UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB


(Mark One)

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

                For the quarterly period ended June 30, 2006

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

                For the transition period from ______________ to ______________

                         Commission file number 0-19724



                       PROTEIN POLYMER TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its charter)


             Delaware                                    33-0311631
     (State or other jurisdiction of           (IRS Employer Identification No.)
     incorporation or organization)


                 10655 Sorrento Valley Road, San Diego, CA 92121
                    (Address of principal executive offices)

                                 (858) 558-6064
                           (Issuer's telephone number)


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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
   Yes         No  X
      --------    ----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 14, 2006, 67,424,919
shares of common stock were outstanding.

Transitional Small Business Disclosure Format (check one):  Yes        No  X
                                                               ------    ------


                                       1
<PAGE>


                       Protein Polymer Technologies, Inc.

                                   FORM 10-QSB

INDEX

<TABLE>
<CAPTION>

                                                                                                               Page No.
PART I. FINANCIAL INFORMATION

Item 1.        Financial Statements (Unaudited)

<S>            <C>                                                                                                  <C>
                  Balance Sheets
                           As of June 30, 2006 and December 31, 2005 .................................................3

                  Statements of Operations
                           For the three months and six months ended June 30, 2006 and 2005...........................4

                  Statements of Cash Flows
                           For the six months ended June 30, 2006 and 2005 ...........................................5

                  Notes to Financial Statements.......................................................................6

Item 2.        Management's Discussion and Analysis or Plan of Operation ............................................13

Item 3.        Controls and Procedures...............................................................................20


PART II.       OTHER INFORMATION

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds..........................................21

Item 6.        Exhibits.............................................................................................21

               Signatures...........................................................................................22
</TABLE>



                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements
                       Protein Polymer Technologies, Inc.
                                 Balance Sheets
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                          June 30,        December 31,
                                                                                            2006              2005
                                                                                     --------------------------------------
<S>                                                                                     <C>               <C>
Assets
 Current assets:
    Cash and cash equivalents                                                          $        68,539   $     1,211,748
    Contract receivable                                                                        192,686           113,792
    Current portion of rent receivable                                                          46,051            88,477
    Prepaid expenses and other assets                                                           31,018            32,440
                                                                                     --------------------------------------
 Total current assets                                                                          338,294         1,446,457

 Deposits                                                                                       30,479            29,679
 Notes receivable                                                                              249,942           242,884
 Rent receivable, net of current portion and reserve of $128,273 at June 30, 2006
    and December 31, 2005                                                                            -            26,050
 Technology license agreement                                                                1,078,774         1,106,435
 Equipment and leasehold improvements, net                                                     275,119           292,778
                                                                                     --------------------------------------
 Total assets                                                                          $     1,972,608   $     3,144,283
                                                                                     ======================================

 Liabilities and stockholders' (deficit) equity Current liabilities:
    Accounts payable                                                                   $     1,364,715           420,672
    Accrued expenses                                                                           355,015           381,139
    Current maturities of notes payable                                                      1,028,800           195,565
                                                                                     --------------------------------------
 Total current liabilities                                                                   2,748,530           997,376

    Notes payable, net of current maturities                                                   436,970           323,506
    Deferred rent                                                                               13,245             8,820
                                                                                     --------------------------------------
 Total liabilities                                                                           3,198,745         1,329,702
                                                                                     --------------------------------------

 Stockholders' (deficit) equity:
    Convertible  preferred stock, $.01 par value;  5,000,000 shares  authorized;
      65,645  and 66,045  shares  issued and  outstanding  at June 30,  2006 and
      December 31, 2005, respectively - liquidation preference of $6,564,500 and
      $6,604,500 at June 30, 2006 and December 31, 2005, respectively                        6,019,917         6,059,917
    Common stock, $.01 par value;  225,000,000 shares  authorized,  67,409,204
      shares  issued and  outstanding  at June 30, 2006 and  120,000,000  shares
      authorized, 67,311,408 shares issued and outstanding at December 31, 2005                674,104           673,125
    Additional paid-in capital                                                              55,664,522        54,122,000
    Accumulated deficit                                                                    (63,584,680)      (59,040,461)
                                                                                     --------------------------------------
 Total stockholders' (deficit) equity                                                       (1,226,137)        1,814,581
                                                                                     --------------------------------------
 Total liabilities and stockholders' (deficit) equity                                  $     1,972,608   $     3,144,283
                                                                                     ======================================

</TABLE>

See accompanying notes.


                                       3
<PAGE>


                       Protein Polymer Technologies, Inc.

                            Statements of Operations
                                   (unaudited)

<TABLE>
<CAPTION>
                                                      Three months ended                        Six months ended
                                                           June 30,                                 June 30,
                                                   2006                2005                 2006                2005
----------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>                  <C>                 <C>                 <C>
 Revenues:
    Contract revenue                       $          189,613  $           145,225  $          410,532 $           657,996
    Product and other income                           18,616                  430              37,174               1,101
                                            -------------------- ------------------  ------------------- -------------------
 Total revenues                                       208,229              145,655             447,706             659,097
                                            -------------------- ------------------  ------------------- -------------------


 Operating Expenses:
    Cost of sales                                         838                    -               1,640                    -
    Research and development                        1,148,418              692,408           2,184,858           1,248,376
    Selling, general and administrative               729,902            1,886,704           2,617,214           2,279,997
                                            -------------------- ------------------  ------------------- -------------------
 Total expenses                                     1,879,158            2,579,112           4,803,712           3,528,373

                                            -------------------- ------------------  ------------------- -------------------
 Loss from operations                              (1,670,929)          (2,433,457)         (4,356,006)         (2,869,276)
                                            -------------------- ------------------  ------------------- -------------------

 Other income (expense):
    Interest income                                        56               16,122               2,580              16,201
    Interest expense                                  (90,941)                (249)           (101,842)            (86,874)
                                            -------------------- ------------------  ------------------- -------------------
 Total other expense                                  (90,885)              15,873             (99,262)            (70,673)
                                            -------------------- ------------------  ------------------- -------------------

 Net loss                                          (1,761,814)          (2,417,584)         (4,455,268)         (2,939,949)

 Undeclared, imputed and/or paid
    dividends on preferred stock                       69,220               69,220             226,628             619,261
                                            -------------------- ------------------  ------------------- -------------------

 Net loss applicable to common
    shareholders                           $       (1,831,034)          (2,486,804) $       (4,681,896) $       (3,559,210)
                                            ==================== ==================  =================== ===================

 Basic and diluted net loss per common
    share                                  $            (0.03)               (0.04)  $           (0.07)  $           (0.07)
                                            ==================== ==================  =================== ===================

 Shares used in computing basic and
    diluted net loss per common share              67,350,633           59,687,009          67,331,227          50,044,186
                                            ==================== ==================  =================== ===================

</TABLE>

See accompanying notes.


                                       4
<PAGE>



                       Protein Polymer Technologies, Inc.
                            Statements of Cash Flows
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                                                Six months ended
                                                                                                    June 30,
                                                                                             2006                  2005
                                                                                       ------------------    -----------------
<S>                                                                                 <C>                   <C>
Operating activities
Net loss                                                                            $        (4,455,268)  $       (2,939,949)
Adjustments to reconcile net loss to net cash used for operating activities:
   Warrants issued for services                                                                        -            1,245,295
   Depreciation and amortization                                                                  80,960               16,173
   Share based compensation expense                                                            1,341,765                    -
   Amortization of discounts on notes payable                                                          -               56,493
   Amortization of loan fees                                                                      69,608                    -
Changes in operating assets and liabilities:
   Deposits                                                                                        (800)                (800)
   Prepaid expenses                                                                                1,422             (38,467)
   Rent receivable                                                                                58,428               20,000
   Contracts receivable                                                                         (68,846)            (100,225)
   Accounts payable                                                                              944,042               26,885
   Deposits payable                                                                                    -             (33,000)
   Accrued expenses                                                                             (26,123)               24,351
   Deferred revenue                                                                                    -            (102,784)
   Deferred rent                                                                                   4,425                    -
                                                                                       ------------------    -----------------
       Net cash used for operating activities                                                (2,050,387)          (1,826,028)
Investing activities
   Purchase of equipment and improvements                                                       (35,641)            (121,242)
   Issuance of notes receivable                                                                  (7,058)                    -
                                                                                       ------------------    -----------------
       Net cash used for investing activities                                                   (42,699)            (121,242)

Financing activities
   Net proceeds from exercise of options and warrants
       and sale of common stock                                                                    3,177            6,422,053
   Net proceeds from issuance of secured note                                                    946,700                    -
   Net proceeds from issuance of debt - related party                                                  -              260,000
   Payments on notes payable - related party                                                           -            (150,000)
                                                                                       ------------------    -----------------
       Net cash provided by financing activities                                                949,877             6,532,533
                                                                                       ------------------    -----------------

Net increase (decrease) in cash and cash equivalents                                         (1,143,209)            4,584,783
Cash and cash equivalents at beginning of the period                                           1,211,748               82,222
                                                                                       ------------------    -----------------
Cash and cash equivalents at end of the period                                      $             68,539  $         4,667,005
                                                                                       ==================    =================

Supplemental disclosures of cash flow information
   Interest paid                                                                    $              3,282  $            86,874
Non cash investing and financing activity
   Imputed dividend on extension of warrants                                        $             88,950  $                 -
   Conversion of Series G preferred stock to common stock                           $             40,000  $            20,000
   Conversion of Series I preferred stock to common stock                           $                  -  $         1,650,000
   Conversion of notes payable and accrued interest to common stock and warrants    $                  -  $         1,213,855
   Imputed dividend on warrant repricing                                            $                  -  $           481,522
   Warrants issued for loan fees                                                    $             69,608  $           608,371
</TABLE>

See accompanying notes.


