advanced Tissue           Filed Herewith
           Sciences, Inc. and Smith & Nephew SNATS, Inc.
           Dated March 31, 1997


      (b)   Reports on Form 8-K - None



                                  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 9, 1997                          /s/ Arthur J. Benvenuto
      ------------------                 --------------------------------
                                         Arthur J. Benvenuto
                                         Chairman of the Board and 
                                         Chief Executive Officer



Date:    May 9, 1997                         /s/ Michael V. Swanson
      ------------------                 ---------------------------------
                                         Michael V. Swanson
                                         Vice President, Finance and  
                                         Administration




                                     -11-