<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 June 30, 2001

[_]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
            For the transition period from____________ to__________

                        Commission file number 0-19724



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


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


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

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


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 August 8, 2001, 21,571,994
shares of common stock were outstanding.

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


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

                                       1
<PAGE>

                      PROTEIN POLYMER TECHNOLOGIES, INC.

                                  FORM 10-QSB

                                     INDEX


<TABLE>
<CAPTION>
                                                                                                      Page No.
                                                                                                      --------

     <S>                                                                                               <C>
     PART I.  FINANCIAL INFORMATION

     Item 1.       Financial Statements (unaudited)

           Condensed Balance Sheets -
              June 30, 2001 and December 31, 2000...................................................      3

           Condensed Statements of Operations -
              For the Three Months and Six Months ended June 30, 2001 and 2000
                and the period July 6, 1988 (inception) to June 30, 2001............................      4

           Condensed Statements of Cash Flows -
             For the Six Months ended June 30, 2001 and 2000 and the period July 6, 1988 (inception)
              to June 30, 2001......................................................................      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.................................................     13

                   Signature .......................................................................     14
</TABLE>

                                       2
<PAGE>

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

                           Condensed Balance Sheets

<TABLE>
<CAPTION>
                                                                             June 30,        December 31,
                                                                               2001             2000
                                                                         --------------------------------
<S>                                                                       <C>               <C>
Assets
Current assets:
 Cash and cash equivalents                                                 $  1,113,974      $    866,220
 Other current assets                                                            58,078            55,180
                                                                           ------------------------------
Total current assets                                                          1,172,052           921,400

 Deposits                                                                        73,977            71,177
 Notes receivable from officers                                                 140,000           140,000
 Equipment and leasehold improvements, net                                      223,464           250,257
                                                                           ------------------------------

                                                                           $  1,609,493      $  1,382,834
                                                                           ==============================

Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                                          $    205,176      $    206,981
 Notes payable                                                                  800,000                 -
 Accrued employee benefits                                                      100,219            69,657
 Accrued interest payable                                                        14,575                 -
 Other accrued expenses                                                          39,069            47,418
 Current portion capital lease obligations                                            -            25,088
 Deferred revenue                                                               333,333           333,333
 Deferred rent                                                                   98,503            96,191
                                                                           ------------------------------
Total current liabilities                                                     1,590,875           778,668

Long-term portion deferred revenue                                              166,667           333,334
Long-term portion capital lease obligations                                           -                 -

Stockholders' equity:
  Convertible Preferred Stock, $.01 par value, 5,000,000 shares
   authorized, 78,077 and 80,076 shares issued and outstanding at
   June 30, 2001 and December 31, 2000, respectively; liquidation
   preference of $7,807,700 and $8,007,600 at June 30, 2001 and
   December 31, 2000, respectively                                            7,462,272         7,662,272
  Common stock, $.01 par value, 40,000,000 shares authorized,
   21,571,994 and 18,910,313 shares issued and outstanding at
   June 30, 2001 and December 31, 2000, respectively                            215,731           189,115
  Additional paid-in capital                                                 33,589,298        32,163,017
  Deficit accumulated during development stage                              (41,415,350)      (39,743,572)
                                                                           ------------------------------
Total stockholders' equity (deficit)                                           (148,049)          270,832
                                                                           ------------------------------

                                                                           $  1,609,493      $  1,382,834
                                                                           ==============================
</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
                                                                                                            (inception) to
                                    Three months ended                       Six months ended                  June 30,
                                         June 30,                                June 30,
                                    2001         2000                      2001           2000                    2001
                         -------------------------------------------------------------------------------------------------
<S>                             <C>               <C>                    <C>              <C>                 <C>
Revenues:
   Contract revenue             $   183,333        $   103,333           $   266,667      $   489,907         $  5,731,348
   Interest income                   18,452             31,842                26,681           45,651            1,226,040
   Product and other                      -                145                    38            3,012              687,367
    income
                         --------------------------------------          --------------------------------     ----------------
Total revenues                      201,785            135,320               293,386          538,570            7,644,755

