<PAGE>

================================================================================

                                 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 September 30, 1999

[_]    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)

                                (619) 558-6064
                          (Issuer's telephone number)


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
                                                              -----


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:   As of November 1, 1999, 13,443,510
shares of common stock were outstanding.

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

                      PROTEIN POLYMER TECHNOLOGIES, INC.

                                  FORM 10-QSB

                                     INDEX



                                                                      PAGE NO.
                                                                      --------

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements (unaudited)

         Condensed Balance Sheets -
         September 30, 1999 and December 31, 1998...................     3

         Condensed Statements of Operations -
         For the Three and Nine Months ended September 30, 1999
         and 1998 and the period July 6, 1988 (inception) to
         September 30, 1999.........................................     4

         Condensed Statements of Cash Flows -
         For the Nine Months ended September 30, 1999
         and 1998 and the period July 6, 1988 (inception)
         to September 30, 1999......................................     5

         Notes to Condensed Financial Statements....................     7

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


PART II. OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K...........................    15

         Signature..................................................    16

                                       2
<PAGE>

                      PROTEIN POLYMER TECHNOLOGIES, INC.
                         (A Development Stage Company)

                           Condensed Balance Sheets
<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30,         DECEMBER 31,
                                                                       1999                   1998
                                                                    -------------         ------------
                                                                     (UNAUDITED)
<S>                                                                 <C>                   <C>
Assets
Current assets:
  Cash and cash equivalents                                           $   997,920          $ 1,383,148
  Short-term investments                                                        -                    -
  Other current assets                                                     49,205               66,459
                                                                     ------------         ------------
Total current assets                                                    1,047,125            1,449,607

  Deposits                                                                 36,977               36,177
  Notes receivable from officers                                          140,000              141,000
  Equipment and leasehold improvements, net                               409,811              598,447
                                                                     ------------         ------------
                                                                     $  1,633,913         $  2,225,231
                                                                     ============         ============
LIABILITIES AND STOCKHOLDERS' EQUITY
  Current liabilities:
  Accounts payable                                                   $    108,362         $    515,413
  Accrued employee benefits                                                29,640              167,849
  Other accrued expenses                                                   37,807               21,574
  Current portion capital lease obligations                                81,284               84,518
  Deferred rent                                                            60,668               60,668
                                                                     ------------         ------------
Total current liabilities                                                 317,761              850,022

Long-term portion capital lease obligations                                46,339              105,548

Stockholders' equity:

Convertible Preferred Stock, $.01 par value, 188,917 shares
  authorized, 91,065 and 79,202 shares issued and outstanding
  at September 30, 1999 and December 31, 1998, respectively;
  liquidation preference - $9,106,500 and $7,480,200, at
  September 30, 1999 and December 31, 1998, respectively                8,761,072            7,600,226

Common stock, $.01 par value, 25,000,000 shares
  authorized,13,443,510 and 10,827,240 shares issued and
  outstanding at September 30, 1999 and December 31, 1998,
  respectively                                                            134,447              108,274
Additional paid-in capital                                             28,397,157           26,549,125
Deficit accumulated during development stage                          (36,022,862)         (32,987,964)
                                                                     ------------         ------------
Total stockholders' equity                                              1,269,813            1,269,661
                                                                     ------------         ------------
                                                                     $  1,633,913         $  2,225,231
                                                                     ============         ============
</TABLE>
See accompanying notes.

