**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-Q**




(Mark
      One)


x
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the quarterly period ended March 31, 2008ORo
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934For
                the transition period from ______________________________ to
                ______________________________




Commission
      file number 0-19724





**PROTEIN
      POLYMER**


**TECHNOLOGIES,
      INC.**


(Exact
      name of registrant as specified in its charter)





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


10655
      Sorrento Valley Road, San Diego, CA 92121


(Address
      of principal executive offices) (Zip Code)




(858)
      558-6064


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
      during the preceding 12 months (or for such shorter periods that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days. YES þ NO o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filero
              (Do
                not check if a smaller reporting company)
            Smaller
                reporting companyþ




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). YES o NO þ





The
      number of shares of the registrant’s common stock issued and outstanding as of
      May 6, 2008 was 94,884,453.





**PROTEIN
      POLYMER TECHNOLOGIES, INC.**




**FORM
      10-Q — QUARTERLY REPORT**


**FOR
      THE QUARTERLY PERIOD ENDED MARCH 31, 2008**




**TABLE
      OF CONTENTS**




**Page****PART
                I. FINANCIAL INFORMATION**Item
                1.
            Financial
                StatementsCondensed
                Balance Sheets as of March 31, 2008 (unaudited) and December 31,
                2007
            3Condensed
                Statements of Operations for the Three Months Ended March 31, 2008
                and
                2007 (unaudited)
            4Condensed
                Statements of Cash Flows for the Three Months ended March 31, 2008
                and
                2007 (unaudited)
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            15Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            19Item
                4T.
            Controls
                and Procedures
            19**PART
                II****.
                OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            21Item
                1A.
            Risk
                Factors
            21Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            21Item
                3.
            Defaults
                Upon Senior Securities
            21Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            21Item
                5.
            Other
                Information
            21Item
                6.
            Exhibits
            22**SIGNATURES**
            23Exhibit
                31.1Exhibit
                31.2Exhibit
                32.1Exhibit
                32.2




2




**PART
      I — FINANCIAL INFORMATION**


**Item 1.
      Financial Statements**


**Protein
      Polymer Technologies, Inc.**


**Condensed
      Balance Sheets**





March 31
            
            December 312008 (unaudited)
            
            2007AssetsCurrent
                assets:Cash
                and cash equivalents
            
            $
            7,546
            
            $
            21,936Prepaid
                expenses and other current assets
            
            
            54,024
            
            
            33,419Total
                current assets
            
            
            61,570
            
            
            55,355Deposits
            
            
            29,679
            
            
            29,679Equipment
                and leasehold improvements, net
            
            
            103,006
            
            
            128,100Investment
            
            
            520,000
            
            
            520,000Total
                assets
            
            $
            714,255
            
            $
            733,134Liabilities
                and stockholders' deficitCurrent
                liabilities:Accounts
                payable
            
            $
            772,533
            
            $
            827,626Accrued
                liabilities
            
            
            426,533
            
            
            794,312Secured
                note payable - related party, net of unamortized debt
                discount
            
            
            6,299,522
            
            
            5,876,000Current
                maturities of notes payable
            
            
            519,071
            
            
            419,071Total
                current liabilities
            
            
            8,017,659
            
            
            7,917,009Notes
                payable, net of current maturities
            
            
            -
            
            
            100,000Total
                liabilities
            
            
            8,017,659
            
            
            8,017,009Commitments
                and contingencies (Note 9)Stockholders'
                deficit:Convertible
                preferred stock, $0.01 par value; 5,000,000 shares authorized; 65,645
                shares issued and outstanding at March 31, 2008 and December 31,
                2007
                respectively - liquidation preference of $9,538,396 and $9,464,500
                at
                March 31, 2008 and December 31, 2007, respectively.
            
            
            6,019,917
            
            
            6,019,917Common
                stock, $0.01 par value; 1,000,000,000 shares authorized; 88,182,640
                and
                73,722,232 shares issued and outstanding at March 31, 2008
                and December 31, 2007, respectively
            
            
            881,826
            
            
            737,222Additional
                paid-in capital
            
            
            56,990,503
            
            
            56,227,221Accumulated
                deficit
            
            
            (71,195,650
            )
            
            (70,268,235)
            )Total
                stockholders' deficit
            
            
            (7,303,404
            )
            
            (7,283,875)
            )Total
                liabilities and stockholders’ deficit
            
            $
            714,255
            
            $
            733,134





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


3


**Protein
      Polymer Technologies, Inc.**


**Condensed** **Statements
      of Operations**


**(unaudited)**





Three months ended March 31,2008
            
            2007Revenues:Contract
                revenue
            
            $
            -
            
            $
            136,088Total
                revenues
            
            
            -
            
            
            136,088Operating
                Expenses:Research
                and development
            
            
            551,974
            
            
            628,131Selling,
                general and administrative
            
            
            209,311
            
            
            319,703Total
                expenses
            
            
            761,285
            
            
            964,724Loss
                from operations
            
            
            (761,285
            )
            
            (828,636
            )Other
                income (expense):Interest
                and other income
            
            
            -
            
            
            10,408Interest
                expense
            
            
            (169,928
            )
            
            (94,292
            )Gain
                on settlement of accounts payable
            
            
            -
            
            
            193,917Total
                other expense
            
            
            (169,928
            )
            
            110,033Net
                loss
            
            
            (931,213
            )
            
            (718,603
            )Undeclared
                and imputed and/or paid dividends on preferred stock
            
            
            69,030
            
            
            76,784Net
                loss applicable to common shareholders
            
            $
            (1,000,243
            )
            $
            (795,387
            )Basic
                and diluted net loss per common share
            
            $
            (0.01
            )
            $
            (0.01
            )Weighted
                average number of common shares outstanding - basic and diluted
            
            
            80,179,370
            
            
            67,520,315





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




4


**Protein
      Polymer Technologies, Inc.**


****Condensed**Statements of Cash Flows**


**(unaudited)**





Three monthsendedMarch 31
            
            March 312008
            
            2007**Operating
                activities**Net
                loss
            
            $
            (931,213
            )
            $
            (718,603
            )**Adjustments
                to reconcile net loss to net cash used for operating
                activities:**Depreciation
                and amortization
            