Expenses:
   Research and
    development                     597,619            642,551             1,202,521        1,196,738           28,278,576
   Selling, general and
    administrative                  404,831            411,911               762,643          739,444           16,833,144
                         --------------------------------------          --------------------------------     ----------------
Total expenses                    1,002,450          1,054,462             1,965,164        1,936,182           45,111,720
                         --------------------------------------          --------------------------------     ----------------

Net loss                           (800,665)          (919,142)           (1,671,778)      (1,397,612)         (37,466,965)
Undeclared, imputed
 and/or paid dividends
 on preferred stock                  69,220             69,220               137,678          137,678            5,654,971
                         --------------------------------------          --------------------------------     ----------------

Net loss applicable to
 common shareholders            $  (869,885)       $  (988,362)          $(1,809,456)     $(1,535,290)        $(43,121,936)
                         =====================================================================================================

Basic and diluted net
 loss per common share          $     (0.04)       $     (0.05)          $     (0.09)     $     (0.09)
                         =============================================================================

Shares used in computing
 basic and diluted net
 loss per common share           21,571,994         18,378,010            20,250,395       16,849,228
                         =============================================================================
</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
                                                          Six months ended               (inception) to
                                                              June 30,                      June 30,
                                                        2001               2000               2001
                                                   ---------------------------------------------------
<S>                                                  <C>                <C>               <C>
Operating activities
Net loss                                             $(1,671,778)       $(1,397,612)      $(37,466,966)
Adjustments to reconcile net loss to net cash
 used for operating activities:
  Stock issued for compensation and interest                   -            112,149            476,759
  Depreciation and amortization                           68,428             85,600          2,110,409
  Write-off of purchased technology                            -                  -            503,500
  Changes in assets and liabilities:
   Deposits                                               (2,800)              (800)           (73,977)
   Notes receivable from officers                              -                  -           (140,000)
   Other current assets                                   (2,898)            (1,062)           (58,078)
   Accounts payable                                       (1,805)          (192,782)           205,176
   Accrued employee benefits                              30,562            (21,934)           100,219
   Accrued interest payable                               14,575                  -             14,575
   Other accrued expenses                                 (8,349)            46,176             39,069
  Deferred revenue                                      (166,667)           833,333            500,000
  Deferred rent                                            2,312             11,435             98,503
                                                   ---------------------------------------------------
Net cash used for operating activities                (1,738,420)          (525,497)       (33,690,811)

Investing activities
Purchase of technology                                         -                  -           (570,000)
Purchase of equipment and improvements                   (41,636)           (30,118)        (1,897,764)
Purchases of short-term investments                            -                  -        (16,161,667)
Sales of short-term investments                                -                  -         16,161,667
                                                   ---------------------------------------------------
Net cash used for investing activities               $   (41,636)       $   (30,118)      $ (2,467,764)
</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
                                                           Six months ended           (inception) to
                                                               June 30,                  June 30,
                                                       2001               2000             2001
                                               ----------------------------------------------------
<S>                                                <C>                <C>             <C>
Financing activities
Net proceeds from exercise of options and
 warrants, and sale of common stock                $1,252,898         $2,197,998        $21,161,129
Net proceeds from issuance and conversion
 of preferred stock                                         -                  -         14,290,160
Net proceeds from convertible notes and
 detachable warrants                                        -                  -          1,068,457
Payment on capital lease obligations                  (25,088)           (39,361)          (288,770)
Payment on note payable                                     -                  -           (242,750)
Proceeds from note payable                            800,000                  -          1,284,323
                                               ----------------------------------------------------

Net cash provided by financing activities           2,027,810          2,158,637         37,272,549
                                               ----------------------------------------------------

Net increase in cash and cash equivalents             247,754          1,603,022          1,113,974

Cash and cash equivalents at beginning of
 period                                               866,220            155,692                  -
                                               ----------------------------------------------------

Cash and cash equivalents at end of period         $1,113,974         $1,758,714        $ 1,113,974
                                               ====================================================

