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

                                   FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996, 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      0-22025
                       ---------------------------------------------------------


                           AASTROM BIOSCIENCES, INC.
- --------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)


            Michigan                                      94-3096597
- ---------------------------------------             ---------------------------
 (State or other jurisdiction of                       (I.R.S. employer
  incorporation or organization)                      identification no.)
 

     24 Frank Lloyd Wright Dr.
           P.O. Box 376
       Ann Arbor, Michigan                                   48106
- ----------------------------------------             --------------------------
(Address of principal executive offices)                   (Zip code)
 
                                (313) 930-5555
- -------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)
            

- ------------------------------------------------------------------------------- 
             (Former name, former address and former fiscal year,
                         if changed since last report)
                       
       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

       Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.


       COMMON STOCK, NO PAR VALUE                        13,001,565
                (Class)                       Outstanding at February 7, 1997

                                    Page 1

<PAGE>
 
                           AASTROM BIOSCIENCES, INC.

                         Quarterly Report on Form 10-Q
                               December 31, 1996

                               TABLE OF CONTENTS



PART I  - FINANCIAL INFORMATION

<TABLE> 
<CAPTION> 
 

Item 1.   Financial Statements                                                                                Page
                                                                                                              ----
<S>                                                                                                           <C> 
          a)  Condensed Balance Sheets as of June 30, 1996 and December 31, 1996                                3
 
          b)  Condensed Statements of Operations for the three and six months ended December 31, 1995 and       4
              1996 and for the period from March 24, 1989 (Inception) to December 31, 1996
 
          c)  Condensed Statements of Cash Flows for six months ended December 31, 1995 and 1996 and for        5
              the period from March 24, 1989 (Inception) to December 31, 1996
 
          d)  Notes to Condensed Financial Statements                                                           6
 

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

PART II - OTHER INFORMATION
 

Item 1.   Legal Proceedings                                                                                     *

Item 2.   Changes in Securities                                                                                14

Item 3.   Defaults Upon Senior Securities                                                                       *

Item 4.   Submission of Matters to a Vote of Security Holders                                                   *

Item 5.   Other Information                                                                                     *

Item 6.   Exhibits and Reports on Form 8-K                                                                     15
</TABLE>


SIGNATURES

* No information is provided due to inapplicability of the item.

                                    Page 2

<PAGE>
 

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements
 
                           AASTROM BIOSCIENCES, INC.
                         (a development stage company)

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
 
                                                                                                                        Pro Forma
                                                                                                                       Shareholders'
                                                                                                                        Equity at
                                                                                June 30,          December 31,        December 31,
                                                                                  1996                1996                1996
                                                                              ------------        ------------        -------------
<S>                                                                           <C>                 <C>                 <C>
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                                    $ 10,967,000        $  4,089,000
 Receivables                                                                        81,000              74,000
 Prepaid expenses                                                                  437,000             737,000
                                                                              ------------        ------------
  Total current assets                                                          11,485,000           4,900,000
 
PROPERTY, NET                                                                    1,188,000           1,198,000
                                                                              ------------        ------------
   Total assets                                                               $ 12,673,000        $  6,098,000
                                                                              ============        ============

LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
 Accounts payable and accrued expenses                                        $  1,192,000        $    978,000
 Accrued employee expenses                                                          97,000              89,000
 Current portion of capital lease obligations                                      223,000             169,000
 Deferred revenue                                                                  122,000                   -
                                                                              ------------        ------------
   Total current liabilities                                                     1,634,000           1,236,000
 
CAPITAL LEASE OBLIGATIONS                                                          189,000             102,000
 
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value, shares authorized - 9,951,765 and
 10,990,980, respectively, issued and outstanding - 9,451,766 and
 9,657,648, respectively (none - pro forma)                                     34,218,000          37,718,000        $           -
Common Stock, no par value; shares authorized - 18,500,000 and
 20,300,000, respectively; shares issued and outstanding - 1,886,479 and
 1,894,915, respectively (9,993,337 - pro forma)                                   324,000             396,000           38,114,000
Deficit accumulated during the development stage                               (27,025,000)        (33,187,000)         (33,187,000)

Shareholder notes receivable                                                      (167,000)           (167,000)            (167,000)

Stock purchase rights                                                            3,500,000                   -                    -
                                                                              ------------        ------------         ------------
 Total shareholders' equity                                                     10,850,000           4,760,000         $  4,760,000
                                                                              ------------        ------------         ============
      Total liabilities and shareholders' equity                              $ 12,673,000        $  6,098,000            
                                                                              ============        ============
</TABLE>

 




   The accompanying notes are an integral part of these financial statements.



                                    Page 3

<PAGE>
 
                           AASTROM BIOSCIENCES, INC.
                         (a development stage company)

                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
 
                                                                                                          March 24, 1989
                                               Three months ended               Six months ended          (Inception) to
                                                  December 31,                    December 31,             December 31,
                                          ----------------------------    ----------------------------    --------------
                                              1995            1996            1995            1996             1996
                                          ------------    ------------    ------------    ------------     ------------
<S>                                       <C>             <C>             <C>             <C>             <C>
REVENUES:
 Research and development agreements       $   343,000     $         -     $   515,000     $   195,000      $  1,982,000
 Grants                                         92,000          29,000         131,000          58,000         2,053,000
                                          ------------    ------------    ------------    ------------     -------------
   Total revenues                              435,000          29,000         646,000         253,000         4,035,000
                                          ------------    ------------    ------------    ------------     -------------
 
COSTS AND EXPENSES:
 Research and development                    1,787,000       2,550,000       2,982,000       5,710,000        30,785,000
 General and administrative                    418,000         439,000         864,000         891,000         7,980,000
                                          ------------     -----------     -----------     -----------       -----------
   Total costs and expenses                  2,205,000       2,989,000       3,846,000       6,601,000        38,765,000
                                          ------------     -----------     -----------     -----------       -----------
 