            
            25,094
            
            
            25,304Share-based
                compensation expense
            
            
            1,236
            
            
            80,991Debt
                discount amortization
            
            
            20,134
            
            
            -Other
                income
            
            
            -
            
            
            10,408**Changes
                in operating assets and liabilities:**Deposits
            
            
            -
            
            
            (800
            )Prepaid
                expenses and other current assets
            
            
            (20,605
            )
            
            (26,438
            )Rent
                receivable
            
            
            -
            
            
            15,000Contracts
                receivable
            
            
            -
            
            
            250Accounts
                payable
            
            
            (55,094
            )
            
            (683,342
            )Accrued
                liabilities
            
            
            171,058
            
            
            89,647**Net
                cash used for operating activities**
            
            
            (789,390
            )
            
            (1,207,583
            )**Financing
                activities**Net
                proceeds from sale of common stock
            
            
            775,000
            
            
            -Proceeds
                from issuance of debt - related party
            
            
            -
            
            
            1,221,900**Net
                cash provided by financing activities**
            
            
            775,000
            
            
            1,221,900**Net
                increase (decrease) in cash and cash equivalents**
            
            
            (14,390
            )
            
            14,317Cash
                and cash equivalents at beginning of the period
            
            
            21,936
            
            
            73,495**Cash
                and cash equivalents at end of the period**
            
            $
            7,546
            
            $
            87,812**Supplemental
                disclosures of cash flow information**Interest
                paid
            
            $
            659
            
            $
            2,398**Non
                cash investing and financing activity**Issuance
                of common stock in settlement of indemnification obligation
            
            $
            -
            
            $
            61,067Secured
                note payable – related party, issued for payment of accrued
                interest
            
            $
            538,837
            
            $
            -Debt
                discount recorded in connection with issuance/amendment of
                warrants
            
            $
            135,449
            
            $
            -




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




5





**Protein
      Polymer Technologies, Inc.**


**Notes
      to** **Condensed** Financial
      Statements


**(unaudited)**





**Note
                1.**
            **Basis
                of Presentation and Summary of Significant Accounting
                Policies**





The
      accompanying unaudited condensed financial statements have been prepared in
      accordance with U.S. generally accepted accounting principles and the rules
      and
      regulations of the Securities and Exchange Commission (“SEC”) related to a
      quarterly report on Form 10-Q under the modified rules and regulations for
      “Smaller Reporting Companies”. Accordingly, they do not include all of the
      information and disclosures required by U.S. generally accepted accounting
      principles for complete financial statements. However, the Company believes
      that
      the condensed financial statements, including the disclosures herein, are
      adequate to make the information presented not misleading. The balance sheet
      as
      of December 31, 2007 was derived from the Company’s audited financial
      statements. The financial statements herein should be read in conjunction with
      our financial statements and notes thereto included in our Annual Report on
      Form
      10-KSB for the year ended December 31, 2007, as filed with the U.S. Securities
      and Exchange Commission. The results of operations for the three months ended
      March 31, 2008 are not necessarily indicative of the results expected for the
      fiscal year ending December 31, 2008.




***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 quarter ended March 31, 2008, the
      Company incurred a net loss of approximately $931,000 and at March 31, 2008,
      the
      Company had a working capital deficit of approximately $7,956,000. Our cash
      and
      cash equivalents balance as of March 31, 2008 was approximately $8,000 and,
      in
      combination with anticipated additional contract and license payments, are
      insufficient to meet our on-going capital requirements.





From
      January 1, 2008 through March 31, 2008, required operating capital has been
      obtained through proceeds totaling $775,000 from equity purchases of common
      stock pursuant to a Stock Purchase Agreement entered into as of September 27,
      2007. Between September 27, 2007 and May 19, 2008, the Company received proceeds
      of $1,790,000 for the purchase of 29,575,249 shares of common stock and
      29,575,249 warrants pursuant to this Stock Purchase Agreement. In addition,
      effective January 9, 2008 the Company converted a related party Note Payable
      with an outstanding principal balance of $5,876,000 plus accrued interest
      totaling $539,000, to a new note payable agreement, with a scheduled maturity
      date of September 1, 2008, in the principal amount of
      $6,415,000.




Management
      is currently in discussion with other potential financing sources and
      collaborative partners and is investigating other funding in the form of equity
      investments and license fees. If adequate funds are not available, the Company
      will be required to significantly curtail operations, sell or license out
      significant portions of its technology, or possibly cease operations. The
      financial statements do not include any adjustments that might result should
      the
      Company be unable to continue as a going concern.





***Use
      of Estimates***





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the reported amounts of assets and liabilities
      and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. Actual results could differ from these estimates.




6


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





***Investments***





The
      Company determines the appropriate classification of its investments in equity
      securities at the time of acquisition and reevaluates such determinations at
      each balance-sheet date. Marketable equity securities not classified as trading,
      are classified as available-for-sale, and are carried at fair market value,
      with
      the unrealized gains and losses, net of tax, included in the determination
      of
      comprehensive income and reported in shareholders’ equity. Investments, for
      which market prices are not available, are valued and reported at cost in
      periods subsequent to acquisition. No gains or losses are recognized until
      the
      securities are sold.




***Revenue
      and Expense 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, the Company is 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. Research and development costs are
      expensed as incurred.





***Stock-Based
      Compensation***





On
      January 1, 2006 the Company adopted Statements of Financial Accounting Standards
      (“SFAS”) No. 123 (Revised 2004), *Share-Based
      Payment,* (“SFAS
      No. 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 on an annual basis at year end during the years ended December
      31, 2007 and 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. 123, *Share-Based
      Payment* (“SFAS
      No. 123”), 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. Periods prior to January 1, 2006 were
      not
      restated to reflect the impact of adopting the new standard.




7


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





***Fair
      Value Measurement***





The
      carrying value of the Company’s cash, accounts receivable, accounts payable and
      short-term debt are measured at cost and approximate their respective fair
      values because of the short maturities of these instruments. Notes payable
      are
      recorded at cost which approximates their fair value.





***Net
      Loss per Common Share***





Basic
      earnings per share are calculated using the weighted-average number of
      outstanding common shares during the period. Diluted earnings per share is
      calculated using the weighted-average number of outstanding common shares and
      dilutive common equivalent shares outstanding during the period, using either
      the as-converted method for convertible notes and convertible preferred stock
      or
      the treasury stock method for options and warrants.





