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 JUNE 30, 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 Number)

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 August 1, 1997 was 37,561,172.

<PAGE>

                        ADVANCED TISSUE SCIENCES, INC.

                 FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997



                                     INDEX
                                     -----

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

  Item 1 - Financial Statements

             Introduction to the Financial Statements                    1

             Consolidated Balance Sheets -
               June 30, 1997 and December 31, 1996                       2

             Consolidated Statements of Operations -
               Three and Six Months Ended June 30, 1997 and 1996         3

             Consolidated Statements of Cash Flows -
               Six Months Ended June 30, 1997 and 1996                   4

             Consolidated Statement of Stockholders' Equity -
               Six Months Ended June 30, 1997                            5

             Notes to the Consolidated Financial Statements             6-8

  Item 2 - Management's Discussion and Analysis of Financial
             Condition and Results of Operations                        9-11


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

  Item 4 - Submission of Matters to a Vote of Security Holders          12

  Item 5 - Other Information                                            12

  Item 6 - Exhibits and Reports on Form 8-K                             13

Signatures                                                              13


<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 and Quarterly Report on Form 10-Q for the three months ended
March 31, 1997.

     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)


<TABLE>
<CAPTION>

                                                   June 30,      December 31,
                                                     1997           1996
                                                 -----------     ------------
                                                 (Unaudited)
<S>                                              <C>             <C>
     ASSETS
Current assets:
   Cash and cash equivalents                     $    18,405     $    27,907
   Short-term investments                              4,986          12,310
   Other current assets                                6,980           3,827
                                                 -----------     -----------
      Total current assets                            30,371          44,044
Property - net                                        17,087           9,734
Patent costs - net                                     1,395           1,310
Other assets                                           4,242           1,413
                                                 -----------     -----------

      Total assets                               $    53,095     $    56,501
                                                 ===========     ===========


    LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Current portion of capital lease obligations  $        24     $        23 
   Accounts payable                                    2,478           2,232 
   Accrued expenses                                    5,360           5,805 
                                                 -----------     -----------

       Total current liabilities                       7,862           8,060 
                                                 -----------     -----------

Long-term debt and capital lease 
   obligations (Note 3)                               11,825              61 
                                                 -----------     -----------

Stockholders' equity:
   Preferred Stock, $.01 par value; 1,000,000 
    shares authorized; none issued                        --              --
   Common Stock, $.01 par value; 100,000,000 
    shares authorized; issued and outstanding,
    37,553,452 shares at June 30, 1997 and 
    37,474,677 shares at December 31, 1996               376             375
   Additional paid-in capital                        188,678         188,006 
   Accumulated deficit                              (154,727)       (139,082)
                                                 -----------     -----------
                                                      34,327          49,299 

   Less note received in connection with sale 
    of Common Stock                                     (919)           (919)
                                                 -----------     -----------

       Total stockholders' equity                     33,408          48,380 
                                                 -----------     -----------

       Total liabilities and stockholders' 
        equity                                   $    53,095     $    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 June 30,    Six Months Ended June 30,
                                        -----------------------------  ---------------------------                 
                                            1997            1996           1997           1996
                                        ------------    ------------   ------------   ------------
                                                                 (Unaudited)
<S>                                     <C>             <C>            <C>            <C>
Revenues:
  Product sales -
    Related parties                     $       222     $       --     $       222    $        -- 
    Others                                      450            353             450            655 
  Contracts and fees -
    Related parties                           2,947         10,747           5,586         11,395 
    Others                                       --             --              10             10 
                                        -----------     ----------     -----------    -----------
    Total revenues                            3,619         11,100           6,268         12,060 
                                        -----------     ----------     -----------    -----------

Costs and expenses:
  Research and development                    4,497          6,064           9,465         11,293 
  Selling, general and administrative         4,004          2,326           7,124          4,248 
  Professional and consulting                   678          1,167           1,352          1,795 
  Cost of goods sold                            708            418             708            896 
                                        -----------     ----------     -----------    -----------
    Total costs and expenses                  9,887          9,975          18,649         18,232 
                                        -----------     ----------     -----------    -----------

Income (loss) from operations before
 equity in losses of joint ventures          (6,268)         1,125         (12,381)        (6,172)

Equity in losses of joint ventures           (2,642)            --          (4,349)            -- 
                                        -----------     ----------     -----------    -----------