LOSS BEFORE OTHER INCOME AND
 EXPENSE                                    (1,770,000)     (2,960,000)     (3,200,000)     (6,348,000)      (34,730,000)
                                          ------------     -----------     -----------     -----------       -----------
 
OTHER INCOME (EXPENSE):
 Interest income                               150,000          79,000         299,000         205,000         1,781,000
 Interest expense                              (16,000)         (8,000)        (34,000)        (19,000)         (238,000)
                                          ------------     -----------     -----------     -----------       -----------
   Other income                                134,000          71,000         265,000         186,000         1,543,000
                                          ------------     -----------     -----------     -----------       -----------
 
NET LOSS                                   $(1,636,000)    $(2,889,000)    $(2,935,000)    $(6,162,000)     $(33,187,000)
                                          ------------     -----------     -----------     -----------       -----------
 
PRO FORMA NET LOSS PER SHARE                               $      (.29)                    $      (.61)
                                                           ===========                     =========== 
Pro forma weighted average number of
  common and common equivalent shares
  outstanding                                               10,109,000                      10,108,000
                                                           ===========                     ===========
</TABLE>

 


   The accompanying notes are an integral part of these financial statements.

                                    Page 4

<PAGE>
 
                           AASTROM BIOSCIENCES, INC.
                         (a development stage company)

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
 
 
                                                                                          March 24, 1989
                                                                Six months ended          (Inception) to
                                                                  December 31,             December 31,
                                                          ---------------------------     --------------
                                                              1995            1996              1996
                                                          -----------     -----------     --------------
<S>                                                       <C>             <C>             <C> 
OPERATING ACTIVITIES:
 Net loss                                                  $(2,935,000)    $(6,162,000)     $(33,187,000)
 Adjustments to reconcile net loss to net
  cash used for operating activities:
   Depreciation and amortization                               184,000         274,000         1,541,000
   Loss on property held for resale                                  -               -           110,000
   Amortization of discounts and
    premiums on investments                                    (92,000)              -          (119,000)
   Expense related to stock and stock
    options granted                                                  -          66,000            76,000
   Changes in assets and liabilities:
    Receivables                                                (15,000)          7,000           (74,000)
    Prepaid expenses                                            51,000        (300,000)         (737,000)
    Accounts payable and accrued
     expenses                                                  177,000        (214,000)          978,000
    Accrued employee expenses                                  (17,000)         (8,000)           89,000
    Deferred revenue                                           (86,000)       (122,000)                -
                                                           -----------     -----------     -------------
 Net cash used for operating activities                     (2,733,000)     (6,459,000)      (31,323,000)
 
INVESTING ACTIVITIES:
 Organizational costs                                                -               -           (73,000)
 Purchase of short-term investments                                  -               -       (11,948,000)
 Maturities of short-term investments                        5,000,000               -        12,067,000
 Capital purchases                                            (137,000)       (284,000)       (2,002,000)
 Proceeds  from sale of property held for resale                     -               -           400,000
                                                           -----------     -----------     -------------
 Net cash provided by (used for)
  investing activities                                       4,863,000        (284,000)       (1,556,000)
 
FINANCING ACTIVITIES:
 Issuance of Preferred Stock                                         -               -        34,218,000
 Issuance of Common Stock                                       53,000           6,000           122,000
 Payments received for stock purchase rights                 1,500,000               -         3,500,000
 Payments received under shareholder notes                           -               -            31,000
 Principal payments under capital lease obligations           (133,000)       (141,000)         (903,000)
                                                           -----------     -----------     -------------
 Net cash provided by (used for)
  financing activities                                       1,420,000        (135,000)       36,968,000
                                                           -----------     -----------     -------------
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...      3,550,000      (6,878,000)        4,089,000
 
CASH AND CASH EQUIVALENTS AT
 BEGINNING OF PERIOD                                         2,680,000      10,967,000                 -
                                                           -----------     -----------     -------------
CASH AND CASH EQUIVALENTS AT
 END OF PERIOD                                             $ 6,230,000     $ 4,089,000      $  4,089,000
                                                           ===========     ===========     =============
    
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid                                           $    34,000     $    19,000      $    238,000
                                                           ===========     ===========     ============= 
SUPPLEMENTAL DISCLOSURES OF
 NON-CASH INVESTING AND
 FINANCING ACTIVITIES:
   Additions to capital lease obligations                  $         -     $        -       $  1,174,000
                                                           ===========     ===========     =============
</TABLE>


   The accompanying notes are an integral part of these financial statements.

                                    Page 5

<PAGE>
 
                           AASTROM BIOSCIENCES, INC.
                         (A development stage company)

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

1. ORGANIZATION

   Aastrom Biosciences, Inc. (the "Company") was incorporated in March 1989
   ("Inception") under the name Ann Arbor Stromal, Inc. The Company changed its
   name in 1991 concurrent with the commencement of employee-based operations.
   The Company is in the development stage with its principal business
   activities being research and product development, conducted both on its own
   behalf and in connection with various collaborative research and development
   agreements with other companies, involving the development of processes and
   instrumentation for the ex-vivo production of human stem cells and their
   progeny, and hematopoietic and other tissues. Successful future operations
   are subject to several technical and business risks, including satisfactory
   product development and obtaining regulatory approval and market acceptance
   of its products.

2. BASIS OF PRESENTATION

   The condensed financial statements included herein have been prepared by the
   Company without audit, according 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 omitted pursuant to
   such rules and regulations. The financial statements reflect, in the opinion
   of management, all adjustments (which consist solely of normal recurring
   adjustments) necessary to present fairly the financial position and results
   of operations as of and for the periods indicated. The results of
   operations for the three and six months ended December 31, 1996, are not
   necessarily indicative of the results to be expected for the full year or for
   any other period.