                                       3
<PAGE>

                      PROTEIN POLYMER TECHNOLOGIES, INC.
                         (A Development Stage Company)

                      Condensed Statements of Operations
                                  (unaudited)

<TABLE>
<CAPTION>

                                                                                                                  FOR THE PERIOD
                                                                                                                   JULY 6, 1988
                                        THREE MONTHS ENDED                         NINE MONTHS ENDED              (INCEPTION) TO
                                           SEPTEMBER 30,                             SEPTEMBER 30,                 SEPTEMBER 30,
                                  ------------------------------             -----------------------------        --------------
                                     1999               1998                   1999               1998                 1999
                                  -----------        -----------             -----------       -----------        --------------
<S>                               <C>                <C>                    <C>                <C>                <C>
 Revenues:
   Contract revenue               $     2,320        $         -             $     2,320       $    50,000        $    4,357,285
   Interest income                     10,017             41,772                  29,575            90,337             1,110,504
   Product and other income            14,111              6,725                  50,627            41,019               680,641
                                  -----------        -----------             -----------       -----------        --------------
Total revenues                         26,448             48,497                  82,522           181,356             6,148,430

Expenses:
   Cost of sales                         (145)                 -                    (467)            4,373               279,212
   Research and development           498,614          1,123,299               1,946,693         3,040,682            23,331,947
   Selling, general and
    administrative                    285,454            378,624               1,158,693         1,304,681            14,314,995
   Royalties                                -              6,250                  12,500            18,750               302,671
                                  -----------        -----------             -----------       -----------        --------------
Total expenses                        783,923          1,508,173               3,117,419         4,368,486            38,228,825
                                  -----------        -----------             -----------       -----------        --------------
 Net loss                            (757,475)        (1,459,676)             (3,034,897)       (4,187,130)          (32,080,395)
                                  -----------        -----------             -----------       -----------        --------------
 Undeclared, imputed
   and/or paid dividends
   on preferred stock                  69,220             69,410                 207,659         3,474,913             5,169,674
                                  -----------        -----------             -----------       -----------        --------------
Net loss applicable to
   common shareholders            $  (826,696)       $(1,529,086)            $(3,242,556)      $(7,662,043)       $  (37,250,069)
                                  ===========        ===========             ===========       ===========        ==============
Basic and diluted net loss
   per common share               $     (0.06)       $     (0.14)            $     (0.26)      $     (0.73)
                                  ===========        ===========             ===========       ===========
Shares used in computing
   basic and diluted net
   loss per common share           13,367,249         10,575,811              12,280,147        10,492,508
                                   ==========         ==========              ==========        ==========
 </TABLE>

See accompanying notes.

                                       4
<PAGE>

                      PROTEIN POLYMER TECHNOLOGIES, INC.
                         (A Development Stage Company)

                      Condensed Statements of Cash Flows
                                  (unaudited)


<TABLE>
<CAPTION>
                                                                                           FOR THE PERIOD
                                                                                            JULY 6, 1988
                                                           NINE MONTHS ENDED               (INCEPTION) TO
                                                              SEPTEMBER 30,                 SEPTEMBER 30,
                                                     --------------------------------       -------------
                                                        1999                1998                1999
                                                     -----------          -----------       -------------
<S>                                                  <C>                  <C>               <C>
OPERATING ACTIVITIES
Net loss                                             $(3,034,897)         $(4,187,130)       $(32,080,395)
Adjustments to reconcile net loss to net cash
 used for operating activities:
  Stock issued for compensation and interest              18,000               37,500             122,895
  Interest expense associated with issuance
   of warrant                                              2,700                    -               2,700

  Depreciation and amortization                          214,736              273,697           1,843,032
  Write-off of purchased technology                            -                    -             503,500
  Changes in assets and liabilities:
   Deposits                                                 (800)                (860)            (36,977)
   Notes receivable from officers                          1,000                9,000            (140,000)
   Other current assets                                   17,254               23,020             (49,205)
   Accounts payable                                     (407,051)             (23,282)            108,362
   Accrued employee benefits                            (138,209)              (2,483)             29,640
   Other accrued expenses                                 16,233              (20,430)             37,807
   Deferred rent                                               -                    -              60,668
                                                    -----------           -----------        ------------
Net cash used for operating activities               (3,311,034)           (3,890,968)        (29,597,973)

INVESTING ACTIVITIES
Purchase of technology                                        -                     -            (570,000)
Purchase of equipment and improvements                  (26,100)             (188,038)         (1,810,814)
Purchases of short-term investments                           -              (893,180)        (16,161,667)
Sales of short-term investments                               -               974,817          16,161,667
                                                    -----------           -----------       -------------
Net cash used for investing activities              $   (26,100)          $  (106,401)      $  (2,380,814)

</TABLE>

See accompanying notes.

