<PAGE>

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

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                 FORM 10-KSB/A
(Mark One)
[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934
     For the fiscal year ended December 31, 2000
                                       OR
[_]  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
 Incorporation or Organization)                       Identification No.)

               10655 Sorrento Valley Road, San Diego, CA  92121
                   (Address of Principal Executive Offices)

                  Issuer's Telephone Number:  (858) 558-6064

       Securities registered pursuant to Section 12(b) of the Act:  None

          Securities registered pursuant to Section 12(g) of the Act:
                                 Common Stock
                               (Title of Class)

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 ___
                                                              ---

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.  [_]

The issuer's revenues for the most recent fiscal year were $1,189,495.

The aggregate market value of the voting stock held by non-affiliates of the
issuer on February 16, 2001 was $6,935,027.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:  As of February 16, 2001, 18,910,313
shares of common stock were outstanding.

                     DOCUMENTS INCORPORATED BY REFERENCE:

Definitive Proxy Statement to be filed no later than April 30, 2001 pursuant to
Regulation 14A with respect to the Registrant's 2001 Annual Meeting of
Stockholders (incorporated by reference in Part III).

Transitional Small Business Disclosure Format:  Yes ___  No  X
                                                            ---

================================================================================
<PAGE>

Item 7.        Financial Statements

   Due to clerical errors in the financial statements, the Registrant hereby
amends Item 7 of Form 10-KSB, filed with the Commission on February 22, 2001, to
read in its entirety as set forth herein.

   Filed herewith are the following Audited Financial Statements for Protein
Polymer Technologies, Inc. (a Development Stage Company):

<TABLE>
<CAPTION>
       Description                                                                 Page
       -----------                                                                 ----
       <S>                                                                         <C>
       Report of Ernst & Young LLP, Independent Auditors........................   F-2

       Balance Sheets at December 31, 2000 and 1999.............................   F-3

       Statements of Operations for the years ended December 31, 2000, 1999
          and 1998 and the period July 6, 1988 (inception) to December 31, 2000.   F-4

       Statements of Stockholders Equity for the period July 6, 1988 (inception)
          to December 31, 2000..................................................   F-5

       Statements of Cash Flows for the years ended December 31, 2000, 1999
          and 1998 and the period July 6, 1988 (inception) to December 31, 2000.   F-7

       Notes to Financial Statements............................................   F-9
</TABLE>


                                      F-1
<PAGE>

               Report of Ernst & Young LLP, Independent Auditors


The Board of Directors and Stockholders
Protein Polymer Technologies, Inc.


     We have audited the accompanying balance sheets of Protein Polymer
Technologies, Inc. (a Development Stage Company) as of December 31, 2000 and
1999, and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2000 and for
the period July 6, 1988 (inception) to December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Protein Polymer
Technologies, Inc. (a Development Stage Company) at December 31, 2000 and 1999,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 2000 and for the period July 6, 1988
(inception) to December 31, 2000 in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1 to the financial statements, Protein Polymer
Technologies, Inc. (a Development State Company) has reported accumulated losses
during the development stage aggregating $(39,743,572) and without additional
financing, lacks sufficient working capital to fund operations beyond March
2001, which raises substantial doubt about its ability to continue as a going
concern. Management's plans as to these matters are described in Note 1. The
2000 financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.


                                    ERNST & YOUNG LLP
San Diego, California
February 8, 2001

                                      F-2
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                                Balance Sheets

<TABLE>
<CAPTION>
                                                                                                       December 31,
                                                                                               2000                  1999
                                                                                           ----------------------------------
<S>                                                                                       <C>                   <C>
Assets
Current assets:
 Cash and cash equivalents                                                                 $    866,220          $    155,692
 Other current assets                                                                            55,180                49,266
                                                                                           ----------------------------------
Total current assets                                                                            921,400               204,958

 Deposits                                                                                        71,177                36,177
 Notes receivable from officers                                                                 140,000               140,000
 Equipment and leasehold improvements, net                                                      250,257               360,005
                                                                                           ----------------------------------
                                                                                           $  1,382,834          $    741,140
                                                                                           ==================================