Supplemental disclosures of cash flow
 information
Equipment purchased by capital leases              $        -         $        -        $   288,772
Interest paid                                             509              4,682            125,624
Imputed dividend on Series E stock                          -                  -          3,266,250
Conversion of Series D preferred stock to
 common stock                                               -                  -          2,142,332
Conversion of Series E preferred stock to
 common stock                                         200,000            698,800          2,512,550
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)

1.  Basis of Presentation

The condensed financial statements of Protein Polymer Technologies, Inc. (the
"Company") for the three months and the six months ended June 30, 2001 and 2000
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 June 30, 2001 and the
results of operations for the three months and the six months ended June 30,
2001 and 2000. The results of operations for the three months and the six months
ended June 30, 2001 are not necessarily indicative of the results to be expected
for the year ended December 31, 2001. For more complete financial information,
these financial statements and the notes thereto should be read in conjunction
with the audited financial statements included in our Annual Report on Form 10-
KSB for the year ended December 31, 2000, 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 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

In accordance with FAS No. 128, we are 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 include 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 six months ended
June 30, 2001 and 2000 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 effect is antidilutive, there is no difference
between the basic and diluted loss per share calculations.

4.  Revenue and Expense Recognition

License fees and research and development contract revenues are recorded as
earned based on the performance requirements of the contracts. If the research
and development activities are not successful, we are not obligated to refund
payments previously received. Milestone payments are recorded as revenue when
received as they have not been refundable and we have no future performance
obligations. Payments received in advance of amounts earned are recorded as
deferred revenue. Research and development costs are expensed as incurred.

5.  Note Receivable with Officer

A loan for $140,000, secured by a pledge of stock, was made to one of our
officers 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 until April
2005.

                                       7
<PAGE>

6.  Exercise and Exchange of Series G Warrants

During March 2001, certain holders of warrants issued in connection with the
sale of Series G Preferred Stock exercised their warrants to purchase common
stock, which were due to expire in February, 2001, but which had been extended
by the Board of Directors until February 2002. The original exercise price was
$1.50 per share. As an inducement to exercise the warrant early, we offered to
reduce the exercise price to $0.50 and offer each holder a new one year warrant
for a similar number of shares at an exercise price of $1.00 per share. As a
result we raised $1,246,000 (less expenses). The newly issued warrants will
expire on the last day of February 2002.

7.  Convertible Notes

During March 2001, we issued convertible notes to two current shareholders in
exchange for a total of $800,000. The notes provided for an interest rate of 7%
and both principal and interest were convertible into Series H Preferred at a
common equivalent price of $0.75 per share. The notes were converted in July
2001.

8.  Subsequent Events: Series H Preferred

On July 24, 2001, we announced the initial closing of a private placement for
$1.2 million with a small group of institutional and accredited investors of
12,182 shares of our Series H Convertible Preferred Stock and warrants to
purchase an aggregate of 304,550 shares of common stock.

The total offering of up to 30,000 shares of Series H Preferred Stock provides
for additional closings until October 31, 2001. Each share of Series H Preferred
Stock is convertible at any time at the election of the holder into 133 shares
of common stock at a conversion price of $0.75 per share, subject to certain
antidilution adjustments. No underwriters were engaged by us in connection with
such issuance and, accordingly, no underwriting discounts were paid. The
offering is exempt from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), and met the requirements of Rule 506 of
                       --------------
Regulation D promulgated under the Securities Act. The Series H Preferred Stock,
warrants and underlying common stock have not been registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.

Each share of Series H Preferred Stock also received two common stock warrants.
One warrant is exercisable at any time for 15 shares of common stock at an
exercise price of $1.50 per share, and expires approximately 12 months after the
close of the offering; the other warrant is exercisable at any time for 10
shares of common stock at an exercise price of $2.00 per share, and expires
approximately 24 months after the close of the offering