                                       5
<PAGE>

                       PROTEIN POLYMER TECHNOLOGIES, INC.
                         (A Development Stage Company)

                 Condensed Statements of Cash Flows, continued
                                  (unaudited)
<TABLE>
<CAPTION>

                                                                                           FOR THE PERIOD
                                                                                            JULY 6, 1988
                                                           NINE MONTHS ENDED               (INCEPTION) TO
                                                              SEPTEMBER 30,                 SEPTEMBER 30,
                                                     --------------------------------       -------------
                                                        1999                1998                1999
                                                     ----------          ----------         -------------
<S>                                                  <C>                 <C>                 <C>
FINANCING ACTIVITIES
Net proceeds from exercise of options and
 warrants, and sale of common stock                  $  939,754          $  117,311         $  17,537,666
Net proceeds from issuance of preferred
 stock                                                2,074,595           5,277,813            14,290,160
Net proceeds from convertible notes and
 detachable warrants                                          -                   -             1,068,457
Payment on capital lease obligations                    (62,443)            (55,496)             (161,149)
Payment on note payable                                (150,000)                  -              (242,750)
Proceeds from note payable                              150,000                   -               484,323
                                                     ----------          ----------         -------------
Net cash used for financing activities                2,951,906           5,339,628            32,976,707
                                                     ----------          ----------         -------------
Net increase (decrease) in cash and cash
 equivalents                                           (385,228)          1,342,259               997,920
Cash and cash equivalents at beginning of
 period                                               1,383,148             325,021                     -
                                                     ----------          ----------         -------------
Cash and cash equivalents at end of period           $  997,920          $1,667,280         $     997,920
                                                     ==========          ==========         =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION
Equipment purchased by capital leases                $        -          $        -         $     288,772
Interest paid                                            16,592              20,848               114,520
Imputed dividend on Series E stock                            -                   -             3,266,250
Conversion of Series D preferred stock to
 Series F preferred stock                                     -           2,497,795             2,497,795
Conversion of Series D preferred stock to
 common stock                                                 -              44,990             2,142,332
Conversion of Series E preferred stock to
 common stock                                           913,750                                 1,213,750
Series D stock issued for Series C stock                                          -             2,073,925
Series C dividends paid with Series D stock                   -                   -               253,875
Series D dividends paid with common stock            $        -          $        -         $     422,341
</TABLE>

  See accompanying notes.

                                       6
<PAGE>

                      PROTEIN POLYMER TECHNOLOGIES, INC.
                         (A Development Stage Company)

                    Notes to Condensed Financial Statements
                                  (unaudited)

                              September 30, 1999


1.  BASIS OF PRESENTATION

The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three and nine months ended September 30, 1999 and 1998 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 at September 30, 1999 and the
results of operations for the three and nine months ended September 30, 1999 and
1998. The results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results to be expected for the
year ended December 31, 1999. For more complete financial information, these
financial statements and the notes thereto should be read in conjunction with
the audited financial statements included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.

2.  NET LOSS PER SHARE

Net loss per share is computed using the weighted average number of common
shares outstanding during the period. The net loss figures used for this
calculation recognize accumulated dividends on the Company's Series D and Series
F Preferred Stock. Such dividends are payable when declared by the Board of
Directors in cash or common stock.