Liabilities and stockholders' equity
Current liabilities:
 Accounts payable                                                                          $    206,981          $    385,932
 Accrued employee benefits                                                                       69,657                84,335
 Other accrued expenses                                                                          47,418                17,118
 Current portion capital lease obligations                                                       25,088                79,593
 Deferred revenue                                                                               333,333                     -
 Deferred rent                                                                                   96,191                95,973
                                                                                           ----------------------------------
Total current liabilities                                                                       778,668               662,951

Long-term portion deferred revenue                                                              333,334                     -
Long-term portion capital lease obligations                                                           -                25,088

Stockholders' equity:
 Convertible Preferred Stock, $.01 par value, 5,000,000 shares   authorized,
  80,076 and 91,064 shares issued and outstanding at   December 31, 2000 and
  1999, respectively - liquidation preference
  of $8,007,600 and $9,106,400 at December 31, 2000
  and December 31, 1999, respectively                                                         7,662,272             8,761,072


 Common stock, $.01 par value, 40,000,000 shares authorized,
  18,910,313 and 13,443,510 shares issued and outstanding at
  December 31, 2000 and 1999, respectively                                                      189,115               134,447
 Additional paid-in capital                                                                  32,163,017            28,403,077
 Deficit accumulated during development stage                                               (39,743,572)          (37,245,495)
                                                                                           ----------------------------------
Total stockholders' equity                                                                      270,832                53,101
                                                                                           ----------------------------------
                                                                                           $  1,382,834          $    741,140
                                                                                           ==================================
</TABLE>

See accompanying notes.

                                      F-3
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                            Statement of Operations

<TABLE>
<CAPTION>
                                                                                         For the period
                                                                                          July 6, 1988
                                                                                         (inception) to
                                                       Years ended December 31,            December 31,
                                                 2000            1999          1998            2000
                                             ----------------------------------------------------------
<S>                                         <C>            <C>            <C>             <C>
Revenues:
  Contract revenue                           $ 1,107,396    $     2,320    $    50,000     $  5,464,681
  Interest income, net                            79,087         39,343        134,978        1,199,359
  Product and other income                         3,012         54,304         70,846          687,329
                                             ----------------------------------------------------------
Total revenues                                 1,189,495         95,967        255,824        7,351,369

Expenses:
  Research and development                     2,321,974      2,799,147      4,167,144       27,076,055
  Selling, general and
   administrative                              1,365,598      1,554,351      1,726,883       16,070,501
                                             ----------------------------------------------------------
Total expenses                                 3,687,572      4,353,498      5,894,027       43,146,556
                                             ----------------------------------------------------------
Net loss                                      (2,498,077)    (4,257,531)    (5,638,203)     (35,795,187)

Undeclared and/or paid dividends on
 preferred stock                                 277,639        277,639      3,544,323        5,517,293
                                             ----------------------------------------------------------

Net loss applicable to common shareholders
                                             $(2,775,716)   $(4,535,170)   $(9,182,526)    $(41,312,480)
                                             ==========================================================

Net loss per common share - basic and
 diluted                                     $      (.16)   $      (.36)   $      (.88)
                                             =========================================

Shares used in computing net loss per
 common share - basic and diluted
                                              17,771,744     12,570,987     10,484,277
                                             =========================================
</TABLE>

See accompanying notes.

                                      F-4
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                      Statements of Stockholders' Equity

         For the period July 6, 1988 (inception) to December 31, 2000

<TABLE>
<CAPTION>
                                                                                     Common stock            Preferred stock
                                                                              ----------------------------------------------------
                                                                                  Shares       Amount      Shares       Amount
                                                                              -----------------------------------------------------
<S>                                                                             <C>         <C>            <C>         <C>
 Issuance of common stock at $.01 per share for cash                              400,000        $ 4,000         -        $      -
 Issuance of common stock at $.62 per share for cash and receivables            1,116,245         11,162         -               -
 Receivables from sale of common stock                                                  -              -         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1988                                                    1,516,245         15,162         -               -
 Repayment of receivables from sale of common stock                                     -              -         -               -
 Issuance of common stock at $.62 per share                                       359,136          3,594         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1989                                                    1,875,381         18,756         -               -
 Exercise of common stock options at $.01 per share for cash                       60,000            600         -               -
 Issuance of common stock at $.68 per share for cash and compensation               5,000             50         -               -
 Common stock repurchased at $.01 per share for cash                              (25,000)          (250)        -               -
 Common stock issued at $.68 per share for cash and compensation                   25,000            250         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1990                                                    1,940,381         19,406         -               -
 Exercise of common stock options at $.68 per share for cash                        5,000             50         -               -
 Exercise of warrants for common stock                                            483,755          4,837         -               -
 Conversion of notes payable to common stock                                      339,230          3,391         -               -
 Conversion of notes payable to preferred stock                                         -              -   278,326           2,783
 Issuance of preferred stock at $2.00 per share for cash, net of
  issuance costs                                                                        -              -   400,000           4,000
 Issuance of warrants for cash                                                          -              -         -               -
 Issuance of warrants in connection with convertible notes payable                      -              -         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1991                                                    2,768,366         27,684   678,326           6,783
 Initial public offering at $6.50 per unit, net of issuance costs               1,667,500         16,676         -               -
 Conversion of Series B preferred stock into common stock in connection with
  initial public offering                                                         678,326          6,783  (678,326)         (6,783)