   These financial statements should be read in conjunction with the audited
   financial statements and the notes thereto included in the Company's
   prospectus dated February 4, 1997, ("Prospectus") as filed with the
   Securities and Exchange Commission.

3. INITIAL PUBLIC OFFERING

   On February 7, 1997, the Company completed an underwritten initial public
   offering of 3,000,000 shares of its Common Stock at an offering price of
   $7.00 per share. On March 5, 1997, the underwriters elected to purchase an
   additional 250,000 shares of Common Stock pursuant to the underwriters' over-
   allotment option (the "Option") at a price of $7.00 per share. The Option,
   which has expired, granted the underwriters the right to purchase up to
   450,000 shares of Common Stock at the initial public offering price. Proceeds
   from the offering, net of underwriters' commissions and expenses were
   approximately $20,000,000.

                                    Page 6

<PAGE>
 
   In connection with the IPO, the Company effected a two-for-three reverse
   stock split.  Accordingly, all references in the accompanying financial
   statements to common share or per common share information has been restated
   to reflect the reverse stock split.  Additionally, as a result of the IPO,
   all 9,657,648 shares of the Company's outstanding Preferred Stock
   automatically converted into 8,098,422 shares of Common Stock upon the
   completion of the IPO.

   Expenses related to the IPO totaling $311,000 and $666,000 as of June 30,
   1996 and December 31, 1996, respectively, are included in prepaid expenses in
   the accompanying financial statements.  These amounts, in addition to
   expenses incurred after December 31, 1996, will be charged against the
   proceeds of the offering and reflected in shareholders' equity.

4. PRO FORMA INFORMATION

   Pro forma net loss per share is computed using the weighted average number of
   common and common equivalent shares outstanding during the period. Common
   equivalent shares are not included in the per share calculation where the
   effect of their inclusion would be anti-dilutive, except that common and
   common equivalent shares issued during the 12 month period preceding the
   filing of the registration statement for the IPO at a price below the
   offering price are considered to be cheap stock and have been included in the
   calculation as if they were outstanding for all periods using the treasury
   stock method, as applicable, even though their inclusion is anti-dilutive.
   Due to the automatic conversion of Preferred Stock into Common Stock upon the
   IPO, all outstanding shares of Preferred Stock are assumed to have been
   converted into Common Stock at the time of issuance, except for those shares
   considered to be cheap stock which are treated as outstanding for all periods
   presented. The pro forma effect of these conversions has been reflected in
   the accompanying balance sheet assuming the conversion had occurred on
   December 31, 1996.  Historical net loss per share information is not
   considered meaningful due to the significant changes in the Company's capital
   structure which occurred upon the closing of the IPO; accordingly, such per
   share data information is not presented.

5. RECENT PRONOUNCEMENTS

   During October 1995, the Financial Accounting Standards Board issued
   Statement No. 123, "Accounting for Stock-Based Compensation," which
   establishes a fair value based method of accounting for stock-based
   compensation and incentive plans and requires additional disclosures for
   those companies that elect not to adopt the new method of accounting.
   Adoption of this pronouncement is required for the Company beginning July 1,
   1996, and the Company intends to provide the additional disclosures required
   by the pronouncement in its financial statements for the year ended June 30,
   1997.

   During March 1995, the Financial Accounting Standards Board issued Statement
   No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and
   for Long-Lived Assets to Be Disposed Of," which requires the Company to
   review for

                                    Page 7

<PAGE>
 
   impairment of long-lived assets, certain identifiable intangibles,
   and goodwill related to those assets whenever events or changes in
   circumstances indicate that the carrying amount of an asset might not be
   recoverable.  Management has studied the effect of implementing SFAS 121 and,
   based upon its evaluation, has determined that the impact on the Company's
   financial condition and results of operations is not significant for the
   periods ended December 31, 1996.


6. CHANGES IN CAPITAL STRUCTURE

   In October and November 1997, respectively, the Company amended its Articles
   of Incorporation to provide for the issuance of 205,882 shares of Series E
   Preferred Stock to Rhone-Poulenc Rorer, Inc. ("RPR") in connection with the
   termination of the Company research collaboration with RPR and to authorize
   833,333 shares of Series F Preferred Stock reserved for issuance in
   connection with the execution of a private financing commitment.  Upon the
   completion of the IPO, this financing commitment expired unused.  In
   connection with these amendments, the number of authorized shares of Common
   Stock was increased to 20,300,000 shares.

                                    Page 8

<PAGE>
 

I
tem 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

Since inception, the Company has been in the development stage and engaged in
research and product development, conducted both on its own behalf and in
connection with various collaborative research and development agreements with
other entities. The Company expects that its revenue sources for at least the
next several years will continue to be limited to grant revenues and research
funding, milestone payments and licensing fees from potential future corporate
collaborators. The timing and amount of such future cash payments and revenues,
if any, will be subject to significant fluctuations, based in part on the
success of the Company's research activities, the timing of the achievement of
certain milestones and the extent to which associated costs are reimbursed under
grant or other arrangements.  Research and development expenses may fluctuate
due to the timing of expenditures for the varying stages of the Company's
research and clinical development programs. Research and development expenses
will increase as product development programs and applications of the Company's
products progress through research and development stages. Under the Company's
License Agreement with Immunex, annual renewal fees of $1,000,000 are payable in
each of the next four years. Under the Company's Distribution Agreement with
Cobe BCT, Inc. ("Cobe"), regulatory approval activities for the Company's
products for stem cell therapies outside of the United States will be conducted,
and paid for, by Cobe. As a result of these and others factors, the Company's
results of operations have fluctuated and are expected to continue to fluctuate
significantly from year to year and from quarter to quarter and therefore may
not be comparable to or indicative of the results of operations for other
periods.