                                       5
<PAGE>


                       Protein Polymer Technologies, Inc.
                     Notes to Unaudited Financial Statements

Note 1.    Basis of Presentation

Interim Financial Statements

The financial statements of Protein Polymer  Technologies,  Inc. (the "Company")
for the three and six months ended June 30, 2006 are unaudited.  These financial
statements  reflect  all  adjustments,   consisting  of  only  normal  recurring
adjustments  which, in the opinion of management,  are necessary to state fairly
the financial  position,  results of  operations  and cash flows for the interim
period presented. The balance sheet as of December 31, 2005 was derived from the
Company's audited financial statements.  The results of operations for the three
and six months ended June 30, 2006 are not necessarily indicative of the results
to be expected for the year ending December 31, 2006. These financial statements
and the notes thereto should be read in conjunction  with the audited  financial
statements  included in our Annual Report on Form 10KSB and 10KSB/A for the year
ended December 31, 2005, filed with the Securities and Exchange Commission.

Going Concern and Liquidity

The  accompanying  financial  statements  have been  prepared on a going concern
basis,  which  contemplates  the  realization of assets and the  satisfaction of
liabilities in the normal course of business.  For the six months ended June 30,
2006, the Company  incurred a net loss of approximately  $4,455,000.  As of June
30, 2006 we have a working capital deficit of  approximately  $2.4 million.  Our
cash and cash equivalents of  approximately  $68,000 in combination with (i) the
balance  remaining  from a secured loan that  provides for advances  aggregating
$1,500,000  which is due in  October,  2006,  as amended,  and (ii)  anticipated
additional  contract  and  license  payments,  will be  sufficient  to meet  our
anticipated capital requirements only through the end of September 2006.

Prior to the commercialization of its products,  substantial  additional capital
resources  will  be  required  to  fund  continuing  operations  related  to the
Company's research, development,  manufacturing,  clinical testing, and business
development  activities.   The  Company  believes  there  may  be  a  number  of
alternatives  available  to meet  the  continuing  capital  requirements  of its
operations,  such as collaborative  agreements and public or private financings.
Further,  the  Company  is  currently  in  discussions  with  several  potential
financing sources and  collaborative  partners and funding in the form of equity
investments, debt instruments,  license fees, milestone payments or research and
development  payments could be generated.  There can be no assurance that any of
these potential  sources of funds will be realized in the time frames needed for
continuing operations or on terms favorable to the Company. If adequate funds in
the future are not  available,  the Company  will be  required to  significantly
curtail  its  operating  plans and may have to sell or license  out  significant
portions of the Company's technology or potential products,  or obtain a secured
private financing or possibly cease operations.  These factors raise substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
accompanying  financial  statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

Note 2.    Recent Accounting Pronouncements

In February 2006, the Financial  Accounting  Standards  Board ("FASB")  released
Statement of Financial  Accounting  Standard  ("SFAS") No. 155,  Accounting  for
Certain  Hybrid  Financial  Instruments,  ("SFAS No.  155").  SFAS No. 155 is an
amendment of SFAS No. 133,  Accounting  for Derivative  Instruments  and Hedging
Activities,  and SFAS  No.  140,  Accounting  for  Transfers  and  Servicing  of
Financial Assets and  Extinguishments of Liabilities.  SFAS No. 155 establishes,
among other items, the accounting for certain  derivative  instruments  embedded
within other types of financial  instruments;  and,  eliminates a restriction on
the passive derivative instruments that a qualifying  special-purpose entity may
hold.  Effective for the Company  beginning January 1, 2007, SFAS No. 155 is not
expected  to have any impact on the  Company's  financial  position,  results of
operations or cash flows.

In March 2006,  the FASB  released  SFAS No. 156,  Accounting  for  Servicing of
Financial Assets, an amendment of SFAS Statement No. 140, ("SFAS No. 156"). SFAS
No. 156 amends SFAS No. 140 to require that all separately  recognized servicing
assets and liabilities in accordance with SFAS No. 140 be initially  measured at
fair value, if practicable.  Furthermore,  this standard  permits,  but does not
require,  fair value measurement for separately  recognized servicing assets and
liabilities in subsequent reporting periods.  SFAS No. 156 is also effective for
the Company beginning January 1, 2007; however,  the standard is not expected to
have an impact on the Company's financial position, results of operation or cash
flows.

In the first quarter of 2006, the Company  adopted SFAS No. 154,  Accounting for
Changes and Error  Corrections--a  replacement  of Accounting  Principals  Board
(APB)  Opinion No. 20 and SFAS  Statement No. 3 , ("SFAS No. 154") which changed
the  requirements  for the accounting for and reporting of a voluntary change in
accounting  principle.  The Company also adopted  Statement  No. 151,  Inventory
Costs--an amendment of ARB No. 43, Chapter 4 ("SFAS No. 151") which, among other
changes,  requires certain abnormal expenditures to be recognized as expenses in
the current period versus capitalized as a component of inventory.  The adoption
of SFAS No.  154 did not  impact  the  results  presented  and the impact on any
future  periods  will  depend  on the  nature  and  significance  of any  future
accounting  changes subject to the provisions of the statement.  The adoption of
SFAS No.  151 did not have  any  impact  on the  Company's  financial  position,
results of operations or cash flows.

In June 2006, the FASB issued  Interpretation No. 48, Accounting for Uncertainty
in Income Taxes - an  interpretation  of FASB Statement No. 109, ("FIN 48"). FIN
48 clarifies the accounting for uncertainty in tax positions and requires that a
Company recognize in its financial  statements the impact of a tax position,  if
that position is more likely than not of being sustained on audit,  based on the
technical  merits of the  position.  The  provisions of FIN 48 are effective for
fiscal years  beginning  after  December 15, 2006. The adoption of FIN 48 is not
expected  to have any impact on the  Company's  financial  position,  results of
operations or cashflows.



                                       6
<PAGE>


                       Protein Polymer Technologies, Inc.

                     Notes to Unaudited Financial Statements



Note 3.    Accounting for Stock-Based Compensation

On January 1, 2006, the Company adopted SFAS No.123 (Revised 2004), "Share Based
Payment," ("SFAS 123R"),  using the modified  prospective  method. In accordance
with SFAS No. 123R, the Company measures the cost of employee  services received
in exchange  for an award of equity  instruments  based on the  grant-date  fair
value of the award.  That cost is  recognized  over the period  during  which an
employee  is  required  to  provide  service  in  exchange  for the  award - the
requisite  service period.  The Company  determines the grant-date fair value of
employee share options using the Black-Scholes option-pricing model.

Under the modified prospective approach, SFAS No. 123R applies to new awards and
to awards  that  were  outstanding  on  January  1,  2006 that are  subsequently
modified,  repurchased or cancelled.  Under the modified  prospective  approach,
compensation  cost  recognized  for the first  quarter of fiscal  2006  includes
compensation  cost for all  share-based  payments  granted prior to, but not yet
vested on,  January 1, 2006,  based on the  grant-date  fair value  estimated in
accordance with the pro forma provisions of SFAS No. 123R, and compensation cost
for all share-based payments granted subsequent to January 1, 2006, based on the
grant-date  fair value  estimated in accordance  with the provisions of SFAS No.
123R.  Prior periods were not restated to reflect the impact of adopting the new
standard.  During  the three and six month  periods  ended  June 30,  2006,  the
Company recorded  $303,000 and $1,342,000,  respectively in non-cash charges for
the   implementation  of  SFAS  No.  123R.  As  of  June  30,  2006,  there  was
approximately  $359,000  of total  unrecognized  compensation  costs  related to
unvested options.