3.  BASIC AND DILUTED LOSS PER SHARE

As required, the Company adopted Financial Accounting Standards Board Statement
No. 128, "Earnings Per Share," ("FAS No. 128") during 1998. FAS No. 128 changes
the method used to calculate earnings per share and requires the restatement of
all prior periods reported. Under FAS No. 128, the Company is required to
present basic and diluted earnings per share if applicable. Basic and diluted
earnings per share are determined based on the weighted average number of shares
outstanding during the period. Diluted earnings per share also includes
potentially dilutive securities such as options and warrants outstanding and
securities convertible into common stock.

Both the basic and diluted loss per share for the three and nine months ended
September 30, 1999 and 1998 are based on the weighted average number of shares
of common stock outstanding during the periods. Since potentially dilutive
securities have not been included in the calculation of the diluted loss per
share for both periods as their affect is antidilutive, there is no difference
between the basic and diluted loss per share calculations.

4.  NOTE RECEIVABLE WITH OFFICER

A loan for $140,000, secured by a pledge of stock, was made to an officer of the
Company on April 16, 1997, solely to meet tax obligations arising from the
exercise of a stock option. Interest accrues at the annual rate of 8% on the
unpaid principal balance. In July 1999, the loan term was extended for five
years. All remaining principal and accrued interest thereon is to be paid to the
Company in full by April 2005.

                                       7
<PAGE>

5.  EXERCISE OF WARRANTS

Between April 1 and April 15, 1999, the Company received approximately $508,000
from the exercise of redeemable, publicly traded, warrants originally issued as
part of PPTI's Initial Public Offering. Following the close of business on April
15, the remaining unexercised redeemable, publicly traded, warrants expired. On
May 12, 1999, the Company received approximately $416,000 from the exercise of
warrants issued in conjunction with the private placement of the Company's
Series E Convertible Preferred Stock.

6.  SERIES G PREFERRED STOCK OFFERING

On August 16, 1999, the Company received $1,775,000 for 17,750 shares of Series
G Preferred Stock from several institutional and accredited individual
investors. On September 15, 1999, the Company received an additional $325,000
for 3,250 shares of Series G Preferred Stock, for total proceeds of $2,100,000.
Each share of Series G Convertible Preferred Stock was priced at $100 per share.
Each share can be converted at any time by the holder into common stock at a
price of $0.50 per share, subject to certain antidilution adjustments. Each
share of Preferred Stock also receives a common stock warrant, exercisable for
12 months, that allows the holder to acquire 200 shares of PPTI common stock at
a price of $0.50 per share. The Preferred Stock, warrants and underlying common
stock have not been registered under the Securities Act of 1933, as amended, and
may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.

7.  NASDAQ DELISTING; TRADING CONDUCTED IN THE OVER-THE-COUNTER MARKET

The Company's Common Stock was delisted from the NASDAQ Small Cap Quotation
System, effective September 20, 1999. The reasons for the delisting were failure
to maintain the minimum bid requirement of $1.00 per share for PPTI common
stock, and failure to meet the minimum net asset requirement of $2 million. The
Company's Common Stock is now traded on "over-the-counter" NASD Bulletin Board.

8.  LIQUIDITY

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company believes its existing
available cash and cash equivalents as of September 30, 1999 are sufficient to
meet its anticipated capital requirements until February 2000, including the on-
going external expenses associated with the conduct of pilot human clinical
trials of the Company's product for the treatment of female stress urinary
incontinence. Substantial additional capital resources will be required to fund
continuing expenditures related to the Company's research, development and
product marketing activities. If adequate funds are not available in the future,
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.

                                       8
<PAGE>

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

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
which 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, compliance with NASDAQ listing requirements, 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. 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. The Company undertakes 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. The reader is encouraged to refer to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1998, as well as other recent filings
with the Securities and Exchange Commission, to ascertain the risks associated
with these statements.