Over the past several years, the Company's net loss has primarily increased,
consistent with the growth in the Company's scope and size of operations. In the
near term, the Company plans additional moderate growth in employee headcount
necessary to address increasing requirements in the areas of product
development, research, clinical and regulatory affairs and administration.
Assuming capital is available to finance such growth, the Company's operating
expenses will continue to increase as a result. At least until such time as the
Company enters into arrangements providing research and development funding, the
net loss will continue to increase as well. The Company has been unprofitable
since its inception and does not anticipate having net income for at least the
next several years. Through December 31, 1996, the Company has an accumulated
deficit of $33,187,000.  There can be no assurance that the Company will be able
to achieve profitability on a sustained basis, if at all.

This report contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed under this caption, as well as those discussed under the caption
"Certain Business Considerations" and in the Company's Prospectus.

                                    Page 9

<PAGE>
 
Results of operations

Three and six months ended December 31, 1996 and 1995

Total revenues were $29,000 for the three months ended December 31, 1996,
compared to $435,000 for the same period in 1995, and were $253,000 for the six
months ended December 31, 1996, compared to $646,000 in 1995.  These revenues
for the six-month periods consist primarily of research and development revenue
under the Company's research collaboration with RPR, which was terminated in
September 1996.  As such, the Company did not recognize any revenues under
research and development agreements for the three months ended December 31,
1996.  Grant revenues decreased in 1996 reflecting the timing of grant awards
and related research activities, to the extent that such associated costs are
reimbursed under the grants.

Total costs and expenses were $2,989,000 for the three months ended December 31,
1996, compared to $2,205,000 for the same period in 1995. The increase in costs
and expenses in 1996 is primarily the result of an increase in research and
development expenses to $2,550,000 in 1996 from $1,787,000 in 1995 and to a
lesser degree by general and administrative expenses, which increased to
$439,000 for the three months ended December 31, 1996 from $418,000 for the same
period in 1995. Total costs and expenses were $6,601,000 for the six months
ended December 31, 1996 compared to $3,846,000 for the same period in 1995. The
increase in costs and expenses in 1996 is primarily the result of an increase in
research and development expenses to $5,710,000 in 1996 from $2,982,000 in 1995
and to a lesser degree by general and administrative expenses, which increased
to $891,000 for the six months ended December 31, 1996 from $864,000 for the
same period in 1995.  The increases in 1996 research and development expense
reflect an increase in research, clinical development and product development
activities over 1995 levels.

Interest income was $79,000 for the three months ended December 31, 1996,
compared to $150,000 for the same period in 1995, and was $205,000 for the six
months ended December 31, 1996, compared to $299,000 for the same period in
1995.  These decreases primarily reflect a decrease in the levels of cash, cash
equivalents and short-term investments in 1996.

The Company's net loss increased to $2,889,000 for the three months ended
December 31, 1996 from $1,636,000 for the same period in 1995 and increased to
$6,162,000 for the six months ended December 31, 1996, compared to $2,935,000
for the same period in 1995.  These increases are primarily the result of the
increased costs and expenses in 1996 as described above.

Liquidity and capital resources

The Company has financed its operations since inception primarily through
private placements of Preferred Stock and other equity investments, which from
inception through December 31, 1996 have totaled approximately $37,871,000, and,
to a lesser degree,

                                    Page 10

<PAGE>
 
through grant funding, payments received under research agreements and
collaborations, interest earned on cash, cash equivalents, and short-term
investments, and funding under equipment leasing agreements. These financing
sources have historically allowed the Company to maintain adequate levels of
cash and other liquid investments.

The Company's combined cash and cash equivalents totaled $4,089,000 at December
31, 1996, a decrease of $6,878,000 from June 30, 1996. The primary uses of cash
and cash equivalents during the six months ended December 31, 1996 included
$6,459,000 to finance the Company's operations and working capital requirements,
$284,000 in capital equipment additions and $141,000 in scheduled debt payments.
On February 7, 1997, the Company completed an underwritten initial public
offering of 3,000,000 shares of its Common Stock at an offering price of $7.00
per share. On March 5, 1997, the underwriters elected to purchase an additional
250,000 shares of Common Stock pursuant to the underwriters' over-allotment
option (the "Option") at a price of $7.00 per share. The Option, which has
expired, granted the underwriters the right to purchase up to 450,000 shares of
Common Stock at the initial public offering price. Proceeds from the offering,
net of underwriters' commissions and expenses were approximately $20,000,000.
The Company plans to continue its policy of investing excess funds short-term,
investment-grade, interest-bearing instruments.

The Company's future cash requirements will depend on many factors, including
continued scientific progress in its research and development programs, the
scope and results of clinical trials, the time and costs involved in obtaining
regulatory approvals, the costs involved in filing, prosecuting and enforcing
patents, competing technological and market developments and the cost of product
commercialization. The Company does not expect to generate a positive cash flow
from operations for several years, if at all, due to the expected increase in
spending for research and development programs and the expected cost of
commercializing its product candidates. The Company may seek additional funding
through research and development agreements with suitable corporate
collaborators, grants and through public or private financing transactions.  The
Company expects that its primary sources of capital for the foreseeable future
will be through collaborative arrangements and through the public or private
sale of its debt or equity securities. There can be no assurance that such
collaboration arrangements, or any public or private financing, will be
available on acceptable terms, if at all, or can be sustained on a long-term
basis. If adequate funds are not available, the Company may be required to
delay, reduce the scope of, or eliminate one or more of its research and
development programs, which may have a material adverse effect on the Company's
business.