The Company has granted an option to  purchase  330,000  shares of common  stock
during  2006.  The fair  value of stock  options  granted  in 2005 and 2006 were
estimated using the Black-Scholes model with the following assumptions: expected
volatilities  ranging from 90% to of 210%,  expected term of 3 years,  risk-free
interest rates ranging from 3.50% to 5.08%,  and expected  dividend yield of 0%.
Expected  volatility is based on the  historical  volatilities  of the Company's
common stock.  The expected life of employee  stock options is determined  using
historical  data of employee  exercises and  represents  the period of time that
stock  options are expected to be  outstanding.  The risk free  interest rate is
based on U.S.  Treasury  constant  maturity for the  expected  life of the stock
option.


                                       7
<PAGE>



                       Protein Polymer Technologies, Inc.

                     Notes to Unaudited Financial Statements

The following  table  summarizes  the stock option  transactions  during the six
months ended June 30, 2006:


<TABLE>
<CAPTION>
                                                  -----------------------------------------------------------
                                                                                                 Weighted
                                                                                                  average
                                                                             Weighted            remaining
                                                                              Average           contractual
                                                                             Exercise              life
                                                        Shares                 Price            (in years)
                                                  -----------------      ---------------    -----------------
<S>                                                   <C>                      <C>                 <C>
Options outstanding at January 1, 2006                12,638,082               $0.72               7.93
Options granted                                          330,000               $0.20                 -
Options exercised                                          -                     -                   -
Options terminated                                      (388,500)              $1.56                 -
Options outstanding at June 30, 2006                  12,579,582               $0.66               6.91
Options exercisable at June 30, 2006                  11,170,185               $0.70               6.73
</TABLE>

Prior to January 1, 2006,  the Company  accounted for  stock-based  compensation
using the intrinsic value method  prescribed in APB Opinion No. 25,  "Accounting
for Stock Issued to Employees," and related  interpretations.  Had  compensation
cost for the plan been determined  based on the fair value of the options at the
grant  dates  consistent  with the  method  of SFAS  No.  148,  "Accounting  for
Stock-Based  Compensation - Transition and Disclosure - an Amendment of SFAS No.
123," the Company's net earnings and earnings per share would have been:


<TABLE>
<CAPTION>
                                                             For the Three       For the Six
                                                             Month Ended         Month Ended
                                                             June 30, 2005       June 30, 2005

<S>                                                      <C>                    <C>
           Net loss available to common shareholders     $     (2,486,804)      $      (3,559,210)

           Deduct: Total stock-based employee
           compensation expense determined under fair
           value based method for all awards, net of
           related tax effects                                   (149,112)               (272,764)
                                                            ---------------       -----------------

                  Pro forma net loss                     $     (2,635,916)      $      (3,831,974)
                                                            ===============       =================

           Basic and diluted loss per share                        $(0.04)                 $(0.07)
                                                            ===============       =================
           Pro forma basic and diluted loss per share              $(0.04)                 $(0.08)
                                                            ===============       =================
</TABLE>


The pro forma  compensation  costs  presented  above were  determined  using the
weighted average fair values of options granted under the Company's stock option
plans. The fair value of the grants was estimated using the Black-Scholes option
pricing model with the following weighted-average  assumptions.  The assumptions
utilized for 2005 were:

         Expected life                3
         Risk-free interest rate     3.50%
         Dividend yield               -
         Volatility                  210%


                                       8
<PAGE>


                       Protein Polymer Technologies, Inc.

                     Notes to Unaudited Financial Statements

Note 4.    Revenue Recognition

Research and development  contract revenues are recorded as earned in accordance
with the terms and performance  requirements  of the contracts.  If the research
and development  activities are not  successful,  we are not obligated to refund
payments  previously  received.  Fees from the sale or license of technology are
recognized  on a  straight-line  basis over the term  required to  complete  the
transfer  of  technology  or the  substantial  satisfaction  of any  performance
related  responsibilities.  License fee payments  received in advance of amounts
earned are  recorded as deferred  revenue.  Milestone  payments  are recorded as
revenue based upon the  completion  of certain  contract  specified  events that
measure progress toward  completion under certain long-term  contracts.  Royalty
revenue related to licensed technology is recorded when earned and in accordance
with  the  terms  of the  license  agreement.  Revenue  from  product  sales  is
recognized at the time product is shipped.

Note 5.    Promissory Notes Receivable

On July 12, 2005,  the Company  entered into a  non-binding  letter of intent to
acquire   Surgica   Corporation,   a  medical   device  company  that  develops,
manufactures  and  markets  embolization  products.  The  letter of  intent  was
extended by mutual  agreement until December 12, 2005. On December 19, 2005, the
Company entered into a technology license agreement with Surgica (see Note 10)


As  specified  in the Letter of Intent,  the Company  agreed to advance  Surgica
certain funds for on-going operations in return for Promissory Notes. As of June
30, 2006,  the Company had loaned  Surgica a total of $238,000.  The  Promissory
Notes are due and payable on January 5, 2008.  Interest on the unpaid balance of
each Promissory Note accrues at the rate of 6.00% per annum, payable annually on
the 5th day of  January,  from the date of  issuance  through  the date that the
principal of the Promissory  Note is paid in full. As of June 30, 2006,  Surgica
accrued $12,100 in interest receivable.


Note 6.    Rent Receivable

The Company  subleases  6,183 square feet of its office and research  facilities
under a month to month  arrangement for $13,000 per month plus  utilities.  From
December 2002 until July 2004,  the sub-lessee was unable to make monthly rental
payments as the result of funding  deficiencies.  In August 2004 the  sub-lessee
resumed making rental payments and as of September 2004 an additional $5,000 per
month is being paid as credit against previous rental  obligations.  Obligations
under the sublease are secured by certain  listed  property and equipment of the
sub-lessee.  At June 30, 2006 the current  portion due from the  sub-lessee  was
$46,100  and  the   long-term   portion  was  $128,000  and  an  allowance   for
collectibility of $128,000.

Note 7. Equipment and Leasehold Improvements

Equipment  and  leasehold  improvements  at June 30, 2006 are  comprised  of the
following:

<TABLE>
<CAPTION>

                                                               June 30,       December 31,
                                                                 2006             2005
                                                            --------------- -----------------
<S>                                                             <C>               <C>
Laboratory equipment                                        $    1,376,000  $      1,375,000
Office equipment                                                   220,000           218,000
Leasehold improvements                                             361,000           329,000
                                                            --------------- -----------------
                                                                 1,957,000         1,922,000
Less accumulated depreciation and amortization                  (1,682,000)       (1,629,000)
                                                            --------------- -----------------
                                                            $      275,000  $        293,000
                                                            =============== =================
</TABLE>

Depreciation  expense was $26,000 and $53,000 for the three and six months ended
June 30, 2006, respectively.

Note 8.    Warrants

In January 2004, certain holders of warrants issued in conjunction with the sale
of the Company's  Series G convertible  preferred stock exercised their warrants
to purchase  855,303 shares of the Company's  common stock.  These warrants were
due to expire on January 31, 2005. The exercise price of such warrants was $0.55
per share. In order to induce the warrant


                                       9
<PAGE>


                       Protein Polymer Technologies, Inc.

                     Notes to Unaudited Financial Statements

holders to exercise their  warrants  prior to the  expiration  date, the Company
offered to reduce the  exercise  price of the  warrants  from $0.55 to $0.33 per
share and offered  each  warrant  holder a new  warrant,  for the same number of
shares of the Company's  common stock,  at an exercise price of $0.50 per share.
As a result, the Company raised $282,000.  The newly issued warrants were set to
expire  January 31,  2006.  In  connection  with the  repricing  and issuance of
additional  warrants to the investors,  the Company recorded an imputed dividend
of $482,000  during the first quarter of 2005 to reflect the additional  benefit
created for such  investors.  The newly  issued  warrants'  expiration  date was
extended  from  January 31, 2006 to January 31,  2007.  The Company  recorded an
imputed  dividend of $89,000 in the quarter ending March 31, 2006 to reflect the
additional benefit created for the investors.

In connection with the issuance of the secured promissory note in April 2006 the
Company  granted the note holder a warrant,  which expires on April 30, 2009, to
purchase an  aggregate  of 500,000  shares of the  Company's  common stock at an
exercise price of $0.30 per share. The Company  recognized the warrant's imputed
fair market of approximately  $70,000 as additional  interest expense during the
quarter ended June 30, 2006.

Note 9.    Notes Payable

On December 19, 2005,  in connection  with the Surgica  License  Agreement,  the
Company  assumed  several notes payable  agreements.  The notes bear interest at
rates ranging from 6% to 10%, and mature at various dates through January 2009.