GENERAL OVERVIEW

Protein Polymer Technologies, Inc., a Delaware corporation ("PPTI" or "the
Company"), is a development-stage biotechnology company incorporated on July 6,
1988 and is engaged in the research, development and production of medical
products based on its proprietary protein-based biomaterials technology. The
Company has been unprofitable to date, and has an accumulated deficit of
$36,020,000. Since 1992, the Company has primarily focused on developing
materials technology and products to be used in the surgical repair of tissue:
soft tissue augmentation; surgical adhesives and sealants; wound healing and
tissue engineering matrices; and drug delivery devices. The Company also has
developed coating technology that can efficiently modify and improve the surface
properties of more traditional biomedical devices. A common goal is to develop
materials that beneficially interact with human cells, enabling cell growth and
the regeneration of tissues with improved outcomes as compared to current
products and practices.

In December 1998, the Company filed its first Investigational Device Exemption
("IDE") with the U.S. Food and Drug Administration ("FDA") to request approval
to begin human clinical testing of its urethral bulking agent for the treatment
of female stress urinary incontinence. In May 1999, the FDA approved the IDE
conditionally and in August, gave the IDE full approval. The Company expects to
start enrolling patients in these clinical trials during the 4th Quarter of
1999. The Company intends to submit an additional IDE to the FDA in the first
quarter of 2000 to request approval to begin human clinical testing of its
dermal bulking agent for use in cosmetic and reconstructive surgery
applications. PPTI began studies of what it believes to be its most promising
biomaterial formulations for use in these soft tissue augmentation products in
1997 and has devoted increasing resources to this program area through 1998 and
1999 in preparation for beginning human clinical testing.

On June 30, 1999, the Company laid off eighteen employees, approximately 60% of
its work force, as part of a broad cost cutting measure to preserve cash. In
late July, several employees

                                       9
<PAGE>

were brought back on the payroll in order to prevent delays in beginning the
clinical testing of the Company's lead product, scheduled to begin in December,
1999. In addition, a number of remaining employees agreed to take 50% of their
salary in the form of a promissory note until the current cash balance was
improved, and reductions in non-employee expenditures across the board have been
taken. With the closing of the Series G Preferred stock offering, several of the
laid off employees were rehired. All current employees are receiving full salary
and all promisory notes have been paid. There can be no assurance that these
employees will choose to remain with the Company, or that there will not be
further personnel changes. As of September 30, 1999, the Company had 19 full
time and 2 part time employees.

Between 1994 and 1997, the Company's efforts were focused predominantly on the
development of its surgical adhesive and sealant technology. As part of this
effort, the Company targeted the establishment of a strategic alliance with a
market leader in the field of surgical wound closure products which lead to the
execution of comprehensive license, supply and development agreements in
September 1995, with Ethicon, Inc. ("Ethicon"), a subsidiary of the Johnson &
Johnson Company ("J&J"). Ethicon elected to terminate these agreements in
December 1997.

PPTI is committed to the commercial development of its adhesive and sealant
technology. The Company has demonstrated both the adhesive performance and the
biocompatibility of its product formulations in animal models, including the
resorption of the adhesive matrix in conjunction with the progression of wound
healing. Following the termination of the Ethicon agreements, the Company worked
to determine the specific markets and products providing the most significant
opportunities for its use. As a result, the Company currently is focusing
project activities on the development of products to repair spinal discs for the
treatment of chronic lower back pain. PPTI is seeking to establish a strategic
alliance with a leader in the market for such products.

To the extent sufficient resources are available, the Company will continue to
research the use of its protein polymers for other tissue repair and medical
device applications, principally for use in tissue engineering matrices and drug
delivery devices.

PPTI is aggressively pursuing domestic and international patent protection for
its technology, making claim to an extensive range of recombinantly prepared
structural and functional proteins, methods for preparing synthetic repetitive
DNA, methods for the production and purification of protein polymers, end-use
products incorporating such materials and methods for their use. To date, the
United States Patent and Trademark Office ("USPTO") has issued fourteen patents
to the Company, eight of which were issued in 1998. In addition, PPTI has filed
corresponding patent applications in most other relevant commercial
jurisdictions.