Certain business considerations

Commercialization of the Company's technology and product candidates, including
its lead product candidate, the Aastrom Cell Production System ("Aastrom CPS"),
will require substantial additional research and development by the Company as
well as substantial clinical trials.  There can be no assurance that the Company
will successfully complete development of the Aastrom CPS or its other product
candidates, or successfully market its technologies or product candidates, which
lack of success would have a material adverse effect on the Company's business,
financial condition and results of operations.  The Company or its collaborators
may encounter problems or delays relating to research and development, clinical
trials, regulatory approval and intellectual property rights of the

                                    Page 11

<PAGE>
 
Company's technologies and product candidates. The Company's product development
efforts are primarily directed toward obtaining regulatory approval to market
the Aastrom CPS as an alternative to currently used stem cell collection
methods. These existing stem cell collection methods have been widely practiced
for a number of years, and there can be no assurance that any of the Company's
technologies or product candidates will facilitate the ex vivo production of
cells with the expected biological activities in humans or will be accepted by
the marketplace as readily as these or other competing processes and
methodologies, or at all.

The approval of the United States Food and Drug Administration ("FDA") will be
required before any commercial sales of the Company's product candidates for
stem cell therapy may commence in the United States, and approvals from foreign
regulatory authorities will be required before international sales may commence.
The Company is currently conducting a pre-pivotal clinical trial to demonstrate
the safety and biological activity of patient-derived cells produced in the
Aastrom CPS in a limited number of patients and if the results from this pre-
pivotal trial are successful, the Company intends to seek clearance from the FDA
to commence its pivotal clinical trial.  The results of preclinical studies and
early clinical trials of the Company's product candidates, however, may not
necessarily be indicative of results that will be obtained from subsequent or
more extensive clinical trials.  Further, there can be no assurance that pre-
pivotal or pivotal clinical trials of any of the Company's product candidates
will demonstrate the safety, reliability and efficacy of such products, or of
the cells produced in such products, to the extent necessary to obtain required
regulatory approvals or market acceptance.  There can be no assurance that, even
after the expenditures of substantial time and financial resources, regulatory
approval will be obtained for any products developed by the Company.

The Company currently arranges for the manufacture of its product candidates and
their components, including certain cytokines, serum and media, with third
parties, and expects to continue to do so in the foreseeable future.  There can
be no assurance that the Company's supply of such key cytokines, components and
other materials will not become limited, be interrupted or become restricted to
certain geographic regions.  There can also be no assurance that the Company
will be able to obtain alternative components and materials from other
manufacturers of acceptable quality, or on terms or in quantities acceptable to
the Company.  Additionally, there can be no assurance that the Company will not
require additional cytokines, components and other materials to manufacture, use
or market its product candidates.  In the event that any of the Company's key
manufacturers or suppliers fail to perform their respective obligations or the
Company's supply of such cytokines, components or other materials become limited
or interrupted, the Company would not be able to market its product candidates
on a timely and cost-competitive basis, if at all, which would have a material
adverse effect on the Company's business, financial condition and results of
operations.

The Company is a development stage company and there can be no assurance that
its product applications for cell therapy will be successful.  The Company has
not yet completed the development and clinical trials of any of its product
candidates and, accordingly, has not yet begun to generate revenues from the
commercialization of any of 

                                    Page 12

<PAGE>
 
its product candidates. The Company expects to incur significant and increasing
operating losses for at least the next several years, primarily owing to the
expansion of its research and development programs, including preclinical
studies and clinical trials. The development of the Company's products will
require the Company to raise additional funds or to seek collaborative partners,
or both, to finance related research and development activities. Because of the
Company's potential long-term funding requirements, it may attempt to access the
public or private equity markets if and whenever conditions are favorable, even
if it does not have an immediate need for additional capital at that time. There
can be no assurance that any such additional funding will be available to the
Company on reasonable terms, or at all. If adequate funds are not available, the
Company may be required to delay or terminate research and development programs,
curtail capital expenditures, and reduce business development and other
operating activities.

The Company has established a strategic alliance with Cobe BCT, Inc. for the
worldwide distribution of the Aastrom CPS for stem cell therapy and related
uses.  Cobe has the right to terminate its Distribution Agreement with the
Company upon twelve months' notice upon a change of control of the Company,
other than to Cobe, or at any time after December 31, 1997, if Cobe determines
that commercialization of the Aastrom CPS for stem cell therapy on or prior to
December 31, 1998 is unlikely.  There can be no assurance that Cobe will pursue
the marketing and distribution of the Company's products, continue to perform
its obligations under its agreements with the Company or that the Company's
strategic alliance with Cobe will result in the successful commercialization and
distribution of the Company's technologies and product candidates.  There can
also be no assurance that Cobe will be successful in its efforts to market and
distribute the Company's products for stem cell therapy.

These business considerations, and others, are discussed in more detail and
should be read in conjunction with the Risk Factors discussed in the Company's
Prospectus.

                                    Page 13

<PAGE>
 

 
                         PART II - OTHER INFORMATION


Item 2. - Changes in Securities

(a)    In connection with its initial public offering, the Company's has filed
       an amendment to its Articles of Incorporation to authorize 40,000,000
       shares of Common Stock and 5,000,000 shares of Preferred Stock. All
       9,657,648 shares of outstanding preferred stock converted to an aggregate
       of 8,098,422 shares of Common Stock upon the completion of the initial
       public offering.

(c)(1) Pursuant to a Governance Agreement between the Company and Rhone-Poulenc
       Rorer Inc. ("RPR"), dated September 15, 1995, RPR terminated its
       contractual relationship with the Company on September 6, 1996. As a
       result of such termination, the Company issued 205,882 shares of Series E
       Preferred Stock to RPR at a purchase price of $17.00 per share.

       In October 1996, the Company issued warrants to Michigan to purchase
       69,444 shares of Common Stock as consideration for the Convertible Loan
       Commitment and has agreed to issue additional warrants to purchase 8,333
       shares of Common Stock for each $1,000,000 borrowed under the Convertible
       Loan Commitment, as adjusted to the level of borrowing.