Excluded
      from diluted loss per common share as of March 31, 2008 and 2007 were 62,037,741
      and 26,341,157 shares, respectively, issuable upon conversion of convertible
      preferred stock, and options and warrants to purchase 49,348,118 and 29,098,074
      shares of common stock, respectively, because the effect would be
      anti-dilutive.  For purposes of this calculation, net loss in 2008 and 2007
      has been adjusted for imputed, accumulated and/or paid dividends on the
      preferred stock.





***Income
      Taxes***





The
      Company records income taxes using the asset and liability method. Deferred
      tax
      assets and liabilities are recognized for the estimated future tax consequences
      attributable to differences between the financial statement carrying amounts
      of
      existing assets and liabilities and their future respective tax bases. Deferred
      tax assets and liabilities are measured using enacted tax rates in effect for
      the year in which those temporary differences are expected to be recorded or
      settled. The effect on deferred tax assets and liabilities of a change in tax
      rates is recognized in income in the period that includes the enactment
      date.





A
      valuation allowance is established to reduce the deferred tax asset if it is
      more likely that the related tax benefits will not be realized in the
      future.





***Reclassifications***





Certain
      prior year amounts have been reclassified to conform to the 2008
      presentation.





***Recent
      Accounting Pronouncements***




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
      No. 157, *Fair
      Value Measurements* (“ SFAS No.
      157”). SFAS No.
      157
      defines fair value, establishes a framework for measuring fair value, and
      expands disclosures about fair value measurements. This Statement focuses on
      creating consistency and comparability in fair value measurements. SFAS No.
      157
      is effective with respect to financial assets and liabilities for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. 
      For non-financial assets and liabilities, the effective date of SFAS No. 157
      has
      been deferred until fiscal years beginning after November 15, 2008. Our adoption
      of SFAS No. 157 with respect to financial assets and liabilities on January
      1,
      2008 did not have a material affect on our financial statements. The Company
      is
      currently evaluating the impact of adopting SFAS No. 157 on our financial
      statements with respect to non-financial assets and
      liabilities.




8


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities—including an
      amendment of FASB Statement No. 115* (“SFAS
      No. 159”), which permits entities to choose to measure many financial
      instruments and certain other items at fair value. The fair value option
      established by this Statement permits all entities to choose to measure eligible
      items at fair value at specified election dates. A business entity shall report
      unrealized gains and losses on items for which the fair value option has been
      elected in earnings at each subsequent reporting date. Adoption is required
      for
      fiscal years beginning after November 15, 2007. Our adoption of SFAS no.
      159 on January 1, 2008 did not have a material effect on our financial
      statements.





In
      December 2007, the FASB issued SFAS No. 141 (revised), *Business
      Combinations* (“SFAS No. 141(R)”). SFAS No. 141(R) changes the accounting for business
      combinations including the measurement of acquirer shares issued in
      consideration for a business combination, the recognition of contingent
      consideration, the accounting for pre-acquisition gain and loss contingencies,
      the recognition of capitalized in-process research and development, the
      accounting for acquisition-related restructuring cost accruals, the treatment
      of
      acquisition related transaction costs and the recognition of changes in the
      acquirer’s income tax valuation allowance. The Company is required to adopt SFAS
      No. 141(R) no later than January 1, 2009. The Company has not yet determined
      the
      impact SFAS No. 141(R) may have on its financial position, results of operations
      or cash flows.





In
      December 2007, the FASB issued SFAS No. 160, *Non-controlling
      Interests in Consolidated Financial Statements, an amendment of ARB
      No. 51* (“SFAS No. 160”). SFAS No. 160 changes the accounting for non-controlling
      (minority) interests in consolidated financial statements including the
      requirements to classify non-controlling interests as a component of
      consolidated stockholders’ equity, and the elimination of “minority interest”
accounting in results of operations with earnings attributable to
      non-controlling interests reported as part of consolidated earnings.
      Additionally, SFAS No. 160 revises the accounting for both increases and
      decreases in a parent’s controlling ownership interest. The Company must adopt
      SFAS No. 160 no later than January 1, 2009. The Company has not yet determined
      the impact SFAS No. 160 may have on its financial position, results of
      operations or cash flows.





In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities – an amendment of FASB
      Statement No. 133* (“SFAS No. 161”), as amended and interpreted, which requires enhanced
      disclosures about an entity’s derivative and hedging activities and thereby
      improves the transparency of financial reporting. Disclosing the fair values
      of
      derivative instruments and their gains and losses in a tabular format provides
      a
      more complete picture of the location in an entity’s financial statements of
      both the derivative positions existing at period end and the effect of using
      derivatives during the reporting period. Entities are required to provide
      enhanced disclosures about (a) how and why an entity uses derivative
      instruments, (b) how derivative instruments and related hedged items are
      accounted for under Statement 133 and its related interpretations, and (c)
      how
      derivative instruments and related hedged items affect an entity’s financial
      position, financial performance, and cash flows. SFAS No. 161 is effective
      for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008. Early adoption is permitted. The Company does not expect
      SFAS
      No. 161 to have a material impact on its financial
      statements.


9


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





**Note
                2.**
            **Equipment
                and Leasehold Improvements**





Equipment
      and leasehold improvements consist approximately of the following:





**March 31,**
            
            **December**
              **31,****2008**
            
            **2007**Laboratory
                equipment
            
            $
            1,362,000
            
            $
            1,378,000Office
                equipment
            
            
            220,000
            
            
            220,000Leasehold
                improvements
            
            
            360,000
            
            
            360,0001,942,000
            
            
            1,958,000Less:
                accumulated depreciation and amortization
            
            
            (1,839,000
            )
            
            (1,830,000
            )$
            103,000
            
            $
            128,000




Depreciation
      and amortization expense was $25,000 and $25,000 for the three months ended
      March 31, 2008 and 2007 respectively.