In 1992, the Company raised approximately $8.9 million through its initial
public offering of common stock and redeemable warrants. The Company used a
major portion of these proceeds to generate substantive in vitro laboratory
evidence and in vivo animal test data demonstrating the biocompatibility and
performance of its protein polymers and derived biomaterials, and to establish a
materials science group which has developed important materials modification and
fabrication technology.

In July 1994, the Company raised approximately $2.1 million from the sale of its
unregistered Series C Preferred Stock to private investors. In September 1995,
the Company raised approximately $2.4 million from the sale of its unregistered
Series D Preferred Stock to the same private investors. Also at this time these
investors exchanged all of their holdings of Series C Preferred Stock and
accumulated dividends into Series D Preferred Stock. In January 1997, the
Company raised approximately $4.6 million from a private placement of the
Company's common stock with a number of institutional and accredited investors.

                                       10
<PAGE>

In April and May 1998, the Company raised approximately $5.4 million from the
sale of 54,437.5 shares of the Company's unregistered Series E Convertible
Preferred Stock ("Series E Stock") priced at $100 per share with warrants to
purchase an aggregate of 3,266,250 shares of common stock to a small group of
institutional and accredited investors. In connection with this transaction, the
Company issued 26,240 shares of Series F Convertible Preferred Stock in exchange
for the same number of shares of outstanding Series D Convertible Preferred
Stock.

In April 1999 the Company received approximately $508,000 from the exercise of
redeemable, publicly traded, warrants issued as part of the initial public
offering. In May 1999 the Company received $416,000 from the exercise of
warrants issued in conjunction with the sale of its Series E Convertible
Preferred Stock.

In August and September 1999, the Company raised approximately $2.1 million from
the sale of 21,000 shares of the Company's unregistered Series G Preferred Stock
priced at $100 per share with warrants to purchase an aggregate of 4,200,000
shares of common stock to a small group of institutional and accredited
individual investors.

The Company's strategy with most of its programs is to enter into collaborative
development agreements with major medical 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 reimbursements and milestone payments, the Company expects to
continue incurring operating losses for several more years. In their report for
the year ended December 31, 1998, our independent auditors stated that without
additional financing, there is substantial doubt about our ability to continue
as a going concern. We believe there are a number of alternatives available to
meet our continuing capital requirements. See the Liquidity and Capital
Resources section of Management's Discussion and Analysis of Financial Condition
and Results of Operations for further discussion.

RESULTS OF OPERATIONS

Since the termination of the R&D agreements with Ethicon in December 1997, the
Company has received minimal contract research revenue. Contract revenue for the
three months and the nine months ended September 30, 1999 was $2,300.

Interest income was $10,000 for the three months ended September 30, 1999,
versus $42,000 for the same period in 1998. Interest income for the nine months
ended September 30, 1999 and 1998 were $30,000 and $90,000 respectively. The
decreases resulted from less cash available for investing.

For the three months ended September 30, 1999 and 1998, sales and license fees
of the Company's ProNectin(R) and SmartPlastic(R) products were $14,000 and
$6,700, respectively, and for the nine month period ended September 30, 1999 and
1998 were $51,000 and $41,000 respectively. Although there has been a slow
growth in sales, the differences are due primarily to fluctuations in reorders
by distributors.

Research and development expenses for the three and nine months ended September
30, 1999 were $499,000 and $1,947,000 respectively, compared to $1,123,000 and
$3,041,000 respectively for the same period in 1998, decreases of 56% and 36%
respectively. Throughout 1999 the Company has been systematically increasing the
focus of its efforts and reducing its expenditures across the board, including
personnel downsizing. The decrease is also attributable to completion of
external contracts and consulting services related to the Company's soft tissue
augmentation program, including preclinical testing and preparation of the
Investigational Device Exemption submitted to the Food and Drug Administration
("FDA") in December 1998. However, external expenses are expected to increase as
the Company begins the clinical testing

                                       11
<PAGE>

of its urethral bulking product later this year. In the future, the Company
expects, in general, that its research and development expenses will continue to
increase over time if its other products in development and other contemplated
projects successfully progress and additional capital is obtained.