 Conversion of Series A preferred stock into common stock at $ 1.13342 per
  share                                                                           713,733          7,137         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1992                                                    5,827,925         58,280         -               -
 Exercise of common stock options at $.68 per share                                 3,000             30         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1993                                                    5,830,925         58,310         -               -
 Issuance of preferred stock at $100 per share for cash, net of
  issuance costs                                                                        -              -    21,600       2,073,925
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1994                                                    5,830,925         58,310    21,600       2,073,925
 Issuance of preferred stock at $100 per share for cash and cancellation of
  bridge loan,  net of issuance costs                                                   -              -    25,000       2,432,150
 Series C dividends paid in Series D preferred stock                                    -              -     2,539         253,875
 Interest paid in Series D preferred stock                                              -              -        48           4,795
 Exercise of common stock options at $.53 per share                                 2,000             20         -               -
 Net loss                                                                               -              -         -               -
                                                                              -----------------------------------------------------
Balance at December 31, 1995                                                    5,832,925        $58,330    49,187      $4,764,745
</TABLE>


<TABLE>
<CAPTION>
                                                                                        Deficit
                                                                     Additional       Accumulated                         Total
                                                                       paid-in           During         Receivables    Stockholders
                                                                       capital      development stage    from stock       equity
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>                  <C>           <C>
 Issuance of common stock at $.01 per share for cash                     $        -        $         -     $       -    $     4,000
 Issuance of common stock at $.62 per share for cash and receivables        681,838                  -             -        693,000
 Receivables from sale of common stock                                            -                  -       (86,000)       (86,000)
 Net loss                                                                         -           (322,702)            -       (322,702)
                                                                      --------------------------------------------------------------
Balance at December 31, 1988                                                681,838           (322,702)      (86,000)       288,298
 Repayment of receivables from sale of common stock                               -                  -        86,000         86,000
 Issuance of common stock at $.62 per share                                 219,358                  -             -        222,952
 Net loss                                                                         -           (925,080)            -       (925,080)
                                                                      --------------------------------------------------------------
Balance at December 31, 1989                                                901,196         (1,247,782)            -       (327,830)
 Exercise of common stock options at $.01 per share for cash                      -                  -             -            600
 Issuance of common stock at $.68 per share for cash and compensation         3,350                  -             -          3,400
 Common stock repurchased at $.01 per share for cash                              -                  -             -           (250)
 Common stock issued at $.68 per share for cash and compensation             16,750                  -             -         17,000
 Net loss                                                                         -         (1,501,171)            -     (1,501,171)
                                                                      --------------------------------------------------------------
Balance at December 31, 1990                                                921,296         (2,748,953)            -     (1,808,251)
 Exercise of common stock options at $.68 per share for cash                  3,350                  -             -          3,400
 Exercise of warrants for common stock                                      295,493                  -             -        300,330
 Conversion of notes payable to common stock                                508,414                  -             -        511,805
 Conversion of notes payable to preferred stock                             553,869                  -             -        556,652
 Issuance of preferred stock at $2.00 per share for cash, net of
  issuance costs                                                            703,475                  -             -        707,475
 Issuance of warrants for cash                                                3,000                  -             -          3,000
 Issuance of warrants in connection with convertible notes payable           28,000                  -             -         28,000
 Net loss                                                                         -         (1,143,119)            -     (1,143,119)
                                                                      --------------------------------------------------------------
Balance at December 31, 1991                                              3,016,897         (3,892,072)            -       (840,708)
 Initial public offering at $6.50 per unit, net of issuance costs         8,911,024                  -             -      8,927,700
 Conversion of Series B preferred stock into common stock in connection
  with initial public offering                                                    -                  -             -              -
 Conversion of Series A preferred stock into common stock at $1.13342
  per share                                                               1,717,065                  -             -      1,724,202
  Net loss                                                                        -         (3,481,659)            -     (3,481,659)
                                                                      --------------------------------------------------------------
Balance at December 31, 1992                                             13,644,986         (7,373,731)            -      6,329,535
 Exercise of common stock options at $.68 per share                           2,010                  -             -          2,040
 Net loss                                                                         -         (3,245,436)            -     (3,245,436)
                                                                      --------------------------------------------------------------
Balance at December 31, 1993                                             13,646,996        (10,619,167)            -      3,086,139
 Issuance of preferred stock at $100 per share for cash, net of
  issuance costs                                                                  -                  -             -      2,073,925
 Net loss                                                                         -         (3,245,359)            -     (3,245,359)
                                                                      --------------------------------------------------------------
Balance at December 31, 1994                                             13,646,996        (13,864,526)            -      1,914,705
 Issuance of preferred stock at $100 per share for cash and cancellation
  of bridge loan,  net of issuance costs                                          -                  -             -      2,432,150
 Series C dividends paid in Series D preferred stock                              -           (253,875)            -              -
 Interest paid in Series D preferred stock                                        -                  -             -          4,795
 Exercise of common stock options at $.53 per share                           1,040                  -             -          1,060
 Net loss                                                                         -         (2,224,404)            -     (2,224,404)
                                                                      --------------------------------------------------------------
Balance at December 31, 1995                                            $13,648,036       $(16,342,805)            -    $ 2,128,306
</TABLE>