**Note
                3.**
            **Accrued
                Liabilities**





Accrued
      liabilities consist approximately of the following:





**March 31,**
            
            **December 31,****2008**
            
            **2007**Payroll
                and employee benefits
            
            $
            102,000
            
            $
            82,000Accrued
                interest
            
            
            194,000
            
            
            585,000Insurance
                premium financing
            
            
            41,000
            
            
            22,000Directors
                fees
            
            
            70,000
            
            
            60,000Other
            
            
            19,000
            
            
            45,000$
            426,000
            
            $
            794,000






**Note
                4.**
            **Secured
                Notes Payable – Related
                Party**





On
      April
      13, 2006, a shareholder loaned $1,000,000 (the “Loan”) to the Company ($500,000
      in cash and an additional $500,000 deposited with an escrow agent as a line
      of
      credit) represented by a note (the “4/13/06 Note”) issued by the Company to the
      shareholder in the principal amount of $1,000,000 (the “Principal”). The Note
      was originally due on July 7, 2006 (the “Maturity Date”) and bears annual
      interest at the rate of 8% payable on the Maturity Date. It is secured, in
      accordance with the terms of a security agreement (the “Security Agreement”), by
      a continuing security interest in and a general lien upon (i) 2,000,000 shares
      of Spine Wave, Inc. common stock owned by the Company; and (ii) all U.S. patents
      owned by the Company. The Note and the Security Agreement are both dated April
      13, 2006.





As
      consideration for the Loan, the Company granted a warrant (the “4/13/06
      Warrant”) to the shareholder to purchase an aggregate of 500,000 shares of the
      Company’s common stock at an exercise price of $0.30 per share. The
      shareholder’s counsel acts as the escrow agent and now serves as our outside
      general counsel.




10


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





Through
      December 31, 2007, the 4/13/06 Note had been amended seven times so that as
      of
      December 31, 2007, the outstanding principal balance was $5,876,000, and had
      a
      scheduled maturity date of January 10, 2008.





Effective
      January 9, 2008, the Company replaced the 4/13/06 Note by issuing a new note
      (the “1/09/08 Note”) in the principal amount of $6,415,000. This amount included
      the then $5,876,000 outstanding balance plus the then outstanding $539,000
      of
      accrued interest on the 4/13/06 Note. The 1/09/08 Note bears annual interest
      at
      the rate 8%, the same as did the 4/13/06 Note, and matures on September 1,
      2008.
      The 1/09/08 Note is secured in the same manner as was the 4/13/06 Note. As
      consideration for the lender agreeing to accept the 1/09/08 Note as payment
      for
      the 4/13/06 Note, the Company i) issued the lender three-year warrants to
      purchase an aggregate of 2,438,000 shares of the Company’s common stock at
      $0.061 per share, ii) lowered the exercise price of the 4/13/06 Warrant from
      $0.30 per share to $0.061 per share, and iii) extended the term of the 4/13/06
      Warrant from April 30, 2009 to January 31, 2011.





In
      accordance with Accounting Principals Board Opinion No. 14, *Accounting
      for Convertible Debt and Debt Issued with Stock Purchase Warrants,* the
      relative fair value of the warrants issued in connection with the 1/09/08 Note,
      estimated to be approximately $117,000, was recorded as debt discount. In
      addition, the change in fair value of the 4/13/06 Warrant resulting from the
      modification of the terms, estimated at $18,000, was also recorded as debt
      discount. The total debt discount recorded will be amortized as interest expense
      over the term of the 1/09/08 Note using the effective interest method. During
      the three months ended March 31, 2008, the Company recorded approximately
      $20,000, based on the debt discount amortization during the period, and as
      of
      March 31, 2008, the unamortized debt discount balance was approximately
      $115,000.





**Note
                5.**
            **Notes
                Payable**





In
      December 2005, in connection with a license agreement with Surgica Corporation,
      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.
      As of March 31, 2008 the entire balance of the outstanding notes payable is
      reflected as a current liability, as all of the notes have maturity dates prior
      to March 31, 2009.





**Year Ending**
              **December 31,**
            
            **Notes**
              **Payable**
              **Maturities**2008
            
            $
            419,0002009
            
            
            100,000Total
                maturities
            
            $
            519,000





Based
      on
      the termination of the license agreement with Surgica in March 2007, and
      Surgica’s subsequent filing for protection under Chapter 7 of the U.S.
      Bankruptcy laws, the Company believes that it will be relieved of its liability
      for the assumed notes payable. However, until a final determination is made
      with
      respect to the disposition of the notes, the Company will continue to carry
      the
      notes on its balance sheet.




11


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





**Note
                6.**
            **Common
                Stock**





The
      Company’s Board of Directors agreed to the terms of a Stock Purchase Agreement
      (“SPA”) and a Registration Rights Agreement (“RRA”), each dated as of September
      27, 2007, with TAG Virgin Islands, Inc. (“TAG”), as agent for certain purchasers
      of the Company’s common stock. TAG is a registered investment advisor and
      advises a number of our stockholders, including certain members of our Board
      of
      Directors, in investment decisions, including decisions about whether to invest
      in our stock. Based upon our stock records and data supplied to us by our
      stockholders, we believe that clients of TAG beneficially owned
      approximately 55.1% of our common stock as of September 27, 2007, prior to
      the
      stock purchases subject to the SPA. The SPA essentially provides for the
      Company selling, from time to time, shares of its common stock, par value $0.01,
      to the purchasers at a purchase price determined as the closing price of the
      stock on sale date. As a component of the purchase of the common stock, the
      purchaser also will receive a warrant to purchase the same number of shares
      of
      common stock in the future. Each warrant expires in five years from the date
      of
      purchase and is exercisable at a per share price, subject to certain
      anti-dilution provisions, equal to 110% of the purchase price paid by the
      purchase. As of November 28, 2007, the SPA was amended so that on and after
      that
      date the warrants are exercisable at 100% of the price of the shares that are
      purchased. The SPA can be terminated at any time by TAG. The purchasers have
      certain registration rights, as provided by the RRA, to require the Company,
      at
      its cost, to file an effective registration statement with the Securities and
      Exchange Commission. The Company is not subject to liquidated damages or other
      penalties in the event that it fails to meet the registration obligations
      included in the RRA.





Between
      January 1, 2008 and March 31, 2008, the Company received aggregate proceeds
      of
      $775,000 for the purchase of 14,460,408 shares of common stock and 14,460,408
      warrants, subject to the terms of the SPA and RRA.