Income (loss) from operations                (8,910)         1,125         (16,730)        (6,172)

Other income (expense):
  Interest income and other                   1,048            759           1,341          1,026 
  Interest expense                             (251)            (2)           (256)            (3)
                                        -----------     ----------     -----------    -----------

Net income (loss)                       $    (8,113)    $    1,882     $   (15,645)   $    (5,149)
                                        ===========     ==========     ===========    ===========

Net income (loss) per share             $      (.22)    $      .05     $      (.42)   $      (.14)
                                        ===========     ==========     ===========    ===========

Weighted average number of common
  shares used in computation of net
  income (loss) per share                    37,519         39,686          37,504         35,667 
                                        ===========     ==========     ===========    ===========
</TABLE>




       See accompanying notes to the consolidated financial statements.

                                  -3-

<PAGE>

                        ADVANCED TISSUE SCIENCES, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)


<TABLE>
<CAPTION>

                                                     Six Months Ended June 30,
                                                     -------------------------
                                                        1997           1996
                                                     ----------     ----------
                                                             (Unaudited)
<S>                                                  <C>            <C>
Operating activities:
   Net loss                                          $  (15,645)    $   (5,149)
   Adjustments to reconcile net loss to cash used
    in operating activities:
      Equity in losses of joint ventures                  4,348             -- 
      Depreciation and amortization                       1,038            840 
      Compensation for services paid in stock,
        stock options or warrants                            --            320
      Other adjustments to net loss                          60             52 
      Change in assets and liabilities:
        Other current assets                             (3,153)        (1,138)
        Other assets                                     (1,815)          (211)
        Accounts payable                                    246           (324)
        Accrued expenses                                   (445)           678 
                                                     ----------     ----------

          Net cash used in operating activities         (15,366)        (4,932)
                                                     ----------     ----------

Investing activities:
   Purchases of short-term investments                   (2,248)       (21,707)
   Maturities and sales of short-term investments         9,572             -- 
   Acquisition of property                               (8,405)        (1,096)
   Equity investment in joint ventures                   (5,362)            -- 
   Patent application costs                                (131)          (157)
                                                     ----------     ----------

          Net cash used in investing activities          (6,574)       (22,960)
                                                     ----------     ----------

Financing activities:
   Proceeds from borrowings                              11,776             -- 
   Payments of borrowings                                   (11)            (5)
   Net proceeds from sale of equity                          --         40,253 
   Options and warrants exercised                           673          2,640 
                                                     ----------     ----------

          Net cash provided by financing activities      12,438         42,888 
                                                     ----------     ----------

Net increase (decrease) in cash and cash equivalents     (9,502)        14,996 
Cash and cash equivalents at beginning of period         27,907         18,929 
                                                     ----------     ----------

Cash and cash equivalents at end of period           $   18,405     $   33,925 
                                                     ==========     ==========
</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            78           1          672                                 673

Net loss                                                     (15,645)                (15,645)
                         ------    --------    ---------  ----------   ---------   ---------

Balance, 
  June 30, 1997          37,553    $    376    $ 188,678  $ (154,727)  $    (919)  $  33,408
                         ======    ========    =========  ==========   =========   =========
</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 temporary covering of severe burns,
approved for marketing in the United States by the U.S. Food and Drug
Administration ("FDA"), and for the treatment of 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
intercompany accounts and transactions have been eliminated. The Company's
interests 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 and six months ended June 30, 1997, the Company recognized
$1,942,000 and $3,637,000, respectively, in contract revenues for research and
development activities performed for the Dermagraft Joint Venture.  In
addition, during the three and six-month periods ended June 30, 1997, the
Company sold the Dermagraft Joint Venture $222,000 of Dermagraft product,
which was equal to the Company's cost of goods sold for such product.

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 began sharing
equally in Cartilage Joint Venture revenues and expenditures.  During the
three and six months ended June 30, 1997, the Company recognized $1,005,000
and $1,949,000, respectively, in contract revenues for research and
development activities performed for the Cartilage Joint Venture, as compared
with $747,000 and $1,395,000 during the corresponding periods of 1996.