                                      F-5
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                      Statements of Stockholders' Equity

         For the period July 6, 1988 (inception) to December 31, 2000


<TABLE>
<CAPTION>
                                                                                     Common stock           Preferred stock
                                                                              ------------------------------------------------
                                                                                  Shares       Amount     Shares      Amount
                                                                              ------------------------------------------------
<S>                                                                             <C>          <C>         <C>       <C>
 Exercise of common stock warrants at $1.25 per share                              932,960    $  9,330         -      $      -
 Exercise of common stock warrants at $2.50 per share, net of
  issuance costs                                                                   322,663       3,226         -             -
 Exercise of common stock warrants at $1.00 per share                               25,000         250         -             -
 Exercise of common stock options                                                  136,000       1,360         -             -
 Stock repurchases                                                                 (16,320)       (163)        -             -
 Net loss                                                                                -           -         -             -
                                                                              ------------------------------------------------
Balance at December 31, 1996                                                     7,233,228      72,333    49,187     4,764,745
 Issuance of common stock at $2.50 per share, net of issuance costs              1,904,000      19,040         -             -
 Exercise of common stock options                                                   28,000         280         -             -
 Issuance of common stock under stock purchase plan                                 15,036         151         -             -
 Conversion of Series D preferred stock into common stock                        1,032,537      10,325   (20,973)   (2,097,342)
 Series D dividends paid in common stock                                           207,921       2,079         -             -
 Net loss                                                                                -           -         -             -
                                                                              ------------------------------------------------
Balance at December 31, 1997                                                    10,420,722     104,208    28,214     2,667,403
 Issuance of common stock under stock purchase plan                                 36,715         368         -             -
 Exercise of common stock options                                                   12,000         120         -             -
 Issuance of common stock at $1.60 per share, net of issuance costs                 23,439         234         -             -
 Issuance of Series E preferred stock, net of issuance costs                             -           -    54,438     5,277,813
 Grant of stock to finder                                                           64,000         640         -             -
 Conversion of Series D and E preferred stock into common stock                    270,364       2,704    (3,450)     (344,990)
 Net Loss                                                                                -           -         -             -
                                                                              ------------------------------------------------
Balance at December 31, 1998                                                    10,827,240     108,274    79,202     7,600,226
 Issuance of common stock under stock purchase plan                                 19,429         194         -             -
 Issuance of common stock and warrants for services rendered and
  debt issued                                                                       16,941         180         -             -
 Issuance of Series G preferred stock, net of issuance costs                             -           -    21,000     2,074,596
 Conversion of Series E preferred stock into common stock                          731,000       7,310    (9,138)     (913,750)
 Exercise of common stock and Series E warrants at $.50 per share                1,848,900      18,489         -             -
 Net Loss and comprehensive loss                                                         -           -         -             -
                                                                              ------------------------------------------------
Balance at December 31, 1999                                                    13,443,510     134,447    91,064     8,761,072
 Issuance of common stock under stock purchase plan                                287,303       2,873         -             -
 Issuance of warrants and stock options for services rendered                            -           -         -             -
 Exercise of common stock options                                                   85,500         855         -             -
 Exercise of common stock warrants at $.50 per share                             4,215,000      42,150         -             -
 Conversion of Series E preferred stock into common stock                          879,000       8,790   (10,988)   (1,098,800)
 Net Loss and comprehensive loss                                                         -           -         -             -
                                                                              ------------------------------------------------
Balance at December 31, 2000                                                    18,910,313    $189,115    80,076   $ 7,662,272