**Note
                7.**
            **Stock
                Options**





The
      Company did not grant options during the quarter ended March 31, 2008. Stock
      option activity for the quarter ended March 31, 2008 is as follows:





Options
              Outstanding
            
            Weighted
              Average
              Exercise
              Price
            
            Weighted Average
              Remaining
              Contractual Term
              (Years)
            
            Aggregate
              Intrinsic ValueOutstanding at
                December 31, 2007
            
            
            11,497,486
            
            
            0.65
            
            
            5.3
            
            
            -Issued
            
            
            -
            
            
            -
            
            
            
            
            
            -Cancelled
            
            
            (20,000
            )
            
            -
            
            
            
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            
            
            
            -Outstanding
                at March 31, 2008
            
            
            11,477,486
            
            $
            0.65
            
            
            5.1
            
            
            -Exercisable
                at March 31, 2008
            
            
            11,323,891
            
            $
            0.66
            
            
            5.1
            
            $
            -





During
      the three months ended March 31, 2008 and 2007, the Company recognized
      approximately $1,000 and $81,000 in stock-based compensation expense, and as
      of
      March 31, 2008, there was approximately $14,500 of unrecognized compensation
      expense related to unvested shared-based compensation arrangements which is
      expected to be fully recognized by the end of 2009.




12


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





**Note
                8.**
            **Warrants
                to Purchase Common Stock**





During
      the first quarter of 2008, the Company granted warrants to purchase an aggregate
      of 14,460,408 of the Company’s common stock pursuant to the terms of a stock
      purchase agreement dated September 27, 2007 (See Note 6). Such warrants are
      exercisable at prices ranging from $0.04 to $0.07 per share and expire at
      various times through March 2013.





The
      Company also granted warrants to purchase an aggregate of 2,438,000 shares
      of
      the Company’s common stock pursuant to the terms of a note agreement dated
      January 9, 2008 (see Note 4). Such warrants are exercisable at a price of $0.061
      per share and expire in January 2011.





In
      addition, the Company extended the expiration date of warrants to acquire
      500,000 shares of the Company’s common stock from April 2009 to January 2011,
      and reduced the exercise price from $0.30 per share to $0.061 per share (see
      Note 4).





No
      warrants were exercised during the three months ended March 31, 2008. A summary
      of warrant activity for the quarter ended March 31, 2008 is as
      follows:





Number of
              Warrants
              Outstanding
              and
              Exercisable
            
            Weighted-
              Average
              Exercise
              PriceOutstanding, December
                31, 2007
            
            
            21,771,220
            
            $
            0.40Granted
            
            
            16,898,408
            
            $
            0.04Exercised
            
            
            —
            
            $
            —Expired
            
            
            (798,996
            )
            $
            0.56Outstanding,
                March 31, 2008
            
            
            37,870,632
            
            $
            0.24





At
      March
      31, 2008, the weighted-average remaining contractual life of the warrants was
      approximately 3.2 years.





**Note
                9.**
            **Commitments
                and Contingencies**





***Facilities
      Lease Agreement***





The
      Company leased its office and research facilities totaling 27,000 square feet
      under an operating lease, which expired on April 30, 2008. The Company has
      not
      renewed the facilities lease and is currently operating with the landlord under
      a month-to-month arrangement. Rent expense is currently $26,000 per month plus
      utilities. We are currently exploring arrangements to relocate our
      administrative offices and outsource our laboratory and production facilities.




Through
      April 30, 2008, the Company subleased 6,183 square feet of its office and
      research facilities under a month-to-month arrangement for $13,000 per month
      plus utilities. As of April 30, 2008, our sub-lessee owed us approximately
      $205,000 for accrued unpaid rent, and we had delivered notice to the sub-lessee
      to pay the unpaid rent within 3 days or quit the premises. The sub-tenant no
      longer occupies the facilities. Due to the uncertainty regarding the
      collectibility of the amount owed, a reserve for the entire balance owed by
      the
      former sub-tenant has been recorded as of March 31, 2008.




13


**Protein
      Polymer Technologies, Inc.**


**Notes
      to **Condensed**Financial Statements**


**(unaudited)**





**Note
                10.**
            **Subsequent
                Events**




Additional
      developments during the period April 1, 2008 through May 19, 2008 include the
      following:





·
            The
                Company received proceeds of $445,000 for the purchase of 9,201,813
                shares
                of common stock and 9,201,813 warrants pursuant to the stock purchase
                agreement dated September 27, 2007.





·
            We
                reduced staff to two full-time employees, both of whom hold Ph.D.
                degrees.


14


**Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





*The
      interim financial statements and this Management’s Discussion and Analysis of
      Financial Condition and Results of Operations should be read in conjunction
      with
      the financial statements and notes thereto for the year ended December 31,
      2007, and the related Management’s Discussion and Analysis of Financial
      Condition and Results of Operations, both of which are contained in our Annual
      Report on Form 10-KSB for the year ended December 31, 2007. In addition to
      historical information, this discussion and analysis contains forward-looking
      statements that involve risks, uncertainties, and assumptions. When used herein,
      the words “believe,” “anticipate,” “expect,” “estimate” and similar expressions
      are intended to identify such forward-looking statements. Our actual results
      may
      differ materially from those anticipated in these forward-looking statements
      as
      a result of certain factors, including but not limited to those set forth under
      the caption “Risk Factors” in the Form 10-KSB for the year ended
      December 31, 2007 and the caption “Risk Factors” in this Form 10-Q for the
      quarter ended March 31, 2008. We undertake no obligation to update any of
      the forward-looking statements contained herein to reflect any future events
      or
      developments.*





**Company
      and Technology Background**





Protein
      Polymer Technologies, Inc. (hereafter the “Company” or “we”), a Delaware
      corporation, is a biotechnology company incorporated on July 6, 1988. We are
      engaged in the research, development, and production of bio-active devices
      to
      improve medical and surgical outcomes. Through our patented technology to
      produce proteins of unique design, biological and physical product components
      are integrated to provide for optimized clinical performance.




We
      are
      focused on developing products to improve medical and surgical outcomes, based
      on an extensive portfolio of proprietary biomaterials. Biomaterials are
      materials that are used to direct, supplement, or replace the functions of
      living systems. The interaction between materials and living systems is dynamic.
      It involves the response of the living system to the materials (e.g.,
      biocompatibility) and the response of the materials to the living system (e.g.,
      remodeling). The requirements for performance within this demanding biological
      environment have been a critical factor in limiting the possible metal, polymer,
      and ceramic compositions to a relatively small number that to date have been
      proven useful in medical devices implanted within the body.




The
      goal
      of biomaterials development historically has been to produce inert materials,
      i.e., materials that elicit little or no response from the living system.
      However, we believe that such conventional biomaterials are constrained by
      their
      inability to convey appropriate messages to the cells that surround them, the
      same messages that are conveyed by proteins in normal human
      tissues.