The results of operations of the joint ventures for the three and six months
ended June 30, 1997 and 1996 are as follows (in thousands):

<TABLE>
<CAPTION>

                          Three Months Ended June 30,   Six Months Ended June 30,
                          ---------------------------   -------------------------
                              1997           1996           1997         1996
                          -----------    ------------   -----------  ------------
<S>                        <C>            <C>            <C>          <C>
Dermagraft Joint Venture
------------------------

Costs and expenses         $    3,651     $      --      $    5,761   $     --
Net loss                        3,651            --           5,761         --

Cartilage Joint Venture
------------------------

Costs and expenses         $    1,781     $   1,624      $    3,646   $  2,430
Net loss                        1,781         1,624           3,646      2,430

</TABLE>

                                    -6-

<PAGE>

NOTE 3 - LONG-TERM DEBT

In June 1997, the Company borrowed $1.7 million from Smith & Nephew pursuant
to a commitment as a part of the agreement to form the Cartilage Joint Venture
(see Note 2).  Under the terms of that joint venture agreement, the Company
may borrow up to a total of $10 million.  The loan bears interest at the
90-day London Interbank Offered Rate ("LIBOR") plus 4% and is due on the
earlier of (i) June 2000 or (ii) the date on which the Company no longer has
an ownership interest in the Cartilage Joint Venture.

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 90-day 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 statements of
operations for the three and six months ended June 30, 1996, include product
sales of $353,000 and $655,000, respectively, and costs and expenses of
$804,000 and $1,669,000, respectively, associated with the IVLT business.

NOTE 5 - NET INCOME (LOSS) PER SHARE

The net loss per share for the three months ended June 30, 1997 and the six
months ended June 30, 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.  Net income per share for the
three-month period ended June 30, 1996 is based on the weighted average number
of shares of Common Stock and dilutive common stock equivalents outstanding
during the period.  Common stock equivalents include outstanding options and
warrants to purchase shares of the Company's Common Stock.

In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted for periods
ending on or after December 15, 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 net
loss per share for the three months ended June 30, 1997 and the six months
ended June 30, 1997 and 1996.  The adoption of Statement No. 128 will not have
a material impact on the calculation of net loss per share for such periods.
Because the Company reported a net income for the three months ended June 30,
1996, the  dilutive effect of stock options and warrants were included in the
calculation of net income per share.  The adoption of Statement No. 128 would
not have had a material impact on the calculation of net income per share for
such period.

NOTE 6 - COMMITMENTS

As of June 30, 1997, the Company had commitments of approximately $1.4 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 intends to finance the expansion through a term
loan with The Chase Manhattan Bank (see Note 8).

                                   -7-

<PAGE>

NOTE 7 - STOCK OPTIONS

At the 1997 Annual Meeting of Stockholders, the 1997 Stock Incentive Plan (the
"1997 Plan") was approved.  The 1997 Plan makes an additional 3,000,000 shares
of Common  Stock  available for grant and serves as the successor to the 1992
Stock Option/Stock Issuance Plan (the "1992 Plan").  Upon adoption of the 1997
Plan, shares granted under outstanding options and available for grant under
the 1992 Plan were transferred to the 1997 Plan.  All outstanding options
under the 1992 Plan will continue to be governed by the terms and conditions
of the existing option agreements for those grants.  At June 30, 1997, a total
of 6,969,642 shares were outstanding under options or available for grant
under the 1997 Plan.

The following table summarizes activity under the Company's 1997 Plan and for
other options and warrants for Common Stock for the six months ended June 30,
1997:


<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, 1996      3,773,701    $ 9.58           1,469,640     $ 7.18
  Granted                             297,100    $11.75                  --         --
  Exercised                           (78,775)   $ 8.54                  --         --
  Canceled                            (73,180)   $ 9.38                  --         --
                                    ---------                     ---------
Outstanding, June 30, 1997          3,918,846    $ 9.77           1,469,640     $ 7.18
                                    =========                     =========

</TABLE>

NOTE 8 - SUBSEQUENT EVENTS

Long-term Debt.  In August 1997, DermEquip, L.L.C. ("DermEquip"), entered into
---------------
a term loan agreement with The Chase Manhattan Bank (the "Chase Loan") to
borrow up to $16 million through June 1998 to apply toward capital 
expenditures relating to the expansion of the Company's manufacturing
facility (see Note 6).  The Chase Loan is to bear interest payable quarterly,
at 90-day LIBOR plus 1/4 percent.  Principal is payable in equal quarterly 
installments beginning in June 1998 through June 2004.  The loan is secured 
by joint and several guarantees issued by both Smith & Nephew and the
Company.  DermEquip is jointly owned by Smith & Nephew and the Company, and 
will be consolidated in the Company's financial statements.