(c)(2) During the three months ended December 31, 1996, the Company granted
       options to purchase a total of 25,000 shares of Common Stock at an
       exercise $3.20 per share to eleven employees. No consideration was paid
       to the Company by any recipient of any of the foregoing options for the
       grant of any such options. During the three months ended December 31,
       1996, the Company issued a total of 7,603 shares of Common Stock to two
       employees upon exercise of stock options at exercise prices ranging from
       $.30 to $1.20 per share.

       There were no underwriters employed in connection with any of the
       transactions set forth in Item 2.

       The issuances described in Item 2(c)(1) were exempt from registration
       under the Securities Act in reliance on Section 4(2) of the Securities
       Act as transactions by an issuer not involving a public offering. The
       issuances described in Item 2(c)(2) were exempt from registration under
       the Securities Act in reliance on Rule 701 promulgated thereunder as
       transactions pursuant to compensatory benefit plans and contracts
       relating to compensation. The recipients of securities in each such
       transaction represented their intention to acquire the securities for
       investment only and not with a view to or for sale in connection with any
       distribution thereof and appropriate legends were affixed to the share
       certificates and other instruments issued in such transactions.

                                    Page 14

<PAGE>
 

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

(a)   Exhibits
      --------

<TABLE> 
<CAPTION> 

Exhibit No.              Exhibit
- ------------  ------------------------------------------------------------------
<C>           <S>
  3.1         Restated Articles of Incorporation of the Company.
  3.2*        Bylaws of the Company.
  4.1*        Amended and Restated Investors' Rights Agreement, dated April 7, 1992.
  10.1*       Amended and Restated 1992 Incentive and Non-Qualified Stock Option
              Plan and forms of agreements thereunder.
  10.2*       1996 Outside Directors Stock Option Plan and forms of agreements
              thereunder.
  10.3*       1996 Employee Stock Purchase Plan and form of agreement thereunder.
  10.4*       Stock Purchase Agreement by and between Cobe Laboratories, Inc. and
              the Company, dated October 22, 1993, as amended October 29, 1996.
  10.5*+      Distribution Agreement by and between Cobe Laboratories, Inc. and
              the Company, dated October 22, 1993, as amended March 29, 1995,
              September 11, 1995 and October 29, 1996.
  10.6*       Promissory Note by and between R. Douglas Armstrong and the Company,
              dated November 18, 1993, as amended October 30, 1996.
  10.7*       Promissory Note by and between Stephen G. Emerson and the Company,
              dated October 20, 1993, as amended October 30, 1996.
  10.8*       Letter Agreement by and between Cobe Laboratories, Inc. and the
              Company, dated November 11, 1996.
  10.9*       Stock Purchase Agreement by and between Rhone-Poulenc Rorer Inc. and
              the Company, dated November 14, 1996.
  10.10*      Termination Agreement by and between Rhone-Poulenc Rorer Inc. and
              the Company, dated November 14, 1996.
  10.11*+     Collaborative Supply Agreement by and between Anchor Advanced
              Products, Inc., Mid-State Plastics Division, and the Company, dated
              December 16, 1996.
</TABLE>
 

                                    Page 15

<PAGE>
 

<TABLE> 
<CAPTION> 

Exhibit No.              Exhibit
- ------------  ---------------------------------------------------------------------
<C>           <S>
  10.12*      Stock Purchase Commitment Agreement by and between Cobe
              Laboratories, Inc. and the Company, dated October 29, 1996.
  10.13*      Convertible Loan Commitment Agreement by and between the State
              Treasurer of the State of Michigan and the Company, dated October 15,
              1996.
  11.1        Statement re computation of pro forma net loss per share.
  27.1        Financial Data Schedule.
</TABLE>
 
________________________

*    Incorporated by reference to the Company's Registration Statement on Form
     S-1 (No. 333-15415), declared effective on February 3, 1997.
+    Confidential treatment has been granted with respect to part of this
     exhibit.


(b)  Reports on Form 8-K
     -------------------

         There were no reports on Form 8-K filed during the period.

                                    Page 16

<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.


                                           AASTROM BIOSCIENCES, INC.


Date:   March 7, 1997                      /s/ R. DOUGLAS ARMSTRONG, Ph.D.
                                           -------------------------------
                                           R. Douglas Armstrong, Ph.D.     
                                           President, Chief Executive Officer
                                                 (Principal Executive Officer)


Date:   March 7, 1997                      /s/ TODD E. SIMPSON
                                           ----------------------------------
                                           Todd E. Simpson
                                           Vice President, Finance and
                                            Administration, Chief Financial
                                            Officer (Principal Financial and
                                            Accounting Officer)


                                      17





<PAGE>
 
                        [SEAL OF THE STATE OF MICHIGAN]


This is to Certify that the Annexed copy has been compared by me with the record
on file in this Department and that the same is a true copy thereof.

In testimony whereof, I have hereunto set my hand and affixed the Seal of the 
Department, in the City of Lansing, this 6th day of February, 1997.


                                        /s/ CARL L. LYSON
                                        -----------------
                                        Carl L. Lyson
                                        Director
                                        Corporation, Securities and Land
                                        Development Bureau


<PAGE>
- ------------------------------------------------------------------------------- 
MICHIGAN DEPARTMENT OF COMMERCE - CORPORATION AND SECURITIES BUREAU
- -------------------------------------------------------------------------------
DATE RECEIVED
FEB 06 1997
- -----------------------------------------------
NAME
ATTN: CHERYL J. BIXBY
PHONE 517-663-2525   REF #70801
- -----------------------------------------------
ADDRESS
MICHIGAN RUNNER SERVICE
PO BOX 266
- -----------------------------------------------
CITY                 STATE          ZIP CODE
EATON RAPIDS         MI             48827 0266
- -----------------------------------------------

DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE

(FOR BUREAU USE ONLY)

FILED
FEB 06 1997

                 Administrator
 MI DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU

EFFECTIVE DATE: FEB. 7, 1997 @ 10:00 A.M.