On April 21, 2006, the Company  entered into a Security  Agreement and a secured
promissory  note, each dated as of April 13, 2006,  with an accredited  investor
pursuant  to which  the  investor  loaned  the  Company  a total  of  $1,000,000
($500,000 in cash and an additional $500,000 deposited with an escrow agent as a
line of credit) in exchange for (i) a warrant to purchase  500,000 shares of the
Company's commons stock (see Note 8) and (ii) a continuing  security interest in
and a general lien upon (A) 1,000,000  shares of Spine Wave, Inc. ("SWI") common
stock owned by the Company; (B) a warrant,  expiring April 30, 2009, to purchase
1,000,000 shares of Spine Wave, Inc. common stock owned by the Company currently
set to expire  September 21, 2006; and (C) all U.S.  patents owned.  The secured
promissory  note is due on July  7,  2006.  At June  30,  2006  the  outstanding
advances to date were $946,700.

Pursuant to the terms of the  Security  Agreement,  the Company  entered  into a
patent  security  agreement,  an  escrow  agreement,  patent  assignment,  and a
registration rights agreement, each dated as of April 13, 2006. According to the
terms of the Security  Agreement,  the Company entered into the Escrow Agreement
with an escrow agent for the  investor.  The Escrow  Agreement  provides for the
disbursement of the funds held in escrow for application to Company  expenses at
the sole discretion of the investor's designee.  The Escrow Agreement terminates
upon the event that the amount  borrowed is paid in full and no event of default
has occurred.

During July and August,  2006 the Promissory Note was amended to provide for the
extension  of the note's  maturity to October 10, 2006 and  increase the maximum
borrowings under the Security Agreement to $1,500,000.  In connection with these
amendments the Company agreed to pay an additional $30,000 of interest.


As of June 30, 2006 the current and long term note balances were  $1,029,000 and
$437,000, respectively.

                   Quarter ending          Notes payable
                      June 30,              Maturities
                ---------------------     ---------------
                        2007          $        1,029,000
                        2008                      88,000
                        2009                     349,000
                                          ---------------
                  Total maturities    $        1,466,000
                                          ===============


                                       10
<PAGE>



                       Protein Polymer Technologies, Inc.

                     Notes to Unaudited Financial Statements

Note 10.   Technology License Agreement

On December 19, 2005, the Company entered into a License  Agreement with Surgica
Corporation  ("Surgica"),  a medical device company that develops,  manufactures
and  markets  embolization  products.   Embolization  is  a  minimally  invasive
procedure,  generally  performed by interventional  radiologists,  used to treat
uterine fibroids, liver cancer and neurovascular malformations.  Pursuant to the
License  Agreement,  the Company acquired  exclusive  marketing and distribution
rights  to  Surgica's  three  embolization  products,  one  issued  patent,  and
technical  and market  know-how.  Concurrent  with the  signing  of the  License
Agreement,  the Company closed a previously  entered into Asset Purchase  Option
Agreement ("Option  Agreement") and entered into a Supply and Services Agreement
("Supply Agreement") with Surgica (See Note 12).

The Company  capitalized a total of approximately  $1,106,000 in connection with
this agreement based on cash consideration  paid in the amount of $385,000,  the
assumption   of  certain   liabilities   of  Surgica   totaling   $521,000   and
indemnification of contingent liabilities up to a maximum of $200,000. Under the
terms of the License Agreement,  the agreement will continue,  unless terminated
earlier in accordance with its terms, for twenty (20) years.

Furthermore,   the  agreement   provides  that  the  License   Agreement   shall
automatically  terminate  and be  effectively  assigned  to the  Company  if the
Company  exercises  its option to purchase the assets of the Licensor  under the
Option  Agreement,  and that in the event the  Company  does not  exercise  this
option,  the parties shall negotiate in good faith for the  re-conveyance of the
license to the Licensor.  The total  capitalized  amount is being amortized on a
straight  line  basis  over the  initial  twenty  (20) year term of the  License
Agreement, with amortization commencing on January 1, 2006.

In addition to the cash  payments and  assumption  of certain  liabilities,  the
License  Agreement  provides  for  Surgica to  receive a royalty of  twenty-five
percent (25%) of net profits,  if any, on revenues  generated by the sale by the
Company of Surgica products.

Technology license agreement consists of the following at June 30, 2006 :

        Technology license agreement            $  1,106,000
        Less accumulated amortization                (27,000)
                                                   ----------
                                                $  1,079,000
                                                   ==========

Amortization  expense  was  $14,000 and $27,000 for the three and six ended June
30, 2006, respectively.

Note 11.   Contracts Receivable

Under an existing Supply and Services agreement with Spine Wave Corporation, the
Company  provides  various  research  and  development  services  for Spine Wave
including the production of product used in Spine Wave's clinical trials.  These
services are billed upon the completion of various agreed upon work products. On
June 30, 2006, the Company had outstanding  Spine Wave invoices in the amount of
approximately $193,000.

Note 12.   Commitments

Indemnification Against Claims related to License Agreement

In connection  with the License  Agreement  (See Note 10), the Company agreed to
indemnify  Surgica for up to $200,000 in connection  with claims by the Sapphire
Group LLC for fees owed  pursuant to an Engagement  Letter  entered into between
Surgica and the  Sapphire  Group LLC,  as a result of  agreements  entered  into
between Surgica and the Company. A former Director of the Company is a principal
of the Sapphire Group LLC.

Asset Purchase Option Agreement

On  December  19,  2005 the Company  closed the Option  Agreement  that had been
entered into with  Surgica on November  23, 2005.  Under the terms of the Option
Agreement,  the Company has the right to acquire substantially all of the assets
of Surgica for 2,000,000  shares of the  Company's  common stock and a potential
future incentive  issuance of additional shares of the Company's common stock ("
Earn-out  Shares"),  based on the future sales performance of Surgica's products
during


                                       11
<PAGE>


the first quarter of 2007. The additional  shares of Earn-out  common stock will
be issued,  if at all, only if the average sales per quarter from the operations
to be  transferred  from  Surgica  to us for the first  (1st) and  second  (2nd)
quarters of 2007 are equal to or greater than a  predetermined  set amount.  The
Option Agreement is exercisable, at our sole discretion, for a term of up to two
(2) years from December 19, 2005.  Once Surgica is given notice of the Company's
intent to exercise the option, if at all, the exercise of the option itself will
be subject to approval by Surgica's stockholders.

Supply and Services Agreement

On December 19, 2005 the Company  entered into a Supply  Agreement with Surgica.
Under the terms of the Supply Agreement, Surgica is obligated to provide product
development  and  manufacturing  services  to the  Company  and the  Company  is
obligated to fund monthly  operating costs of Surgica up to amounts specified in
Supply Agreement,  and purchase products for sale and for clinical use at prices
specified  in the  Supply  Agreement.  Pursuant  to  the  terms  of  the  Supply
Agreement, the Company is obligated to fund annual operating costs of Surgica of
up to approximately $800,000 during 2006.  Thereafter,  the Company's obligation
to fund Surgica's  operating  costs is subject to a future  determination  to be
made based on mutually agreed upon operating budgets.


                                       12
<PAGE>


Item 2. Management's  Discussion and Analysis or Plan of Operation

Forward Looking Statements

Certain  statements  contained or  incorporated  by reference in this  Quarterly
Report on Form 10-QSB constitute "forward-looking statements" within the meaning
of the Private  Securities  Litigation Reform Act of 1995. Such  forward-looking
statements involve known and unknown risks, uncertainties and other factors that
may cause  actual  results,  performance  or  achievements  of the  company,  or
industry  results,   to  be  materially   different  from  any  future  results,
performance or achievements expressed or implied by forward-looking  statements.
Such risks and uncertainties include, among others, history of operating losses,
raising  adequate  capital  for  continuing  operations,  early stage of product
development,  scientific and technical  uncertainties,  competitive products and
approaches,  reliance upon  collaborative  partnership  agreements  and funding,
regulatory   testing  and  approvals,   patent   protection   uncertainties  and
manufacturing  scale-up  and  required  qualifications.  While these  statements
represent  management's current judgment and expectations for the company,  such
risks and uncertainties could cause actual results to differ materially from any
future results  suggested herein. We undertake no obligation to release publicly
the results of any  revisions  to these  forward-looking  statements  to reflect
events or circumstances arising after the date hereof.

General Overview

Protein Polymer  Technologies,  Inc, is a  biotechnology  company engaged in the
research, development, production and clinical testing of medical products based
on materials created from our patented  technology to produce proteins of unique
design.  Additionally,  we are committed to the acquisition of  faster-to-market
medical products in certain  complementary  growth markets.  Since 1992, we have
focused  primarily  on  developing  technology  and products to be used for soft
tissue augmentation,  tissue adhesives and sealants;  wound healing support; and
drug  delivery  devices.  We  recently  acquired an  exclusive  license to three
FDA-cleared arterial  embolization  products and related technology from Surgica
Corporation. The transaction also included an option to acquire all of Surgica's
assets (See "Significant Collaborative Agreements:  Surgica Corporation" below).
We have been  unprofitable  to date,  and as of June 30, 2006 had an accumulated
deficit of approximately $64 million.