                                   -8-


<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.  The Company, in 
conjunction with its joint venture partner, Smith & Nephew plc ("Smith & 
Nephew"), has also submitted an application for approval to market the 
Company's dermal skin replacement product, Dermagraft(R) for the treatment 
of diabetic foot ulcers to the FDA.  The joint venture is currently 
completing a fifty patient 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
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 was responsible for funding the
first $10 million in costs incurred in the Cartilage Joint Venture.  In
January 1997, the joint venture partners began 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
---------------------

     Product sales were $672,000 for the three and six months ended June 30,
1997 as compared to $353,000 and $655,000 for the corresponding periods of
1996.  Product sales to related parties reflect sales of Dermagraft to the
Dermagraft Joint Venture at cost (see Note 2 to the consolidated financial
statements).  Sales to outside customers in 1997 are from Dermagraft-TC which
was introduced in April following marketing approval from the FDA.  Sales in
1996 were from the Company's Skin2 product line.

     Revenues from contracts and fees were $2,947,000 and $5,596,000 for the
three and six months ended June 30, 1997, respectively, compared to
$10,747,000 and $11,405,000 for the corresponding periods in 1996.  The
revenues reported for the three and six months ended June 30, 1996 included a
$10 million up front fee from Smith & Nephew upon signing the agreement to
enter into the Dermagraft Joint Venture.  Contract revenues, excluding the $10
million payment, increased $2,200,000 and $4,191,000 in the three and six
months ended June 30, 1997, respectively, reflecting higher contract revenues
recognized for research and development activities performed for the
Dermagraft and the Cartilage Joint Ventures and associated administrative
costs.  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.

     Cost of goods sold in the three and six months ended June 30, 1997
represents the cost of the Company's Dermagraft-TC product since its
introduction in April 1997 and the cost of Dermagraft sold to the Dermagraft
Joint Venture.  Products were sold to the Dermagraft Joint Venture at cost.
Cost of goods sold in the three and six months ended June 30, 1996 represents
the cost of the Company's Skin2 laboratory testing kits.  As noted above, the 
Company discontinued its Skin2 business in October 1996.

                                  -9-

<PAGE>

     Research and development expenditures decreased to $4,497,000 and
$9,465,000 in the three and six months ended June 30, 1997, respectively, as
compared to $6,064,000 and $11,293,000 in the corresponding periods 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.

     Selling, general and administrative costs were $4,004,000 and $7,124,000
for the three and six months ended June 30, 1997, respectively, as compared to
$2,326,000 and $4,248,000 in the corresponding periods 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 associated with supporting the Dermagraft and
Cartilage Joint Ventures.  These increases are reflected primarily in higher
costs for selling and promotional materials, and personnel and associated
costs.

     Professional and consulting costs for legal, accounting and other
consulting services incurred in the three and six months ended June 30, 1997,
respectively, were $678,000 and $1,352,000 as compared to $1,167,000 and
$1,795,000 for the corresponding periods of 1996.  The decrease in
professional and consulting fees in the 1997 periods principally reflects the
absence of fees paid to financial advisors related to the Dermagraft Joint
Venture and the Company's In Vitro Laboratory Testing business in 1996 and
lower fees for regulatory consultants, partially offset by increased costs for
marketing consultants.

     Equity in losses of joint ventures was $2,642,000 and $4,349,000 for the
three and six months ended June 30, 1997, respectively and represent the
Company's share of losses of the Dermagraft and Cartilage Joint Ventures.  The
Company began sharing in such costs in January 1997 (see Note 2 to the
consolidated financial statements).  The joint ventures' losses are expected
to continue to increase throughout 1997 as Dermagraft is commercially
introduced in certain markets and orthopedic cartilage moves toward clinical
trials.

     Interest and other income increased to $1,048,000 and $1,341,000 in the
three and six months ended June 30, 1997, respectively, as compared to
$759,000 and 1,026,000 in the corresponding periods in 1996.  The increases
primarily reflect interest income from higher average cash balances in 1997
versus the corresponding periods of 1996 and interest charged to the
Dermagraft Joint Venture for capital employed.