Selling, general and administrative expenses for the three and nine months ended
September 30, 1999 were $285,000 and $1,159,000 respectively, as compared to
$379,000 and $1,305,000 for the same periods in 1998. Although baseline
expenditures have decreased, the total selling, general and administrative
expenditures remained similar to previous periods due to increases in legal and
other professional services primarily related to Securities and Exchange
Commission filings and other regulatory expenses. In general, the Company
expects its selling, general and administrative expenses to continue to decrease
in the near term, but will increase in the future as support for its research
and development efforts may require and to the extent additional capital is
obtained.

For the three months ended September 30, 1999, the Company recorded a net loss
applicable to common shareholders of $827,000, or $0.06 per share compared to a
loss of $1,529,000, or $0.14 per share for the same period in 1998. For the nine
months ended September 30, 1999, the Company recorded a net loss applicable to
common shareholders of $3,243,000, or $0.26 per share compared to a loss of
$7,662,000 or $0.73 per share for the same period in 1998. Included in the net
loss figures for the nine month period of 1998 were imputed non-cash dividends
of $3,266,000 to record the difference between the conversion price of the newly
issued Series E preferred stock and the fair market value of the common stock on
the preferred stock issuance date. Also included in each of the three and nine
month periods of 1999 and 1998 was $69,000 and $208,000 respectively, for
undeclared dividends related to the Company's preferred stock.

The Company expects to incur similar or increasing operating losses in the
future (to the extent additional capital is obtained), due primarily to
increases in the Company's soft tissue augmentation program's development,
manufacturing and business development activities. The Company's results depend
on its ability to establish strategic alliances and generate contract revenues,
increased research, development and manufacturing efforts, preclinical and
clinical product testing and commercialization expenditures, expenses incurred
for regulatory compliance and patent prosecution, and other factors. The
Company's results will also fluctuate from period to period due to timing
differences.

To date the Company believes that inflation and changing prices have not had a
material effect on its continuing operations.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1999, the Company had cash, cash equivalents and short-term
investments of $998,000 as compared to $1,383,000 at December 31, 1998. As of
September 30, 1999, the Company had working capital of $729,000 as compared to
$600,000 at December 31, 1998. In August and September 1999, the Company
received approximately $2,100,000 from the private placement of the Company's
Series G Convertible Preferred Stock.

The Company had long-term debt obligations as of September 30, 1999 of $46,000
in the form of capital lease obligations, versus $106,000 as of December 31,
1998. For the nine months ending September 30, 1999, the Company's expenditures
for capital equipment and leasehold improvements totaled $26,100 compared with
$188,000 for the same period last year. The Company is expecting to increase its
capital expenditures in the next few quarters (to the extent additional capital
is obtained), as the Company improves existing space to expand capacity to meet
materials manufacturing requirements for clinical testing. The Company may enter
into additional capital lease arrangements if available at appropriate rates and
terms.

                                       12
<PAGE>

Substantial additional capital resources will be required to fund continuing
expenditures related to the Company's research, development, manufacturing and
business development activities. The Company believes there may be a number of
alternatives to meeting the continuing capital requirements of its operations,
including collaborative agreements and additional public or private financings.
The Company is currently in discussions at various stages with several potential
collaborative partners that, based on the results of various in vitro and in
vivo product performance evaluations, could result in generating revenues in the
form of license fees, milestone payments or research and development
reimbursements. For example, the Company is in discussions with potential
strategic partners regarding the provision of cash and services in return for
product marketing rights following FDA approvals. The extent to which these
partnership arrangements are realized is expected to decrease the amount of cash
the Company will have to spend each quarter. However, there can be no assurance
that any of these fundings will be consummated in the necessary time frames
needed for continuing operations or on terms favorable to the Company. If
adequate funds 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.