                                                                              ================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                    Deficit
                                                                  Additional       Accumulated                             Total
                                                                    paid-in           During            Receivables     Stockholders
                                                                    capital       development stage     from stock         equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                     <C>            <C>                 <C>          <C>
 Exercise of common stock warrants at $1.25 per share              $ 1,156,870        $          -         $   -       $ 1,166,200
 Exercise of common stock warrants at $2.50 per share, net of
  issuance costs                                                       779,413                   -             -           782,639
 Exercise of common stock warrants at $1.00 per share                   24,750                   -             -            25,000
 Exercise of common stock options                                       91,650                   -             -            93,010
 Stock repurchases                                                     (81,437)                  -             -           (81,600)
 Net loss                                                                    -          (2,864,432)            -        (2,864,432)
                                                                   ----------------------------------------------------------------
Balance at December 31, 1996                                        15,619,282         (19,207,237)            -         1,249,123
 Issuance of common stock at $2.50 per share, net of issuance costs  4,601,322                   -             -         4,620,362
 Exercise of common stock options                                       20,200                   -             -            20,480
 Issuance of common stock under stock purchase plan                     29,950                   -             -            30,101
 Conversion of Series D preferred stock into common stock            2,087,017                   -             -                 -
 Series D dividends paid in common stock                               420,262            (422,341)            -                 -
 Net loss                                                                    -          (4,453,933)            -        (4,453,933)
                                                                   ----------------------------------------------------------------
Balance at December 31, 1997                                        22,778,033         (24,083,511)            -         1,466,133
 Issuance of common stock under stock purchase plan                     38,010                   -             -            38,378
 Exercise of common stock options                                        7,920                   -             -             8,040
 Issuance of common stock at $1.60 per share, net of issuance costs     37,266                   -             -            37,500
 Issuance of Series E preferred stock, net of issuance costs         3,266,250          (3,266,250)            -         5,277,813
 Grant of stock to finder                                               79,360                   -             -            80,000
 Conversion of Series D and E preferred stock into common stock        342,286                   -             -                 -
 Net Loss                                                                    -          (5,638,203)            -        (5,638,203)
                                                                   ----------------------------------------------------------------
Balance at December 31, 1998                                        26,549,125         (32,987,964)            -         1,269,661
 Issuance of common stock under stock purchase plan                     15,111                   -             -            15,305
 Issuance of common stock and warrants for services rendered and
  debt issued                                                           26,440                   -             -            26,620
 Issuance of Series G preferred stock, net of issuance costs                 -                   -             -         2,074,596
 Conversion of Series E preferred stock into common stock              906,440                   -             -                 -
 Exercise of common stock and Series E warrants at $.50 per share      905,961                   -             -           924,450
 Net Loss and comprehensive loss                                             -          (4,257,531)            -        (4,257,531)
                                                                   ----------------------------------------------------------------
Balance at December 31, 1999                                        28,403,077         (37,245,495)            -            53,101
 Issuance of common stock under stock purchase plan                    186,096                   -             -           188,969
 Issuance of warrants and stock options for services rendered          345,244                   -             -           345,244
 Exercise of common stock options                                       73,240                   -             -            74,095
 Exercise of common stock warrants at $.50 per share                 2,065,350                   -             -         2,107,500
 Conversion of Series E preferred stock into common stock            1,090,010                   -             -                 -
 Net Loss and comprehensive loss                                             -          (2,498,077)            -        (2,498,077)
                                                                   ----------------------------------------------------------------
Balance at December 31, 2000                                       $32,163,017        $(39,743,572)        $   -      $    270,832
                                                                   ================================================================
</TABLE>



See accompanying notes.