9.  Liquidity

We believe our existing available cash and cash equivalents as of June 30, 2001,
plus contractual amounts receivable and the proceeds from the sale of the Series
H preferred stock in July 2001, is sufficient to meet our anticipated capital
requirements until January 2002. Substantial additional capital resources will
be required to fund continuing expenditures related to our research,
development, clinical trials, and product marketing activities. If adequate
funds are not available, we will be required to significantly curtail our
operating plans and may have to sell or license out significant portions of our
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, scientific and technical uncertainties, competitive products and
approaches, reliance upon collaborative partnership agreements and funding,
regulatory testing and approvals, patent protection uncertainties and
manufacturing scale-up and required qualifications. While these statements
represent management's current judgment and expectations for the company, such
risks and uncertainties could cause actual results to differ materially from any
future results suggested herein. We undertake no obligation to release publicly
the results of any revisions to these forward-looking statements to reflect
events or circumstances arising after the date hereof.

General Overview

Incorporated in 1988, Protein Polymer Technologies, Inc., a Delaware corporation
with corporate offices and laboratories located in San Diego, California, is a
development-stage biotechnology company engaged in the research, development,
production and clinical testing of medical products based on its proprietary
protein-based biomaterials technology. Since 1992, we have focused primarily on
developing materials technology and products to be used in the surgical repair,
augmentation, and regeneration of tissue: surgical adhesives and sealants; soft
tissue augmentation products; matrices for wound healing and tissue engineering;
drug delivery formulations; and surgical adhesion barriers. We have been
unprofitable to date, and as of June 30, 2001 had an accumulated deficit of
$(41,415,350).

Protein polymers are synthetic proteins created "from scratch" through chemical
DNA (gene) synthesis, and produced in quantity by traditional large-scale
microbial fermentation methods. As a result, protein polymers contain no human
or animal components that could potentially transmit or cause disease. Due to
their synthetic design, protein polymers are capable of combining the biological
functionality of natural proteins with the chemical functionality and
exceptional physical properties of synthetic polymers. 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.

Our product candidates for surgical repair, augmentation and regeneration of
human tissues are in various stages of research and development. The more
advanced programs are bulking agents for soft tissue augmentation, particularly
for use in urethral tissue for the treatment of female stress incontinence and
in dermal tissue for cosmetic and reconstructive procedures. We currently are
devoting the majority of our resources to the development and registration of
these products.

Because of our technology's breadth of commercial opportunity, we are pursuing
multiple routes for commercial development. Currently, we independently are
developing the incontinence and the dermal augmentation products, which share
similar technology and product characteristics. We have established a
comprehensive license and development agreement with Genencor International for
the use of our biomaterials and technology to develop, manufacture and
commercialize products for industrial markets. Genencor International is one of
the world's largest manufacturers of industrial

                                       9
<PAGE>

enzymes and other biologically derived products. Through this arrangement, we
will receive development payments, and eventually royalties on the sale of
products. For development and commercialization of our spinal disc repair
product, we have joined with Windamere Venture Partners to establish a new
company, Spine Wave, Inc., that will provide us with both near term research and
development support and eventually royalties on the sale of licensed products.
Except for the industrial products, we have retained manufacturing rights.

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

Our strategy with most of our programs is to enter into collaborative
development agreements with product marketing and distribution companies.
Although these relationships, to the extent any are consummated, may provide
significant near-term revenues through up-front licensing fees, research and
development reimbursements and milestone payments, the Company expects to
continue incurring operating losses for the next several years.

We are aggressively pursuing domestic and international patent protection for
our 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 20 patents to us.
In addition, we have filed corresponding patent applications in other relevant
commercial jurisdictions.

During March 2001, certain holders of warrants, issued in connection with the
sale of Series G Preferred Stock, exercised their warrants to purchase common
stock which were due to expire in February, 2001, but which had been extended by
the Board of Directors until February 2002. The original exercise price was
$1.50 per share. As an inducement to exercise the warrant early, we offered to
reduce the exercise price to $0.50 and offer each holder a new one year warrant
for a similar number of shares at an exercise price of $1.00 per share. As a
result we raised $1,246,000 (less expenses). The newly issued warrants will
expire on the last day of February 2002.