Protein polymers are synthetic  proteins created "from scratch" through chemical
DNA (gene)  synthesis,  and  produced  in quantity  by  traditional  large-scale
microbial  fermentation methods. As a result,  protein polymers contain no human
or animal  components that could potentially  transmit or cause disease.  Due to
their synthetic design, protein polymers are capable of combining the biological
functionality   of  natural  proteins  with  the  chemical   functionality   and
exceptional  physical properties of synthetic  polymers.  Our primary goal is to
develop  medical  products for use inside the body with  significantly  improved
outcomes as compared to current products and practices.

Our product  candidates for surgical  repair,  augmentation  and regeneration of
human  tissues  are in various  stages of  research  and  development.  The more
advanced programs are bulking agents for soft tissue augmentation,  particularly
for use in urethral  tissue for the  treatment  of female  stress  incontinence,
tissue  adhesive  formulations  for the repair of spinal  discs  damaged  due to
injury or aging, and preclinical  development of a new surgical sealant designed
to  prevent  air  and  fluid  leaks   following  lung,   gastrointestinal,   and
cardiovascular  surgery. We currently are devoting the majority of our resources
to the  development  and FDA approval of these  products,  and to the commercial
launch of the three Surgica embolization products.

Because of our technology's breadth of commercial  opportunity,  we are pursuing
multiple routes for commercial  development.  Currently,  we  independently  are
developing the incontinence  urethral bulking product and the surgical  sealant.
We have  established a  comprehensive  license and  development  agreement  with
Genencor  International  for the use of our materials and technology to develop,
manufacture  and  commercialize   products  for  industrial  markets.   Genencor
International is one of the world's largest  manufacturers of industrial enzymes
and other  biologically  derived products.  Through this  arrangement,  we could
receive milestone payments, and eventually royalties on the sale of products, if
any. For development and commercialization of our spinal disc repair product, we
entered into agreements with Spine Wave,  Inc.,  which we expect will provide us
with both near term research and development support and eventually royalties on
the sale of licensed products, if any.


                                       13
<PAGE>


Recent Events:  Thuris Corporation

On November  21,  2005,  we entered  into a  non-binding,  letter of intent with
Thuris Corporation. Thuris is a privately held biopharmaceutical company focused
on medical device  solutions to aid in drug development and diagnosis of Central
Nervous  System  (CNS)  disorders   including  Mild  Cognitive   Impairment  and
Alzheimer's  disease.  Thuris is also developing  pharmaceuticals for select CNS
orphan  and  niche  indications  including  ischemia-related  conditions,  brain
inflammation and Huntington's disease.  Under the terms of the letter of intent,
a  wholly-owned  subsidiary  formed by us would  merge into  Thuris  which would
thereafter be our wholly-owned subsidiary. The stockholders,  option holders and
warrant holders of Thuris would receive from us, in exchange for their holdings,
a number of shares of our common stock,  or common stock  equivalents,  equal to
between 30% and 50% of our  outstanding  capital  stock,  calculated  on a fully
diluted basis.

On July 28, 2006 we announced that we had  discontinued  discussions of a merger
with Thuris.

Significant Collaborative Agreements

Our  collaborative  development  agreements  generally  contain  provisions  for
specific payments for defined  activities,  services,  royalties on the sales of
developed products,  and/or the accomplishment of performance benchmarks.  These
agreements   also  may  provide  for  equity   investments  or  other  financial
incentives.   Technology   license   agreements  are  usually   associated  with
collaborative  development  agreements,  but  occasionally  we will  agree  to a
license without an accompanying development agreement.

Surgica Corporation
-------------------

On  November  23,  2005,  we entered  into an Asset  Purchase  Option  Agreement
("Option  Agreement"),  with Surgica Corporation  ("Surgica"),  a medical device
company  that  develops,   manufactures  and  markets   embolization   products.
Embolization  is  a  minimally  invasive   procedure,   generally  performed  by
interventional  radiologists,  used to treat uterine fibroids,  liver cancer and
neurovascular malformations.  Pursuant to the Option Agreement we were granted a
one-year option (which may be extended by one year at our discretion) to acquire
substantially  all of Surgica's assets in exchange for two million shares of our
common stock and a potential  future  incentive  issuance of  additional  common
stock based on the future sales  performance  of Surgica's  products  during the
first quarter of 2007.

On  December  19,  2005,  we  entered  into a License  Agreement  and Supply and
Services agreement with Surgica,  pursuant to which we acquired exclusive rights
to Surgica's technology and products. Upon execution and delivery of the License
Agreement,  Surgica  transfered  to  us  its  PVA  Plus(TM),  MaxiStat(TM),  and
MicroStat(TM)  510(k) clearances from the FDA by delivering a duly executed bill
of sale and assignment. Other agreements executed concurrently included: (i) the
consent of  AngioDynamics,  Inc.  for the  assignment  by Surgica to us of their
distributor  agreement,  dated as of June 28, 2002; (ii) a voting agreement (and
proxy) between us and Louis R. Matson;  Surgica's  President and Chief Executive
Officer and majority shareholder;  (iii) an employment agreement between Surgica
and Louis R. Matson to expire no later than  December 31, 2007;  and (iv) a side
letter agreement between us and Louis R. Matson representing that, to his actual
knowledge,  each of the  representations  and warranties of Surgica set forth in
the Option  Agreement was true and correct at the date the Option  Agreement was
executed. The following is a brief summary of the transaction.

Asset Purchase Option  Agreement.  Under the terms of the Option  Agreement,  we
have the option to acquire  substantially all of the assets of Surgica for (i) 2
million  shares of our common  stock and (ii) a  potential  earn out  payment of
additional  shares of our common stock based on the future sales  performance of
Surgica's  products  during the first  quarter of 2007.  The earnout  payment of
additional shares of our common stock, if any, will be determined in part on the
price per share of our common stock based on the 90 day prior  average  price of
our common  stock as of April 1, 2007.  The option is  exercisable,  at our sole
discretion,  for a term of up to two (2) years  from  December  19,  2005.  Once
Surgica is given  notice of our intent to exercise  the option,  if at all,  the
exercise  of the  option  itself  will  be  subject  to  approval  by  Surgica's
stockholders.  There would be no affect whatsoever if we decided not to exercise
the asset purchase option.

License  Agreement  and Supply and  Services  Agreement.  Under the terms of the
License Agreement,  we acquired exclusive rights to Surgica's three embolization
products, one issued patent, and technical and market know-how in return for (i)
the assumption of approximately $522,000 of certain Surgica liabilities,  (ii) a
cash payment to Surgica of approximately  $385,000, and (iii) in connection with
the  license  agreement,  the  company  agreed to  indemnify  Surgica  for up to
$200,000 in connection with claims by a third party for fees owed pursuant to an
engagement  letter entered into between  Surgica and the third party as a result
of agreements  entered into between Surgica and the Company.  Under the terms of
the Supply and Services agreement and License Agreement, Surgica is obligated to
provide  its goods and  services,  including  further  product  development,  in
exchange for (i) operating payments to Surgica and (ii) a royalty of twenty-five
percent  (25%) of net  profits,  if any,  on revenues  generated  by the sale of
Surgica products.


                                       14
<PAGE>


Employment Agreement.  Under the terms of the Option Agreement,  Louis R. Matson
and Surgica  entered into an employment  agreement  that  provides,  among other
things, that Louis R. Matson (i) retain the title of President of Surgica;  (ii)
be paid a specified base salary;  and (iii) be employed until December 31, 2007,
unless  terminated  prior to such date. It is currently  contemplated  that this
employment  agreement will be assumed by us or a wholly-owned  subsidiary of the
Company if and when we exercise the option.