                                      F-6
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                           Statements of Cash Flows


<TABLE>
<CAPTION>
                                                                                                  For the period
                                                                                                   July 6, 1988
                                                                                                  (inception) to
                                                                   Years ended December 31,        December 31,
                                                             2000           1999           1998        2000
                                                   -------------------------------------------------------------
<S>                                                  <C>            <C>            <C>            <C>

Operating activities
Net loss                                              $(2,498,077)   $(4,257,531)   $(5,638,203)    $(35,801,106)
Adjustments to reconcile net loss to net cash used
 for operating activities:
  Stock and warrants issued for services
     rendered and debt interest                           345,244         26,620         80,000          476,759
  Depreciation and amortization                           155,060        264,541        368,577        2,047,898
  Write-off of purchased technology                             -              -              -          503,500
  Changes in assets and liabilities:
   Deposits                                               (35,000)             -            440          (71,177)
   Notes receivable from officers                               -          1,000         12,000         (140,000)
   Other current assets                                    (5,914)        17,193         22,409          (55,180)
   Accounts payable                                      (178,951)      (129,481)        91,819          206,981
   Accrued employee benefits                              (14,678)       (83,514)        16,018           69,657
   Other accrued expenses                                  30,300         (4,456)       (19,577)          47,418
   Deferred revenue                                       666,667              -              -          666,667
   Deferred rent                                              218         35,305         60,668           96,191
                                                      ----------------------------------------------------------
Net cash used for operating activities                 (1,535,131)    (4,130,323)    (5,005,849)     (31,952,392)

Investing activities
Purchase of technology                                          -              -              -         (570,000)
Purchase of equipment and improvements                    (45,313)       (26,099)      (197,460)      (1,856,127)
Purchases of short-term investments                             -              -              -      (16,161,667)
Sales of short-term investments                                 -              -        974,817       16,161,667
                                                      ----------------------------------------------------------
Net cash provided by (used for) investing
 activities                                               (45,313)       (26,099)       777,357       (2,426,127)


Financing activities
Net proceeds from issuance of common stock              2,370,565        939,755         83,918       19,908,231

Net proceeds from issuance of preferred stock                   -      2,074,596      5,277,813       14,290,160

Net proceeds from convertible notes and detachable
 warrants                                                       -              -              -        1,068,457

Payments on capital lease obligations                     (79,593)       (85,385)       (75,112)        (263,682)
Payment on note payable                                         -       (150,000)             -         (242,750)
Proceeds from note payable                                      -        150,000              -          484,323
                                                      ----------------------------------------------------------
Net cash provided by financing activities               2,290,972      2,928,966      5,286,619       35,244,739

Net increase (decrease) in cash and cash
 equivalents                                              710,528     (1,227,456)     1,058,127          866,220

Cash and cash equivalents at beginning of the
 period                                                   155,692      1,383,148        325,021                -
                                                      ----------------------------------------------------------
Cash and cash equivalents at end of the period
                                                      $   866,220    $   155,692    $ 1,383,148     $    866,220
                                                      ==========================================================
</TABLE>

                                      F-7
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                           Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                        July 6, 1988
                                                                                       (inception) to
                                                            Years ended December 31,     December 31,
                                                           2000      1999        1998       2000
                                                   --------------------------------------------------
<S>                                                  <C>         <C>       <C>         <C>
Supplemental disclosures of cash flow information
Equipment purchased by capital leases                $        -   $     -    $        -      $  288,772
Interest paid                                             7,204    19,983        26,692         125,115
Imputed dividend on Series E stock                            -         -     3,266,250       3,266,250
Conversion of Series D preferred stock to common
 stock                                                        -         -        44,990       2,142,332

Conversion of Series E preferred stock to                     -         -             -               -
   common stock                                       1,098,800   913,750       300,000       2,312,550
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.