During March 2001, we issued convertible notes to two current shareholders in
exchange for a total of $800,000. The notes provided for an interest rate of 7%
and both principal and interest were convertible into Series H Preferred at a
common equivalent price of $0.75 per share. The notes were converted into Series
H Preferred stock in July 2001 (see below).

In April 2001, we joined with Windamere Venture Partners and affiliates to form
a new orthopedic company, Spine Wave, Inc., to develop and commercialize an
injectable protein-based formulation for the repair of spinal discs damaged
either by injury or aging. Based on Protein Polymer's proprietary tissue
adhesive technology, the product under development has potential to be an
effective outpatient surgical treatment for chronic low back pain.

As a result of the agreements we executed, Spine Wave has acquired a license to
Protein Polymer's technology for use in spinal and other defined orthopedic
applications. We received approximately 33% of the founding stock in Spine Wave
and will receive royalties on the sale or sublicensing of licensed products. In
addition to the License Agreement, we agreed in a separate Supply and Services
Agreement to provide Spine Wave with a variety of research and development
services, and to supply materials to Spine Wave for preclinical and clinical
testing, and ultimately for commercial sale. If we are unable to meet the
requirements for product delivery, we agreed to make the manufacturing methods
and materials available to Spine Wave as specified in a separate Escrow
agreement. Spine Wave will be responsible for product development, clinical
testing, regulatory approvals, and commercialization. We are represented on the
Spine Wave Board of Directors, and have agreed to support the election of other
Directors nominated by Spine Wave.

                                       10
<PAGE>

On July 24, 2001, we announced the initial closing of a private placement for
$1.2 million with a small group of institutional and accredited investors of
12,182 shares of the Company's Series H Convertible Preferred Stock and warrants
to purchase an aggregate of 304,550 shares of common stock.

The total offering of up to 30,000 shares of Series H Preferred Stock provides
for additional closings until October 31, 2001. Each share of Series H Preferred
Stock is convertible at any time at the election of the holder into 133 shares
of common stock at a conversion price of $0.75 per share, subject to certain
antidilution adjustments. No underwriters were engaged by us in connection with
such issuance and, accordingly, no underwriting discounts were paid. The
offering is exempt from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), and met the requirements of Rule 506 of
                       --------------
Regulation D promulgated under the Securities Act. The Series H Preferred Stock,
warrants and underlying common stock have not been registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.

Each share of Series H Preferred Stock also received two common stock warrants.
One warrant is exercisable at any time for 15 shares of common stock at an
exercise price of $1.50 per share, and expires approximately 12 months after the
close of the offering; the other warrant is exercisable at any time for 10
shares of common stock at an exercise price of $2.00 per share, and expires
approximately 24 months after the close of the offering.

As of June 30, 2001, we had cash and cash equivalents totaling $1,113,974. We
believe our available cash and cash equivalents, future contractual research and
development payments, and the proceeds of the recent sale of Series H preferred
stock will be sufficient to meet our anticipated capital requirements through
January 2002. We will continue to attempt to raise additional funds for
continuing operations through private or public offerings and collaborative
agreements. See "Liquidity and Capital Resources" below for additional
information and a description of the associated risks.

Results of Operations

We received $183,333 in contract and licensing revenue for the three months
ended June 30, 2001 as compared to $103,333 for the three months ended June 30,
2000. For the six months ended June 30, 2001, we received $266,667 as compared
to $489,907 for the same period in 2000. The contract and licensing revenue
primarily represents the amortized portion of an up-front license payment of $1
million (being recognized ratably over a period of three years) from Femcare
Ltd. for the commercial rights to our potential incontinence product in Europe
and Australia, and payments from our affiliate, SpineWave, Inc., for R&D
associated with the development of a product for the repair of spinal disks for
the treatment of lower back pain. The decrease in contract and licensing revenue
over the six month period primarily reflects the one-time payment in 2000 from
Sanyo Chemical Industries Ltd. for the comprehensive license to our in vitro
cell culture business and existing product inventory.

Interest income was $18,452 and $26,681 respectively for the three months and
six months ended June 30, 2001 versus $31,842 and $45,651 respectively for the
same periods in 2000.