Voting Agreement and Proxy. As a condition of the Option  Agreement,  we entered
into a voting  agreement  pursuant to which  Louis R. Matson  agreed to vote all
shares of  Surgica  that he may own (i) in favor of the  adoption  of the Option
Agreement;  (ii) in  favor of  adoption  of the  Asset  Purchase  Agreement  and
approval  of the  acquisition  contemplated  thereby  but only to the extent the
option  is  exercised  by the  Company;  (iii)  against  any  proposal  for  any
acquisition  transaction,  other than the  acquisition,  between Surgica and any
person  other than us and/or a  wholly-owned  subsidiary;  and (iv)  against any
other  action or  agreement  that  would  result  in a breach  of any  covenant,
representation or warranty or any other obligation or agreement of Surgica under
the Option Agreement or Asset Purchase Agreement or which would result in any of
the conditions to the consummation of the  effectiveness of the option under the
Option Agreement or the acquisition under the Asset Purchase Agreement not being
fulfilled. Concurrently with the execution of the voting agreement, and pursuant
to the voting  agreement's terms, Louis R. Matson delivered to us an irrevocable
proxy  appointing  the Company as the sole and  exclusive  attorney and proxy of
Louis R. Matson, with full power of substitution and resubstitution, to vote and
exercise  all voting and related  rights  with  respect to all shares of Surgica
that he may own in accordance with (ii), (iii), and (iv) above.

Asset Purchase Agreement. Pursuant to the terms of the Option Agreement, we will
have up to two years from  December  19,  2005 to exercise an option to purchase
substantially  all of the assets of Surgica in exchange for 2 million  shares of
our common stock and a potential future incentive  issuance of additional shares
of the Company's common stock based on the future sales performance of Surgica's
products  during the first  quarter of 2007 which will be subject to a number of
conditions precedent, including approval by Surgica's stockholders.  Pursuant to
the  terms  of  the  Asset  Purchase  Agreement,   the  shares  will  constitute
"restricted  securities"  as that term is defined in  Section  144(a)(3)  of the
Securities  Act of 1933,  as amended,  and will be restricted as to their resale
for a period of at least one hundred  eighty  (180) days from the date the Asset
Purchase Agreement is executed.

The additional shares of our common stock will be issued, if at all, only if the
average sales per quarter from the operations to be transferred  from Surgica to
us for the first (1st) and second (2nd) quarters of 2007 are equal to or greater
than a predetermined set amount.

Each of the Option Agreement,  license agreement,  supply and services agreement
and Asset Purchase  Agreement contain  representations  and warranties by us and
Surgica customary for transactions of this type.

Spine Wave
----------

In April 2001, we entered into agreements with Spine Wave,  Inc., to develop and
commercialize an injectable  protein-based  formulation for the repair of spinal
discs damaged either by injury or aging. As  consideration  for entering into an
exclusive,  worldwide license agreement with Spine Wave, we received one million
shares of the founding common stock in Spine Wave,  valued initially at $10,000.
The shares of founding common stock were subject to a vesting schedule; however,
Spine Wave's right to repurchase  unvested shares  terminated in 2002 upon their
merger with VERTx,  Inc.  Royalties  from the sale or  sublicensing  of licensed
products  will be  determined  in the future  based on the gross  margin  (sales
revenue  less the cost of  goods)  realized  by Spine  Wave from the sale of the
products, if any.

In connection with the license agreement,  we entered into a separate supply and
services  agreement  to  provide  Spine  Wave with a  variety  of  research  and
development services, and to supply materials to Spine Wave for pre-clinical and
clinical  testing.  Spine Wave,  in return,  agreed to reimburse us for both our
direct costs and the associated overhead costs for the services provided.

In March 2002, we executed  additional  agreements with Spine Wave that expanded
our  contractual  research  and  development  relationship,  and that offered us
additional  equity  incentives  in the  form of  Spine  Wave  common  stock  and
warrants.  Under the amended  supply and  services  agreement,  we, on behalf of
Spine Wave,  conducted  pre-clinical safety and performance studies of a product
for spinal disc repair to support  Spine Wave's  regulatory  filings both in the
U.S.  and abroad to obtain  approval to initiate  human  clinical  testing.  Our
continuing contractual responsibilities include the supply of product to be used
in clinical testing.  Research and development services performed for Spine Wave
are reimbursed  including both direct costs and associated overhead costs. Spine
Wave  is  responsible   for  clinical   testing,   regulatory   approvals,   and
commercialization.  For the quarter ended March 31, 2006 we received $221,000 in
contract revenue from Spine Wave which


                                       15
<PAGE>


represents the  reimbursement  of direct costs plus overhead costs  allocated to
the research and  development  resources  used in performing  the  collaborative
activities.

Additional equity incentives offered in conjunction with the expanded supply and
services  agreement  of March  17,  2002  consist  of a four year  warrant  (the
expiration was recently  extended until June 21, 2006, and upon meeting  certain
conditions  would be  further  extended  to  September  21,  2006)  to  purchase
1,000,000  shares of Spine Wave common  stock at an exercise  price of $0.50 per
share (Spine Wave  preferred  stock issued  during this time was priced at $0.55
per share), and 400,000 shares of common stock valued at $0.05 per share subject
to  repurchase  at cost until each of three  performance  goals is achieved,  or
until the repurchase  option expired.  The  performance  goals consisted of: (i)
completion of certain  studies for filing an  investigational  device  exemption
application  (100,000 shares);  (ii) completion of additional studies for filing
of the investigational device exemption and provision of inventory for the pilot
clinical study (150,000 shares);  and (iii) completion of certain  manufacturing
arrangements,  and production of certain quantities of product (150,000 shares).
Spine Wave's repurchase option expired on December 31, 2005.

In October  2003,  we  executed a second  amendment  to the supply and  services
agreement with Spine Wave that further defined the cost basis for  reimbursement
of services provided by us to Spine Wave.

Significant License Agreements

Our license agreements  usually include provision for up-front  compensation and
eventual royalties on the sale of licensed products. Terms of license agreements
typically  commence as of the date  executed  and  continue  for a period of the
greater of twenty (20) years from execution date or the date upon which the last
of the patented technology under license expires.

Genencor International, Inc.
----------------------------

In December 2000, we signed a broad-based, worldwide exclusive license agreement
with Genencor International,  Inc. ("Genencor") enabling Genencor to potentially
develop a wide variety of new products for industrial  markets. In October 2002,
the  license  agreement  was  amended to  provide  Genencor  with an  additional
one-year option to initiate  development of products in the field of non-medical
personal care. In March 2005, the license was amended to fully  incorporate  the
field of personal care products into the license. As a result of the agreements,
Genencor may use our patented protein polymer design and production  technology,
in combination with Genencor's  extensive gene expression,  protein design,  and
large-scale  manufacturing  technology,  to design and develop new products with
improved  performance  properties for defined industrial fields and the field of
non-medical personal care products.

In return for the licensed  rights,  Genencor paid us an up-front license fee of
$750,000,  and will pay royalties on the sale of any products  commercialized by
Genencor  under the  agreement.  The  licensed  technology  was  transferred  to
Genencor upon  execution of the license  agreement  without any further  product
development  obligation  on our  part.  Future  royalties  on the net  sales  of
products  incorporating  the technology  under license and developed by Genencor
will be calculated  based on a royalty rate to be determined at a later date. In
addition,  we are  entitled  to receive up to $5 million in  milestone  payments
associated with Genencor's achievement of various product development milestones
incorporating  the  licensed  technology.  In March  2005 we  received  a second
license milestone payment of $250,000 from Genencor for Genencor's initiation of
a product development project based on technology licensed from us.

In connection with the license agreement, Genencor was issued two warrants, each
convertible  by formula into  $500,000 of our common  stock.  Both warrants have
subsequently  expired.  As a result of the collaboration,  in 2000 we recognized
$750,000 in license fee  revenue  (less the  issuance of warrants to purchase $1
million of our common stock valued at $319,000). The agreement terminates on the
date of expiration of the last remaining patent.

Research and Development

We currently  maintain  detailed  project  costs  (direct  costs plus  allocated
overhead) for contractual research and development services.  However, we do not
maintain cost breakdowns for our internal research and development  projects due
to the  extensive  degree  of  overlap  between  our  projects  such  as  common
manufacturing, quality control, and developmental product testing.

Our product for the treatment of female stress urinary  incontinence is in pilot
human clinical testing.  Due to the rate of patient  enrollment,  we now project
beginning  pivotal  clinical  testing  during  2006.  We  expect  these  trials,
including  patient  follow-up,  will  take  approximately  24  months,  and  the
subsequent  FDA  review  of our  pre-market  approval  submission  may  take  an
additional 12 months. Assuming this schedule is met and the product is approved,
U.S. sales of the product are


                                       16
<PAGE>


projected to begin in 2009.  Commercial  manufacturing  process  development and
completion  of the  clinical  trials are  estimated  to cost  approximately  $10
million.  In 2004, we completed  feasibility  assessments of a surgical  sealant
formulation   for   cardiovascular,   pulmonary   (lung)  and   gastrointestinal
procedures.  Preclinical  studies  are  currently  being  completed  to  support
regulatory  approval to begin  human  clinical  testing.  The  external  cost of
completing  preclinical  testing is estimated to be approximately  $750,000.  We
expect to begin a clinical study for one of these indications  before the end of
2006,  to the extent  resources  are  available.  We are  seeking  to  establish
additional partnerships to pursue the commercial development of such products.