YEAR 2000 COMPLIANCE

The Company continues to modify its information technology in recognition of the
year 2000 issue. The "Year 2000" issue concerns potential exposure related to
the interruption of business practice and financial misinformation resulting
from the application of computer programs which have been written using two
digits, rather than four, to define the applicable year of business
transactions.

The Company has undertaken initiatives to ensure that its computer systems are
Year 2000 compliant. To date, the Company has not incurred any material costs in
connection with its Year 2000 plan. Based on its assessments to date, the
Company does not expect to incur any further significant costs, or anticipate
any significant problems or uncertainties associated with becoming Year 2000
compliant.

The following is a breakdown by phase of the progress the Company has made to
date on its Year 2000 plan:


                      Phase                          Timeframe       % Complete
          Initial identification and assessment      Q-4 1998            95%
          Remediation                                Q-4 1998            95%
          Testing                                    Q-4 1999            95%
          Contingency planning                       Q-4 1999            80%


The Company is reliant on its vendors and suppliers and may be reliant on
strategic partners to provide Year 2000 compliant systems prior to December 31,
1999. The Company is in the process of surveying all of its major vendors and
suppliers to determine whether their systems are Year 2000 compliant. At this
time, the impact on the Company of significant vendors and suppliers not being
in full compliance cannot be reasonably estimated. However, the Company believes
that any of its vendors and suppliers can be replaced with minimal cost impact.
The Company is developing a plan to mitigate the impact of vendors and suppliers
who are not in compliance with issues related to the Year 2000.

                                       13
<PAGE>

                          PART II.  OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K


a. Exhibits:

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

     10.38      Securities Purchase Agreement related to the sale of the
                Company's Series G Convertible Preferred Stock

     10.39      Form of Warrant to Purchase Common Stock issued in connection
                with the Series G Preferred Stock

     10.40      Second Amendment to Stockholder Protection Agreement, dated July
                26, 1999 between the Company and Continental Stock Transfer and
                Trust Company as rights agent

     27         Financial Data Schedule


b.  Reports on Form 8-K

    On August 17, 1999, the Company filed a Current Report on Form 8-K with the
    Commission. In Item 5 of the report, the Company reported an initial private
    placement of 17,750 shares of the Company's Series G Convertible Preferred
    Stock, and warrants to purchase an aggregate of 3,550,000 shares of common
    stock.

    On September 20, 1999, the Company filed a Current Report on Form 8-K with
    the Commission. In Item 5 of the report, the Company reported the delisting
    of the Company's common stock from the NASDAQ Small Cap Market. The Company
    also reported a subsequent closing of a private placement of the Company's
    Series G Convertible Preferred Stock which, including the previous closing,
    was for a total of 21,000 shares and warrants to purchase an aggregate of
    4,200,000 shares of common stock.

                                       14
<PAGE>

                                   SIGNATURE


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  November 10, 1999                 By  /s/  J. Thomas Parmeter
        -----------------                     -------------------------------
                                              J. Thomas Parmeter
                                              Chairman of the Board, Chief
                                              Executive Officer, President


  Date  November 10, 1999                 By  /s/  Janis Y. Neves
        -----------------                     -------------------------------
                                              Janis Y. Neves
                                              Director of Finance, Controller
                                              and Assistant Secretary

                                       15
<PAGE>

                                 EXHIBIT INDEX



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

     10.38      Securities Purchase Agreement related to the sale of the
                Company's Series G Convertible Preferred Stock

     10.39      Form of Warrant to Purchase Common Stock issued in connection
                with the Series G Preferred Stock

     10.40      Second Amendment to Stockholder Protection Agreement, dated July
                26, 1999 between the Company and Continental Stock Transfer and
                Trust Company as rights agent

     27         Financial Data Schedule


                                       16