- --------------------------------------------------------------------------------
                      RESTATED ARTICLES OF INCORPORATION
                    FOR USE BY DOMESTIC PROFIT CORPORATIONS
          (Please read information and instructions on the last page)


        Pursuant to the provisions of Act 284, Public Acts of 1972, the 
undersigned corporation executes the following Articles:
- --------------------------------------------------------------------------------
1.  The present name of the corporation is:
    Aastrom Biosciences,
 Inc.

2.  The identification number assigned by the Bureau is: 529-456

3.  All former names of the corporation are:
    Ann Arbor Stromal, Inc.

4.  The date of filing the original Articles of Incorporation was: 
    March 24, 1989.
- --------------------------------------------------------------------------------
The following Restated Articles of Incorporation supersede the Articles of 
Incorporation as amended and shall be the Articles of Incorporation for the 
corporation:

ARTICLE I
- --------------------------------------------------------------------------------
The name of the corporation is:
Aastrom Biosciences, Inc.
- --------------------------------------------------------------------------------
ARTICLE II
- --------------------------------------------------------------------------------
The purpose or purposes for which the corporation is formed are:

To engage in any activity within the purpose for which corporations may be 
organized under the Michigan Business Corporation Act.
- -------------------------------------------------------------------------------

SEAL APPEARS ONLY ON ORIGINAL

<PAGE>
 
ARTICLE III
- ------------------------------------------------------------------------------
The total authorized shares:

Common shares        40,000,000       Preferred shares       5,000,000
             ------------------------                 ------------------------

A statement of all or any of the relative rights, preferences and limitations of
the shares of each class is as follow:

               See Rider attached hereto and made a part hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ARTICLE IV

1.  The address of the current registered office is:

        36th Floor, 100 Renaissance Center    Detroit, Michigan      48243
    -------------------------------------------------          -----------------
    (Street Address)                          (City)              (Zip Code)


2.  The mailing address of the current registered office, if different than 
    above:

                                                     ,  Michigan 
    -------------------------------------------------          -----------------
    (Street Address or P.O. Box)              (City)              (Zip Code)


3.  The name of the current resident agent is: Michael B. Staebler
                                              ----------------------------------
- --------------------------------------------------------------------------------
ARTICLE V
- --------------------------------------------------------------------------------
These Restated Articles of Incorporation shall be effective at 10:00 a.m.
Eastern Standard Time on Friday, February 7, 1997.
- --------------------------------------------------------------------------------
ARTICLE VI (Optional. Delete if not applicable)
- -------------------------------------------------------------------------------



SEAL APPEARS ONLY ON ORIGINAL

<PAGE>
 
Article VII (Additional provisions, if any, may be inserted here; attach 
additional pages if needed.)

See Rider attached hereto and made a part hereof.
- --------------------------------------------------------------------------------
5.  COMPLETE SECTION (a) IF THE RESTATED ARTICLES WERE ADOPTED BY THE 
    UNANIMOUS CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE
    BOARD OF DIRECTORS; OTHERWISE, COMPLETE SECTION(b). DO NOT COMPLETE BOTH.

    a. [_] These Restated Articles of Incorporation were duly adopted on the
           __________ day of __________________, 19____, in accordance with
           the provisions of Section 642 of the Act by the unanimous consent
           of the incorporator(s) before the first meeting of the Board of 
           Directors.

           Signed this_______ day of _________________, 19_________.

       ________________________________  ____________________________________

       ________________________________  ____________________________________
       (Signatures of Incorporators; Type or Print Name Under Each Signature)

    b. [X] These Restated Articles of Incorporation were duly adopted on the
           30th day of October, 1996 in accordance with the provisions of
           ----        -------    --
           Section 642 of the Act and: (check one of the following)

           [_] were duly adopted by the Board of Directors without a vote of
               the shareholders. These Restated Articles of Incorporation
               only restate and integrate and do not further amend the
               provisions of the Articles of Incorporation as heretofore amended
               and there is no material discrepancy between those provisions
               and the provisions of these Restated Articles.

           [_] were duly adopted by the shareholders. The necessary number of
               shares as required by statute were voted in favor of these
               Restated Articles.

           [X] were duly adopted by the written consent of the shareholders
               having not less than the minimum number of votes required by
               statute in accordance with Section 407(1) of the Act. Written
               notice to shareholders who have not consented in writing has
               been given. (Note: Written consent by less than all of the 
               shareholders is permitted only if such provision appears in
               the Articles of Incorporation.)

           [_] were duly adopted by the written consent of all the shareholders
               entitled to vote in accordance with section 407(2) of the Act.


                               Signed this 5th day of February, 1997
                                           ---        --------    --

                               By /s/ R. DOUGLAS ARMSTRONG, Ph.D.
                                  -------------------------------------------

                                  R. Douglas Armstrong, Ph.D., President
                                  -------------------------------------------
                                  (Type or Print Name)  (Type or Print Title)



SEAL APPEARS ONLY ON ORIGINAL


<PAGE>
 
                              RIDER TO ARTICLE III
                              --------------------

PART A:  COMMON STOCK

     Section 1.     Voting Rights.
     ----------     ------------- 

     a.  One Vote Per Share.  The holders of shares of Common Stock shall be
         ------------------                                                 
entitled to one vote for each share so held with respect to all matters voted on
by the holders of shares of Common Stock of the Corporation.

     b.  Two-Thirds Consent.  Consent of the holders of at least two-thirds
         ------------------                                                
(2/3) of the outstanding shares of Common Stock shall be required for (i) any
action which results in a consolidation or merger which would be treated as a
liquidation, dissolution or winding up of the Corporation under Section 2 of
this Part A of this Article III, or which results in the liquidation, sale or
assignment of all or substantially all of the assets of the Corporation; (ii)
any amendment to these Articles of Incorporation; or (iii) any amendment by the
shareholders of the Corporation of the Bylaws of the Corporation (the Board of
Directors of the Corporation, as provided in Section 3 of Article VII, shall
have the authority to amend the Bylaws of the Corporation without the consent of
the shareholders of the Corporation).