Research and development expenses for the three months ended June 30, 2001 were
$597,619, compared to $642,551 for the same period in 2000. Research and
development expenses for the six month period ended June 30, 2001 were
$1,202,521 as compared to $1,196,738 for the same period in 2000. We expect, in
general, that our research and development, human clinical testing, and
manufacturing expenses will increase over time if our incontinence and dermal
products, and other products in development, successfully progress and
additional capital is obtained.

Selling, general and administrative expenses for the three months and the six
months ended June 30, 2001 were $404,831 and $762,643 respectively, as compared
to $411,911 and $739,444 for the same periods in 2000. We expect that our
selling, general and administrative expenses will remain

                                       11
<PAGE>

largely unchanged in the near term, but may increase in the future as support
for our research and development and manufacturing efforts require additional
resources and to the extent additional capital is obtained.

For the three months ended June 30, 2001, we recorded a net loss applicable to
common shareholders of $869,885, or $0.04 per share as compared to a loss of
$988,362, or $0.05 per share for the same period in 2000. For the six month
period ended June 30, 2001, our net loss applicable to common shareholders was
$1,809,456, or $0.09 per share as compared to $1,535,290, or $0.09 per share for
the same period in 2000. Also included in each of the three month periods of
2001 and 2000 were $69,220 and $137,678 for each of the six month periods,
respectively, for undeclared dividends related to our preferred stock.

In general, there can be significant fluctuation in revenue from quarter to
quarter due to variability in outside contract and licensing payments. In
general, we expect to incur increasing operating losses in the future (to the
extent additional capital is obtained), due primarily to increases in our soft
tissue augmentation program's development, manufacturing and business
development activities. Our results depend on our 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.

To date we believe that inflation and changing prices have not had a material
effect on our continuing operations. However, the sharp rise in utility costs
may have an impact in the future.

Liquidity and Capital Resources

As of June 30, 2001, we had cash and cash equivalents of $1,113,974 as compared
to $866,220 at December 31, 2000. As of June 30, 2001, we had working capital of
$(419,000) as compared to $143,000 at December 31, 2000. In March, 2001 we
received $1,246,000 from the exercise of common stock warrants granted in
association with our Series G Convertible Preferred Stock, and from the issuance
of convertible notes.

We had no long-term debt obligations as of June 30, 2001 or as of December 31,
2000. For the six months ending June 30, 2001, our expenditures for capital
equipment and leasehold improvements totaled $41,636, compared to $30,118 for
the same period last year. We are expecting to increase our capital expenditures
in the next few quarters (to the extent additional capital is obtained), as we
improve existing space to expand capacity to meet materials manufacturing
requirements for clinical testing. We may also enter into capital lease
arrangements if available at appropriate rates and terms.

We believe our existing available cash and cash equivalents, in combination with
anticipated contract research payments, revenues received from the transfer of
clinical testing materials, and proceeds of the recent sale of Series H
Preferred Stock will be sufficient to meet our anticipated capital requirements
until January 2002. Substantial additional capital resources will be required to
fund continuing expenditures related to our research, development, manufacturing
and business development activities. We believe there may be a number of
alternatives to meeting the continuing capital requirements of our operations,
including additional collaborative agreements and public or private financings.
We are currently in discussions at various stages with 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.
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 us. If adequate funds are not available, we will be required
to significantly curtail our operating plans and may have to sell or license out
significant portions of our technology or potential products.

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<PAGE>

                          PART II.  OTHER INFORMATION



Item 6.  EXHIBITS AND REPORTS ON FORM 8-K


9.   Exhibits:

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

     None.


  b. Reports on Form 8-K

     The Current Report on Form 8-K filed with the Securities and Exchange
     Commission on July 25, 2001.

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<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:  August 13, 2001    By  /s/  J. Thomas Parmeter
         ---------------        -------------------------------
                                 J. Thomas Parmeter
                                 Chairman of the Board, Chief
                                 Executive Officer, President


  Date:  August 13, 2001    By  /s/  Janis Y. Neves
         ---------------        -------------------
                                 Janis Y. Neves
                                 Director of Finance, Controller

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