The
      products we have targeted for development are based on a new generation of
      biomaterials which have been designed to be recognized and accepted by human
      cells to aid in the natural process of bodily repair, (including the healing
      of
      tissue and the restoration or augmentation of its form and function) and,
      ultimately, to promote the regeneration of tissues. We believe that the
      successful realization of these properties will substantially expand the role
      that artificial devices can play in the prevention and treatment of human
      disability and disease, and enable the culture of native tissues for successful
      reimplantation.





Through
      our proprietary core technology, we produce high molecular weight polymers
      that
      can be processed into a variety of material forms such as gels, sponges, films,
      and fibers, with their physical strength and rate of resorption tailored to
      each
      potential product application. These polymers are constructed of the same amino
      acids as natural proteins found in the body. We have demonstrated that our
      polymers can mimic the biological and chemical functions of natural proteins
      and
      peptides, such as the attachment of cells through specific membrane receptors
      and the ability to participate in enzymatic reactions, thus overcoming a
      critical limitation of conventional biomaterials. In addition, materials made
      from our polymers have demonstrated excellent biocompatibility in a variety
      of
      preclinical safety studies.


15


Our
      patented core technology enables messages that direct activities of cells to
      be
      precisely formulated and presented in a structured environment similar to what
      nature has demonstrated to be essential in creating, maintaining and restoring
      the body’s functions. Our protein polymers are made by combining the techniques
      of modern biotechnology and traditional polymer science. The techniques of
      biotechnology are used to create synthetic genes that direct the biological
      synthesis of protein polymers in recombinant microorganisms. The methods of
      traditional polymer science are used to design novel materials for specific
      product applications by combining the properties of individual “building block”
components in polymer form.





In
      contrast to natural proteins, either isolated from natural sources or produced
      using traditional genetic engineering techniques, our technology results in
      the
      creation of new proteins with unique properties. We have demonstrated an ability
      to create materials that:





·
            combine
                properties of different proteins found in
                nature;


·
            reproduce
                and amplify selected activities of natural
                proteins;


·
            eliminate
                undesired properties of natural proteins;
                and


·
            incorporate
                synthetic properties via chemical
                modifications




This
      ability is fundamental to our current primary product research and development
      focus — tissue repair and regeneration. Tissues are highly organized structures
      made up of specific cells arranged in relation to an extra-cellular matrix
      (“ECM”), which is principally composed of proteins. The behavior of cells is
      determined largely by their interactions with the ECM. Thus, the ability to
      structure the cells’ ECM environment allows the protein messages they receive —
and their activity — to be controlled.




**Results
      of Operations**




***Contract
      and Licensing Revenue*** **.** We did
      not earn any revenue during the three months ended March 31, 2008, compared
      to
      $136,000 in contract and licensing revenue for the three months ended March
      31,
      2007. Future revenues are subject to future collaborative development and
      licensing agreements.





We
      cannot
      forecast with any degree of certainty which potential product lines will be
      subject to future collaborations or other strategic transactions, when such
      arrangements will be secured, if at all, and to what degree such arrangements
      would affect our development plans and capital requirements. As a result, we
      cannot be certain when and to what extent we will receive cash inflows from
      the
      commercialization of product candidates or collaboration agreements, if at
      all.





***Research
      and Development Expenses*** **.** Research
      and development expenses for the three months ended March 31, 2008 were $552,000
      compared to $628,000 for the comparable period in 2007. We expect further
      decline from 2007 as a result of significantly reduced activity levels of
      clinical testing and regulatory consulting costs in 2008. We expect our research
      and development expenses will increase in the future only to the extent that
      additional capital is obtained or future collaborative development and licensing
      agreements are secured.





***Selling,
      General and Administrative Expenses*** **.** Selling,
      general and administrative expenses for the three months ended March 31, 2008
      were $209,000, as compared to $320,000 for the quarter ending March 31, 2007.
      We
      made significant reductions in administration expenses in the first quarter
      of
      2008. Several highly compensated positions were eliminated and all non-mission
      sensitive expenses were reviewed and either eliminated or reduced. To the extent
      possible, we continue to concentrate on controlling costs in this area. We
      expect our selling, general and administrative expenses will to increase in
      the
      future only to the extent that additional capital is obtained or future
      collaborative development and licensing agreements are
      secured.


16


***Operating
      Losses*** .
      For the
      three months ended March 31, 2008, we recorded a net loss applicable to common
      shareholders of $1,018,474 or $0.01 per share, as compared to a loss of $795,000
      or $0.01 per share for the quarter ending March 31, 2007. The undeclared or
      imputed dividends in the three months ended March 31, 2008 was greater than
      the
      comparable period in 2007 as the result of a non-cash imputed dividend that
      resulted from repricing and extending the term of certain warrants in January
      2008.





**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**





As
      of
      March 31, 2008, we had cash and cash equivalents totaling $8,000, as compared
      to
      $22,000 at December 31, 2007. As of March 31, 2008, we had a working capital
      deficit of $7,956,089 compared to working capital of $7,862,000 at December
      31,
      2007.





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 March
      31,
      2008. During the quarter ended March 31, 2008, we did not purchase any capital
      equipment or leasehold improvements and do not anticipate that expenditures
      for
      these items will be increased significantly in 2008.





Our
      existing available cash and cash equivalents as of March 31, 2008, and
      continuing contractual commitments, are insufficient to meet our anticipated
      funding requirements. Substantial additional capital resources are required
      to
      fund continuing expenditures related to our operating, research, development,
      manufacturing and business development activities. As discussed in Note 6 to
      the
      financial statements, the Company entered into a common stock purchase agreement
      (hereafter “SPA”) in September 2007 and has raised $1,690,000 as of March 31,
      2008, as a result of that SPA.  Pursuant to the SPA, which has been our
      only source of external financing since September 2007, the investors purchase
      shares of our common stock at the closing price of the stock on the day the
      investment is made. In addition, we issued a five-year warrant to each investor
      to purchase the same number of shares as those purchased by such investor at
      110% of the price at which the shares are purchased. As of November 28, 2007,
      the SPA was amended so that warrants issued on and after that date are
      exercisable at 100% of the price at which the shares are purchased. We have
      also
      granted the investors demand and piggy-back registration rights covering the
      shares purchased and the sharers issuable upon exercise of the warrants. Prior
      to the SPA, required funding was provided to us through a note payable agreement
      (known as the Szulik Loan) by Matthew Szulik, one of our stockholders. This
      loan
      was outlined in previous filings and is further described in Note 4 to the
      financial statements. As with the Escrow Agreement relating to the Szulik Loan,
      the Stock Purchase Agreement provides that TAG
      Virgin Island s,
      Inc.
      (hereafter “TAG”), as agent for the equity investors, will advise the Board as
      to which of the Company’s expenses will be paid with the funds invested by these
      investors.