In these types of  applications,  the use of sutures and staples for closing the
wound may permit  leaks of air, in the case of  pulmonary  surgery,  and fluids,
particularly blood in any surgery, and also  gastrointestinal (GI) fluids in the
case of  surgery  on the  colon (GI  tract).  In such  surgeries,  the use of an
effective  sealant -- as an  adjunct  to sutures or staples -- to prevent  leaks
could   reduce   hospitalization   stays,   reduce   post-operative   pain   and
complications,  and lower  associated  mortality  rates.  We estimate that about
500,000  gastrointestinal,  300,000  lung,  and over 1.5 million  cardiovascular
surgical procedures are performed each year worldwide where the use of a sealant
has the opportunity to significantly reduce complications and costs.

We currently do not have  sufficient  cash to complete the  development of these
products. We anticipate obtaining the necessary cash either by additional equity
financings,  or by sharing  the cost of  development  with  potential  marketing
partners,  or a  combination  of both  methods.  If we are  unable to obtain the
necessary cash, it will have a material adverse effect on us.

Our spinal disc repair  product being  developed  for our licensee,  Spine Wave,
Inc., is in clinical testing. The timing of this project is under the control of
Spine  Wave.  Under  our  contract  with  Spine  Wave,  we are  responsible  for
development of the formulated  product,  its pilot  manufacturing  process,  and
product  production for clinical  trials.  Spine Wave is responsible for funding
all expenses  associated with these  activities.  Contract revenue received from
Spine  Wave is  approximately  equal  to our cost  (direct  project  costs  plus
allocated  laboratory and corporate  overhead  expenses) of the work  performed.
Total research and development costs for the three and six months ended June 30,
2006 were approximately $1,148,000 and $2,185,000, respectively.

To the extent  sufficient  capital  resources  are  available,  we  continue  to
research the use of our patented technology to produce proteins of unique design
for other tissue repair and medical device applications,  principally for use in
supporting  the  wound  healing  process,  including  devices  based  on  tissue
engineering, and in drug delivery devices. Our strategy for most of our programs
is to enter into collaborative development agreements with product marketing and
distribution  companies.  Although  these  relationships,  to the extent any are
consummated,   may  provide  significant  near-term  revenues  through  up-front
licensing fees,  research and development  payments and milestone  payments,  we
expect to continue incurring operating losses for the next several years.

Results of Operations

Contract and Licensing  Revenue.  We received  $411,000 and $190,000 in contract
and  licensing  revenue for the six and three month periods ended June 30, 2006,
respectively,  as compared to approximately $658,000 and $145,000 for comparable
periods in 2005.  Contract revenues from Spine Wave for the three and six months
ended June 30, 2006 represent  approximately $190,000 and 411,000,  respectively
for materials and services  provided in the  development of an adhesive  product
for the repair of spinal discs as compared to approximately $263,000 in the same
period a year ago.  Product  revenue for the six months  ended June 30, 2006 was
$30,000, which was a payment from Angio Dynamics,  Inc. for Surgica embolization
products.  We received no licensing income for the period ended June 30, 2006 as
compared to $250,000 in licensing  revenue in the six months ended June 30, 2005
for a milestone payment from Genencor International for Genencor's initiation of
a product development project based on technology licensed from us.


Research and Development Expenses. Research and development expenses for the six
and  three  months  ended  June  30,  2006  were  approximately  $2,185,000  and
$1,148,000,  respectively,  as compared to approximately $1,249,000 and $692,000
incurred for the same periods in 2005. The increase in research and  development
expenses are primarily due to costs associated with  preclinical  animal testing
of our sealant product necessary to achieve  regulatory  approval to begin human
clinical  trials  later this year,  as well as for  on-going  clinical  testing,
regulatory consulting costs, and costs associated with manufacturing product for
Spine Wave.  Other related  expenses  include  those for expanded  manufacturing
capacity and manufacturing  process development,  quality assurance efforts, and
outside testing services.  We expect our research and development  expenses will
increase in the future, to the extent additional capital is obtained, due to the
expansion of product-directed  development efforts including further preclinical
development  of  our  surgical  sealants, increased  human  clinical


                                       17
<PAGE>


testing, increased manufacturing requirements,  increased use of outside testing
services, and increased research and development services for Spine Wave.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  for the six and three  months ended June 30, 2006 were
approximately   $2,617,000   and   $730,000,   respectively,   as   compared  to
approximately $2,280,000 and $1,887,000 for the comparable periods in 2005.

The increase in selling,  general and administrative expenses for the six months
ended June 30, 2006 was  primarily the result of the  recognition  of a non-cash
expense associated with the reporting of compensation  expense for stock options
issued by the Company under SFAS No. 123R.  There were also  increases in legal,
consulting and other  professional  services  related to due diligence and other
expenses  pertaining to the potential Thuris  acquisition and remaining costs of
the completion of the agreements  with Surgica.  Other expenses have been fairly
consistent  over the past three years.  We do anticipate  some increases  during
2006 in the  areas  of  insurance  coverage  and  legal  services,  although  we
anticipate  that  these  increases  will be offset by  reductions  in  personnel
expense. To the extent possible, we continue to concentrate on controlling costs
reflected in reduced travel,  office  supplies,  and  non-regulatory  consulting
costs.

The decline in selling, general and administrative expenses for the three months
ended June 30, 2006 was primarily the result of reduction of certain  management
positions and the reduction of consulting and professional  services incurred in
2005 related to due  diligence  and other  expenses  pertaining to the potential
Thuris  acquisition and remaining costs of the completion of the agreements with
Surgica.  Other expenses have been fairly  consistent over the past three years.
We do anticipate some increases  during 2006 in the areas of insurance  coverage
and legal  services,  although we anticipate that these increases will be offset
by  reductions  in personnel  expense.  To the extent  possible,  we continue to
concentrate on controlling  costs reflected in reduced travel,  office supplies,
and non-regulatory consulting costs.

Selling,  general and administrative expenses may increase in the future, to the
extent additional  capital is obtained,  consistent with supporting our research
and development efforts and as business development,  patent, legal and investor
relations activities require.

Interest  Income.  Interest  income was  $16,000  for the quarter and six months
ended June 30, 2005, as compared to essentially nil for the same period in 2006.
The company had no excess funds available for short term investments in 2006.

Interest  Expense.  Interest  expense incurred during the second quarter of 2006
resulted  from the  issuance of a secured  promissory  note in April 2006.  As a
result of the  issuance  of the  warrants  associated  with a note  issued,  the
Company recorded additional interest expense of approximately $70,000.

Loss from  Operations.  For the quarter  ended June 30,  2006,  our net loss was
$1,762,000  versus the net loss  incurred in the  comparable  quarter of 2005 of
$2,418.000. Included in 2006 results is a non-cash charge of $303,000 associated
with the  reporting  of  compensation  expense for stock  options  issued by the
Company under SFAS No. 123R.  Additionally the  pre-clinical  development of our
surgical  sealant  product and related  research  have  increased  research  and
development expenses.  Legal and acquisition costs related to Surgica and Thuris
were incurred during the 2005 period.  Interest expense increased during 2006 as
the result of the Company's  issuance of a promissory  note in April,  2006. Net
loss  applicable to common  shareholders  during the quarter ended June 30, 2006
was  approximately  $1,831,000  ($0.03 per share) as compared  to  approximately
$2,487,000 ($0.04 per share) for the same period in 2005.

For the six months ended June 30, 2006, our net loss was  $4,455,000  versus the
net loss incurred in the comparable  period of 2005 of  $2,940.000.  Included in
2006 results is a non-cash charge of $1,342,000 associated with the reporting of
compensation  expense for stock  options  issued by the  Company  under SFAS No.
123R. Additionally the pre-clinical  development of our surgical sealant product
and related research have increased research and development expenses. Legal and
acquisition  costs related to Surgica and Thuris were  incurred  during the 2005
period.  Interest expense increased as the result of the Company's issuance of a
promissory  note in April,  2006.  Net loss  applicable  to common  shareholders
during the six months ended June 30, 2006 was  approximately  $4,682,000  ($0.07
per share) as compared  to  approximately  $3,559,000  ($0.07 per share) for the
same period in 2005.

We expect to incur  increasing  operating  losses for the next several years, to
the extent  additional  capital is obtained,  based upon the continuation of the
development and testing of our surgical sealant product, and our product for the
treatment of female stress  urinary  incontinence,  the  associated FDA approval
process,  and further  development of the tissue adhesives  program,  as well as
expected  increases in our other  research and  development,  manufacturing  and
business  development  activities.  Our results depend in part on our ability to
establish strategic alliances and generate contract revenues, and upon


                                       18
<PAGE>


increased  research,  development and  manufacturing  efforts,  pre-clinical and
clinical  product  testing  and  commercialization  expenditures,  and  expenses
incurred for regulatory compliance and patent prosecution. Our results will also
fluctuate from period to period due to timing differences.