     Section 2.  Liquidation Rights.  Subject to preferences applicable to any
     ----------  ------------------                                           
outstanding shares of Preferred Stock, all distributions made or funds paid to
the holders of Common Stock upon the occurrence of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation shall
be made on the basis of the number of shares of Common Stock held by each of
them.  A consolidation or merger of the Corporation with or into another
corporation or entity shall be regarded as a liquidation, dissolution or winding
up of the Corporation within the meaning of this Section 2 unless such
consolidation or merger is not intended to effect a change in the ownership or
control of the Corporation or of its assets and is not intended to alter
materially the business or assets of the Corporation, including, by way of
example and without limiting the generality of the foregoing:  (i) a
consolidation or merger which merely changes the identity, form or place of
organization of the Corporation, or which is between or among the Corporation
and any of its direct or indirect subsidiaries, or (ii) following such merger or
consolidation, shareholders of the Corporation immediately prior to such event
own not less than 51% of the voting power of such corporation immediately after
such merger or consolidation on a pro rata basis.

     Section 3.  Dividends.  Dividends may be paid on the Common Stock as and
     ----------  ---------                                                   
when declared by the Board of Directors, subject to preferences applicable to
any outstanding shares of Preferred Stock.


<PAGE>
 
PART B:  PREFERRED STOCK

     The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is hereby authorized, within the
limitations and restrictions stated in these Restated Articles of Incorporation,
to fix or alter the dividend rights, dividend rate, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.

                                       2

<PAGE>
 
                              RIDER TO ARTICLE VII
                              --------------------


                                  ARTICLE VII

          1.   Director Liability.  A director of the Corporation shall not be
               ------------------                                             
personally liable to the Corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director.  However, this provision does not
eliminate or limit the liability of a director for any of the following:

               (a) any breach of the director's duty of loyalty to the
Corporation or its shareholders;

               (b) any acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law;

               (c) a violation of Section 551(1) of the Michigan Business
Corporation Act, as amended (the "MBCA");

               (d) a transaction from which the director derived an improper
personal benefit; or

               (e) an act or omission occurring before the date these Articles
of Incorporation became effective in accordance with the pertinent provisions of
the MBCA.

Any repeal, amendment or other modification of this Article VII shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal, amendment or other modification.

          If the MBCA is amended, after this Article becomes effective, to
authorize corporate action further eliminating or limiting personal liability of
directors, then the liability of directors shall be eliminated or limited to the
fullest extent permitted by the MBCA as so amended.

          2.   Control Share Acquisitions.  Chapter 7B of the MBCA, known as the
               --------------------------                                       
"Stacey, Bennett, and Randall shareholder equity act," does not apply to control
share acquisitions of shares of the Corporation.

          3.   Amendment of Bylaws.  In furtherance and not in limitation of the
               -------------------                                              
powers conferred by statute, the Board of Directors of the Corporation is
expressly authorized to make, alter or repeal the Bylaws of the Corporation.

                                       3



<PAGE>
 
                                                                    Exhibit 11.1
                           AASTROM BIOSCIENCES, INC.
                         (a development stage company)

            STATEMENT RE COMPUTATION OF PRO FORMA NET LOSS PER SHARE

<TABLE>
<CAPTION>
                                                                                            Three months ended     Six months ended
                                                                                             December 31, 1996    December 31, 1996
                                                                                            ------------------    -----------------
<S>                                                                                         <C>                   <C>
Weighted average number of common shares outstanding                                                 1,755,000            1,754,000
Issuance of Common Stock (1)                                                                           135,000              135,000
Assumed exercise of stock options to purchase Common Stock (1)                                         121,000              121,000
Issuance of Series E Preferred Stock (1)                                                             1,078,000            1,078,000
Weighted average number of common shares representing assumed conversion of Series A,
 Series B, Series C, Series D Preferred Stock from the date of issuance                              7,020,000            7,020,000
                                                                                            ------------------    -----------------
Pro forma weighted average number of common and common equivalent shares outstanding                10,109,000           10,108,000
                                                                                            ==================    =================
Net loss                                                                                    $       (2,889,000)   $      (6,162,000)

                                                                                            ==================    =================
Pro forma net loss per share                                                                $             (.29)   $            (.61)

- ------------                                                                                ==================    =================
</TABLE>

                                        
(1) Represents shares of common stock or common stock equivalents issued
    subsequent to October 1995 at a price per share less than the estimated
    initial public offering price.  Such shares are considered to be cheap stock
    and, accordingly, reflected as outstanding since Inception.





<TABLE> <S> <C>


<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S REGISTRATION STATEMENT ON FORM S1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          JUN-30-1996
<PERIOD-START>                             JUL-01-1996
<PERIOD-END>                               DEC-31-1996
<CASH>                                       4,089,000
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                             4,900,000
<PP&E>                                       2,623,000
<DEPRECIATION>                               1,425,000
<TOTAL-ASSETS>                               6,098,000
<CURRENT-LIABILITIES>                        1,236,000
<BONDS>                                              0
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                 37,718,000
<COMMON>                                       396,000
<OTHER-SE>                                (33,354,000)
<TOTAL-LIABILITY-AND-EQUITY>                 6,098,000
<SALES>                                              0
<TOTAL-REVENUES>                               253,000
<CGS>                                                0
<TOTAL-COSTS>                                6,601,000
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              19,000
<INCOME-PRETAX>                            (6,162,000)
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                        (6,162,000)
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                               (6,162,000)
<EPS-PRIMARY>                                    (.61)
<EPS-DILUTED>                                        0
        

</TABLE>