As
      of
      January 9, 2008, we replaced the Szulik Loan by issuing to Mr. Szulik a new
      note
      in the principal amount of $6,415,000. This amount included the then $5,876,000
      outstanding principal balance plus the then outstanding $539,000 in accrued
      interest on the old note. The new note bears annual interest at the rate 8%,
      the
      same as did the old note, matures on September 1, 2008 and is secured in the
      same manner as was the old note. As consideration for Mr. Szulik agreeing to
      accept the new note, we issued him three-year warrants to purchase an aggregate
      of 2,438,000 shares of our common stock at $0.061 per share and lowered the
      exercise price of warrants to purchase 500,000 shares of our common stock that
      we had previously issued to him from $0.30 per share to $0.061 per share.


17


This
      funding was arranged by TAG, a registered investment advisor which advises
      a
      number of our stockholders in investment decisions, including decisions about
      whether to invest in our stock. These clients include Richard Adelson, Alan
      Farber and Kerry Kuhn, who are members of our Board of Directors, and Mr. Szulik
      and Redec & Associates, LLC, another of our principal stockholders. Based
      upon our stock records and data supplied to us by our stockholders, we believe
      that clients of TAG beneficially owned approximately 55.1% of our common stock
      as of September 27, 2007, prior to the stock purchases subject to the Stock
      Purchase Agreement of September 27, 2007. TAG has discretionary authority to
      vote or dispose of the shares of our common stock held in its client accounts
      and, therefore, may be deemed to be the beneficial owner of such shares in
      accordance with the Commission's Rules. TAG has informed us that James
      Tagliaferri is the natural person at TAG with such discretionary authority.
      TAG
      expressly disclaims beneficial ownership of any shares owned by its clients.




We
      believe our existing available cash and cash equivalents as of March 31, 2008,
      in combination with continuing contractual commitments will not be sufficient
      to
      meet our anticipated capital requirements during 2008. We are unable to pay
      certain vendors in a timely manner and remain over 90 days past due with certain
      critical vendors, such as outside laboratories and law firms. We currently
      owe
      our former chief executive officer's firm, R. I. Heller & Co., LLC, $175,000
      for his services. Additionally, we are currently outsourcing administrative
      and
      accounting functions as a result of cutbacks necessitated by insufficient
      monetary resources. We are attempting to remedy this problem. Our ability to
      continue operating is dependent on the receipt of additional funding and
      substantial additional capital resources will be required to fund continuing
      expenditures related to our research, development, manufacturing and business
      development activities. If adequate funds are not available, we will be required
      to significantly curtail our operating plans and most likely cease operations.
      We are still in discussions with other potential financing sources and
      collaborative partners, and are seeking additional funding in the form of equity
      investments, license fees, loans, milestone payments or research and development
      payments. We cannot assure that any of these other sources of funding will
      be
      consummated in the timeframes needed for continuing operations or on terms
      favorable to us, if at all.





**Caution
      on Forward-Looking Statements**





Any
      statements in this report about our expectations, beliefs, plans, objectives,
      assumptions or future events or performance are not historical facts and are
      forward-looking statements. You can identify these forward-looking statements
      by
      the use of words or phrases such as “believe,” “may,” “could,” “will,”
“estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,”
“should” or “would.” Among the factors that could cause actual results to differ
      materially from those indicated in the forward-looking statements are risks
      and
      uncertainties inherent in our business including, without limitation: the
      potential for the FDA to impose non-clinical, clinical or other requirements
      to
      be completed before or after use of any of our intellectual property or
      methodology; our ability to demonstrate to the satisfaction of potential
      collaborative development partners of the feasibility of utilizing our
      intellectual property or methodology; the failure to generate the potential
      to
      enter into and the terms of any strategic transaction relating to our
      intellectual property or methodology; the scope, validity and duration of patent
      protection and other intellectual property rights for our intellectual property
      or methodology ; estimates of the potential markets for our intellectual
      property or methodology and our ability to compete in these markets; our
      products, our expected future revenues, operations and expenditures and
      projected cash needs; our ability to raise sufficient capital and other risks
      detailed in this report. Although we believe that the expectations reflected
      in
      our forward-looking statements are reasonable, we cannot guarantee future
      results, events, levels of activity, performance or achievement. We undertake
      no
      obligation to publicly update or revise any forward-looking statements, whether
      as a result of new information, future events or otherwise, unless required
      by
      law. This caution is made under the safe harbor provisions of the Private
      Securities Litigation Reform Act of 1995.


18


**Item 3.
      Quantitative and Qualitative Disclosures about Market Risk**




Our
      cash,
      cash equivalents and marketable securities at March 31, 2008 consisted
      primarily of bank demand deposits and money market funds. The primary objective
      of our cash management activities is to remain sufficiently liquid to continue
      all required operations, while developing a strategy to optimize returns on
      our
      intellectual properties and methodologies and long term investments in strategic
      collaborative development partners. We do not currently have any primary
      exposure to market risk.





Our
      cash
      is invested in accordance with a policy approved by our Board of Directors.
      We
      do not believe our cash, cash equivalents, and marketable securities have
      significant risk of default or illiquidity. We cannot provide absolute assurance
      that in the future our investments will not be subject to adverse changes in
      market value.





**Item 4T.
      Controls and Procedures**




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed by the Company in the reports we file
      or
      submit under the Securities Exchange Act of 1934, is recorded, processed,
      summarized and reported within the time periods specified in the Securities
      and
      Exchange Commission’s rules and forms, and that such information is accumulated
      and communicated to our management, including our Interim Chief Executive
      Officer and Interim Principal Financial Officer, who is the same person, to
      allow timely decisions regarding required disclosure. As reported in our Annual
      Report on Form 10-KSB for the year ended December 31, 2007 (filed on May 12,
      2008), Company management identified material weaknesses in our internal
      accounting control over financial reporting as of December 31, 2007,
      including:





·
            Pervasive,
                entity-level control deficiencies across key COSO components in the
                Company’s control environment, including:





o
            Controls
                over the period-end financial closing and reporting
                processes;


o
            Controls
                over managerial override;


o
            Controls
                to prevent or reduce the risk of fraudulent
                activity;


o
            Controls
                to monitor other controls, including the role of the Board of Directors;
                and


o
            Controls
                related to risk assessment.