Inflation

To date, we believe that  inflation and changing  prices have not had a material
impact on our continuing  operations.  However,  we have  experienced  increased
general and product liability insurance costs over the past two years, and these
increases  are expected to continue for the  foreseeable  future as our products
incur increased exposure in expanded clinical trials.

Liquidity and Capital Resources

We do not have any off balance sheet  financing  activities  and do not have any
special purpose  entities.  We had no long-term  capital lease obligations as of
June 30, 2006 or December 31, 2005.  For the three and six month  periods  ended
June 30,  2006,  our cash  expenditures  for  capital  equipment  and  leasehold
improvements totaled approximately  $36,000. For the three and six month periods
ended June 30, 2005 our cash  expenditures  for capital  equipment and leasehold
improvements totaled approximately $121,000.

We believe our existing  available cash, cash equivalents and loan proceeds,  as
of August 14, 2006, in combination with continuing contractual commitments, will
be sufficient to meet our anticipated  capital  requirements  through the end of
September 2006.  Substantial  additional  capital  resources will be required to
fund continuing expenditures related to our research, development, manufacturing
and  business  development  activities.  In addition we are pursuing a number of
alternatives  available  to meet  the  continuing  capital  requirements  of our
operations,  such as collaborative  agreements and public or private financings.
Further,  we are  continuing  our  reimbursed  services  to Spine  Wave.  We are
currently in discussions  with  potential  financing  sources and  collaborative
partners,  and  additional  funding in the form of equity  investments,  license
fees, loans,  milestone  payments or research and development  payments could be
generated.  There can be no  assurance  that any of these  potential  sources of
funds will be realized in the timeframes needed for continuing  operations or on
terms favorable to us. If adequate funds are not available,  we will be required
to  significantly  curtail our operating  plans and would likely have to sell or
license  out  significant  portions  of  our  technology,   and  possibly  cease
operations.


                                       19
<PAGE>


ITEM 3.    Controls and Procedures

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of its management,
including its Chief  Executive  Officer (the  principal  executive  officer) and
Director of Finance and Controller (the principal financial officer),  evaluated
the  effectiveness  of the design and operation of its  disclosure  controls and
procedures  as of the end of the period  covered by this  report.  Based on that
evaluation,  and taking into consideration the material weaknesses identified in
the letter from the Company's  auditor as discussed  below,  the Chief Executive
Officer and Director of Finance and Controller  concluded that, as of the end of
the  period  covered by this  report,  the  Company's  disclosure  controls  and
procedures  were  not  effective  for the  purposes  of  recording,  processing,
summarizing and timely reporting of material information relating to the Company
required  to be included  in its  periodic  reports.  The  Company's  management
received a letter dated March 24, 2006 (the  "Letter") from Peterson & Co., LLP,
our  independent  auditors,  addressed to the Chairman of the Audit Committee of
the Company's  Board of Directors in connection  with the audit of our financial
statements as of December 31, 2005, which identified  certain matters  involving
internal  control  and  its  operation  that  they  consider  to be  significant
deficiencies  or material  weaknesses  under the standards of the Public Company
Accounting  Oversight  Board.  These  material  weaknesses  were: (1) inadequate
segregation  of duties in the areas of approving  invoices and  initiating  wire
transfers;   (2)  insufficient  personnel  resources  and  technical  accounting
expertise  within the  accounting  function  to resolve  non-routine  or complex
accounting matters; (3) ineffective controls over period end financial close and
reporting   processes;   and  (4)  inadequate   procedures   for   appropriately
identifying, assessing and applying accounting principles.

We will  continue to monitor and evaluate the  effectiveness  of our  disclosure
controls and procedures and our internal controls over financial reporting on an
ongoing  basis and are  committed  to taking  further  action  and  implementing
additional enhancements or improvements, as necessary and as funds allow.

Internal Control Over Financial Reporting

Other than noted above,  there have been no changes in our internal control over
financial  reporting  identified in connection  with the evaluation  required by
paragraph  (d) of Rules 13a-15 or 15d-15  under the  Exchange Act that  occurred
during our last fiscal  quarter that has materially  affected,  or is reasonably
likely to materially affect our internal control over financial reporting.


                                       20
<PAGE>



PART II.

                                OTHER INFORMATION

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.

           On April 21, 2006, the Company entered into a Security  Agreement and
           a secured  promissory note, each dated as of April 13, 2006, in favor
           of Matthew J. Szulik  pursuant to which Mr. Szulik loaned the Company
           One Million  ($1,000,000.00) Dollars in exchange for (i) a warrant to
           purchase an aggregate of 500,000 shares of the Company's common stock
           at an exercise  price of $0.30 per share (the  "Warrant")  and (ii) a
           continuing security interest in and a general lien upon (A) 1,000,000
           shares of Spine Wave, Inc.  common stock owned by the Company;  (B) a
           warrant to purchase 1,000,000 shares of Spine Wave, Inc. common stock
           owned by the Company  currently set to expire June 30, 2006;  and (C)
           all U.S. patents owned by the Company.

           Pursuant to the terms of the Security  Agreement,  the Company issued
           the Warrant to Mr. Szulik,  entitling him to purchase  500,000 shares
           of the Company's  common stock at a purchase price per share equal to
           Thirty  Cents  ($0.30),  as  may  be  adjusted  pursuant  to  certain
           anti-dilution  provisions set forth therein. The warrant provides for
           a "cashless exercise" whereby Mr. Szulik has the right to elect, upon
           exercise  the  Warrant,  to  receive  the "net  number"  of shares of
           Company common stock according to a predetermined  formula in lieu of
           making  a cash  payment  otherwise  contemplated  to be  made  to the
           Company. In addition,  the Warrant provides for anti-dilution  rights
           with respect to future subscriptions of the Company's securities at a
           price per share (or having a  conversion  price per share)  less than
           the  lower  of  the  then  exercise  price  of  the  Warrant  or  the
           then-current  market  price  per share  based on a  twenty-  (20) day
           trailing  average of the market price of the Company's  common stock.
           The Warrant expires on April 30, 2009.

           The sale of the Warrant to Mr.  Szulik by the Company was exempt from
           registration  under the Securities Act in reliance on Section 4(2) of
           the   Securities  Act  and  Rule  506  of  Regulation  D  promulgated
           thereunder,  as  transactions  by an issuer  not  involving  a public
           offering.  The Company  relied upon the  representations  made by Mr.
           Szulik  in  determining  that  such  exemptions  were  available.  No
           underwriting  discounts  or  commissions  were paid by the Company in
           connection with these transactions.


Item 6.    Exhibits

10.1         Amendment No. 1 to Secured Promissory Note issued to Matthew J.
             Szulik dated July 12, 2006.

10.2         Amendment No. 2 to Secured Promissory Note issued to Matthew J.
             Szulik dated August 18, 2006.


31.1         Certification of Chief Executive Officer pursuant to Securities
             Exchange Act Rules 13a- 14(a)/15d-14(a), as adopted pursuant to
             Section 302 of the Sarbanes-Oxley Act of 2002.


31.2         Certification of Director of Finance (Principal Financial Officer)
             pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as
             adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.


32.1         Certification of Chief Executive Officer and Director of Finance
             (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350,
             as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
             2002.


                                       21
<PAGE>


                                   SIGNATURES



In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                            PROTEIN POLYMER TECHNOLOGIES, INC.



         Date:    August 21, 2006           By  /s/  William N. Plamondon, III
                                                ------------------------------
                                            William N. Plamondon, III
                                            Chief Executive Officer


         Date:    August 21, 2006           By  /s/  Janis Y. Neves
                                                -------------------
                                            Janis Y. Neves
                                            Director of Finance, Controller
                                            and Corporate Secretary


                                       22
<PAGE>


                                  EXHIBIT INDEX


Exhibit
Number   Description
-----    -----------

10.1     Amendment No. 1 to Secured Promissory Note issued to Matthew J. Szulik
         dated, July 12, 2006.
10.2     Amendment No. 2 to Secured Promissory Note issued to Matthew J. Szulik
         dated August 18, 2006.
31.1     Certification of Chief Executive Officer pursuant to Securities
         Exchange Act Rules 13a- 14(a)/15d-14(a), as adopted pursuant to Section
         302 of the Sarbanes-Oxley Act of 2002.
31.2     Certification of Director of Finance (Principal Financial Officer)
         pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as
         adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1     Certification of Chief Executive Officer and Director of Finance
         (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as
         adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.