     Interest expense was $251,000 and $256,000 in the three and six months
ended June 30, 1997, respectively, as compared to $2,000 and $3,000 in the
corresponding periods in 1996.  The increase reflects interest on notes
payable to Smith & Nephew.  See Note 3 to the consolidated financial
statements.

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

     As of June 30, 1997, the Company had available working capital of
$22,509,000, a decrease of $13,475,000 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 $11.7 million in loans from
Smith & Nephew.  See Note 3 to the consolidated financial statements.  Capital
expenditures of $8,405,000 in the first six months of 1997 relate primarily to
the expansion of the Company's manufacturing facility and related process
equipment.  As of June 30, 1997, the Company had approximately $1.4 million in
commitments and had expended $10.2 million for additional capital 
expenditures and deposits, principally relating to the manufacturing
expansion.  The Company intends to finance the expansion through a term loan
with The Chase Manhattan Bank.  See note 8 to the consolidated financial 
statements.

     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 

                                  -10-

<PAGE>


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 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.

     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 June 30, 1997
decreased from December 31, 1996 reflecting the use of cash to fund operations
and capital expenditures during the quarter partially offset by proceeds of
loans from Smith & Nephew.  Long-term debt increased by $11.7 million
reflecting the loans from Smith & Nephew.  See Note 3 to the consolidated
financial statements.  Other current assets increased over 1996 as inventory
increased to support the marketing of Dermagraft-TC and due to increases in
accounts receivable.  Other assets have increased principally reflecting
deposits  made  on  equipment for the expansion of the Company's manufacturing
facility.

                                   -11-

<PAGE>

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


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

     The Company's Annual Meeting of Stockholders was held on May 20, 1997.
During the Annual Meeting, the stockholders elected the following nominees to
the Company's Board of Directors to serve for the term of one year or until
their successors have been elected and qualified.  The votes of the
stockholders for each of the director nominees was as follows:


          Nominee                        In Favor            Withheld
     -----------------                   --------            --------
     Arthur J. Benvenuto                 34,056,398          1,150,269
     Dr. Gail K. Naughton                34,187,728          1,018,939
     Jerome E. Groopman, M.D.            34,184,318          1,022,349
     Jack L. Heckel                      34,053,719          1,152,948
     Dayton Ogden                        34,062,748          1,143,919
     David S. Tappan, Jr.                34,037,319          1,169,348
     Dr. Gail R. Wilensky                34,059,493          1,147,174


     The stockholders also approved (a) an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, $.01 par value per share, from 50,000,000 to 100,000,000 with
31,410,032 shares in favor of the proposal, 3,440,373 shares opposed and
356,262 shares abstaining; (b) the Company's 1997 Stock Incentive Plan with
12,348,918 shares in favor of the proposal 7,752,549 shares opposed, 415,062
shares abstaining and 14,690,138 broker non-voting shares; and (c) the
appointment of Ernst & Young LLP as independent auditors of the Company for
the fiscal year ending December 31, 1997 with 34,120,325 shares in favor of
the proposal, 345,075 shares opposed and 741,267 shares abstaining.

ITEM 5 - OTHER INFORMATION

     The discussions in this Quarterly Report on Form 10-Q, particularly those
relating to strategic alliances (including potential revenues from certain
existing joint ventures), 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.

                                  -12-



<PAGE>


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K


 (a)   Exhibits

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

        3.1       Restated Certificate of Incorporation of    Filed Herewith
                  Advanced Tissue Sciences, Inc. as in 
                  effect June 12, 1997

       10.1       Advanced Tissue Sciences, Inc. 1997 Stock   Filed Herewith
                  Incentive Plan

       10.2       Promissory Note between Advanced Tissue     Filed Herewith
                  Sciences, Inc. and Smith & Nephew 
                  SNATS, Inc. Dated June 11, 1997

       27         Financial Data Schedule                     Filed with
                                                              Electronic Copy
                                                              Only

 (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: August, 11, 1997                  /s/ Arthur J. Benvenuto
      ----------------                -------------------------------
                                      Arthur J. Benvenuto
                                      Chairman of the Board and
                                      Chief Executive Officer




Date: August 11, 1997                   /s/ Michael V. Swanson
      ---------------                 --------------------------------
                                      Michael V. Swanson
                                      Vice President, Finance and 
                                      Administration


                                  -13-