·
            An
                absence of independence and financial expertise on the Board of Directors,
                limiting its ability to provide effective
                oversight.


·
            An
                absence of a formalized process to manage the Company’s internal controls
                over financial reporting and become compliant with Section 404 of
                the
                Sarbanes-Oxley Act.


·
            Inadequate
                controls over the period-end financial close and reporting
                processes;


·
            Insufficient
                personnel resources and technical accounting expertise within the
                accounting function to provide for adequate segregation of duties
                and
                resolve non-routine or complex accounting matters;
                and


·
            Inadequate
                documentation of policies, procedures, and controls related to finance
                and
                accounting, including inadequate procedures for appropriately identifying,
                assessing, and applying accounting
                principles.


19


As
      a
      result of these material weaknesses, management concluded that the Company’s
      internal control over financial reporting was not effective as of December
      31,
      2007. During the three months ended March 31, 2008, and through the date of
      this
      Quarterly Report on Form 10-Q, we have begun to implement additional controls
      and procedures, as outlined in “Management’s Report on Internal Controls Over
      Financial Reporting” in our 2007 Annual Report on Form 10-KSB, intended to
      remediate the material weaknesses discussed above and are continuing to assess
      additional controls that may be required to remediate these
      weaknesses.





As
      of
      March 31, 2008, our management, including our Interim Chief Executive Officer
      and Interim Principal Financial Officer, who is the same person, evaluated
      the
      effectiveness of our disclosure controls and procedures (as defined in Rules
      13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
      amended). As part of its evaluation, management evaluated whether the previously
      reported material weaknesses in internal control over financial reporting
      continue to exist. Although the Company has begun to address its material
      weaknesses in internal control over financial reporting, we have not completed
      the implementation and testing of the changes in controls and procedures which
      we believe are necessary to conclude that the material weaknesses have been
      remediated. Accordingly, Company management has determined that it cannot assert
      that the reported material weaknesses have been effectively remediated as of
      March 31, 2008. Accordingly, Company management, including our Interim Chief
      Executive Officer and Interim Principal Financial Officer, who is the same
      person, has concluded that Company’s disclosure controls and procedures were not
      effective as of March 31, 2008.





Notwithstanding
      the identified material weaknesses, Company management has concluded that the
      consolidated financial statements included in this Quarterly Report present
      fairly, in all material respects, the Company’s financial position, results of
      operations and cash flows for the periods presented in conformity with
      accounting principles generally accepted in the United States.





Other
      than the changes described above, there have been no changes in our internal
      control over financial reporting that occurred during the quarter ended March
      31, 2008 that have materially affected, or are reasonably likely to materially
      affect, our internal control over financial reporting.




20


**PART
      II — OTHER INFORMATION**


**Item 1.
      Legal Proceedings**





From
      time
      to time, we are involved in litigation and proceedings in the ordinary course
      of
      our business. We are not currently involved in any legal proceeding that we
      believe would have a material adverse effect on our business or financial
      condition.




**Item 1A.
      Risk Factors**





Investing
      in our common stock involves a high degree of risk. You should consider
      carefully the risks and uncertainties described under Item 1A – “Risk
      Factors” of Part 1 of our Annual Report on Form 10-KSB for the year ended
      December 31, 2007, which is incorporated by reference into this report. The
      risks described in our Annual Report have not materially changed.





You
      should carefully consider the risk factors discussed in our Annual Report on
      Form 10-KSB as well as the other information in this report before deciding
      whether to invest in shares of our common stock. The occurrence of any of the
      risks discussed in the Annual Report on Form 10-KSB or this report could harm
      our business, financial condition, results of operations or growth prospects.
      In
      that case, the trading price of our common stock could decline, and you may
      lose
      all or part of your investment.





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




During
      the first quarter of 2008, we received an aggregate of $775,000 for the purchase
      of 14,460,408 common shares. Reference is made to Liquidity and Capital
      resources under Management’s Discussion and Analysis of Financial Condition and
      Results of Operations or information relating to these sales. The sales were
      made pursuant to the exemption from the registration provisions of the
      Securities Act of 1933 provided by Section 4 (2) thereof.





As
      of
      March 31, 2008, we had used substantially all of the net proceeds which
      were generated from the sale of our securities pursuant to the SPA to fund
      ongoing operations. We have no remaining proceeds from these sales and will
      require further sales or other financing transactions or collaborative
      development agreements to maintain ongoing operations.




**Item 3.
      Defaults upon Senior Securities**





Not
      applicable.





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




Not
      applicable.





**Item 5.
      Other Information**





Not
      applicable.


21




**Item 6.
      Exhibits**





The
      following documents are included or incorporated by reference:





Exhibit
                Number
            
            Description10.6.1*
            
            Secured
                Promissory Note Replacement Agreement, dated as of January 9, 2008,
                between the Company and Matthew J. Szulik.10.6.2*
            
            Secured
                Promissory Note issued to Matthew J. Szulik, dated as of January
                9,
                2008.10.6.3*
            
            Form
                of Warrant to Purchase Shares of Common Stock of the Company in connection
                with the Secured Promissory Note issued to Matthew J. Szulik, dated
                as of
                January 9. 2008.31.1
            
            Certification
                of Interim 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 Interim 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 Interim Chief Executive Officer pursuant to 18 U.S.C. Section
                1350, as
                adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
            
            Certification
                of Interim Principal Financial Officer pursuant to 18 U.S.C. Section
                1350
                as adopted pursuant to Section 960 of the Sarbanes-Oxley Act of
                2002.







*
            Incorporated
                by reference to Registrant’s Report on Form 10-KSB for the fiscal year
                ended December 31, 2007, SEC File No. 000-19724, as filed with the
                Commission on May 12, 2008.




22


**SIGNATURES**





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




PROTEIN
                POLYMER TECHNOLOGIES, INC.Date:
                May 20, 2008
            By:
            /s/
                James B. McCarthyJames
                B. McCarthyInterim
                Chief Executive OfficerDate:
                May 20, 2008
            By:
            /s/
                James B. McCarthyJames
                B. McCarthyInterim
                Principal Financial Officer




23