                                      F-8
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                         Notes to Financial Statements
                               December 31, 2000


1.  Organization and Significant Accounting Policies

Organization and business activities

Protein Polymer Technologies, Inc. (the "Company") was established to design,
produce and market genetically engineered protein polymers for a variety of
biomedical and specialty materials applications. The Company was incorporated in
Delaware on July 6, 1988. For the period from its inception to date, the Company
has been a development stage enterprise, and accordingly, the Company's
operations have been directed primarily toward developing business strategies,
raising capital, research and development activities, conducting clinical
testing of its product candidates, exploring marketing channels and recruiting
personnel.

Liquidity

As of December 31, 2000, the Company had cash, cash equivalents and short-term
investments totaling $866,000 as compared to $156,000 at December 31, 1999. As
of December 31, 2000, the Company had working capital of $143,000 compared to
$(458,000) at December 31, 1999.

The Company believes its available cash, cash equivalents and short-term
investments would be sufficient to meet its anticipated capital requirements
through March 2001. Prior to the commercialization of its products, substantial
additional capital resources will be required to fund continuing operations
related to the Company's research, development, manufacturing, clinical testing,
and business development activities. The Company believes there may be a number
of alternatives available to meet the continuing capital requirements of its
operations, such as collaborative agreements and public or private financings.
During 2001, the Company expects that the possible exercise of existing warrants
could result in additional funds for continuing operations. Further, the Company
is currently in discussions with a number of potential collaborative partners
and, based on the results of various materials evaluations, funding in the form
of license fees, milestone payments or research and development reimbursements
could be generated. 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 in the future are not
available, the Company will be required to significantly curtail its operating
plans and may have to sell or license out significant portions of the Company's
technology or potential products.

                                      F-9
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

1.  Organization and Significant Accounting Policies (continued)

Cash equivalents and short-term investments

Short-term investments consist primarily of commercial paper, notes and short-
term U.S. Government securities with original maturities beyond three months and
are stated at estimated fair value. Similar items with original maturities of
three months or less are considered cash equivalents. The Company has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. The Company has not experienced any losses on its short-
term investments.

Equipment and leasehold improvements

Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Equipment is depreciated over the estimated
useful life of the asset, typically one to seven years, using the straight-line
method. Leasehold improvements are amortized over the shorter of the lease term
or life of the asset. Equipment and leasehold improvements consist of the
following:

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                       2000                1999
                                                                    --------------------------------
<S>                                                                 <C>                  <C>
Laboratory equipment                                                 $ 1,672,135         $ 1,626,822
Office equipment                                                         175,128             175,128
Leasehold improvements                                                   297,635             297,635
                                                                    --------------------------------
                                                                       2,144,898           2,099,585
Less accumulated depreciation and amortization                        (1,894,641)         (1,739,580)
                                                                    --------------------------------
                                                                     $   250,257         $   360,005
                                                                    ================================
</TABLE>

Research and Development Revenues and Expenses

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, the Company is not obligated to refund payments
previously received. Milestone and license payments are recorded as revenue when
received as they are not refundable and the Company has no future performance
obligations. Payments received in advance of amounts earned are recorded as
deferred revenue. Research and development costs are expensed as incurred.

                                      F-10
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

1.  Organization and Significant Accounting Policies (continued)

Product revenue recognition

Sales are recognized upon shipment of products to customers.

Accounting Standard on Impairment of Long-Lived Assets

In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, the Company regularly evaluates its long-lived assets for
indicators of possible impairment. To date, no such indicators have been
identified.

Stock Options

As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB 25") and related Interpretations
in accounting for its employee stock options. Under APB 25, if the exercise
price of the Company's employee stock options equals or exceeds the deemed fair
value of the underlying stock on the date of grant, no compensation expense is
recognized. In accordance with EITF 96-18 options issued to non-employees are
recorded at their fair value and recognized over the related service period. The
effects of using the fair value accounting method, as described in SFAS
Statement No. 123 are described below in Note 2.

Net loss per common share

The Company reports its earnings per share in accordance with SFAS No. 128,
Earnings per Share, which requires the presentation of both basic and diluted
earnings per share on the statements of operations. Basic earnings per share are
calculated based upon weighted-average number of outstanding common shares for
the period. Diluted earnings per share are calculated based upon weighted-
average number of outstanding common shares, plus the effect of dilutive stock
options.

The net loss per common share for the years ended December 31, 2000, 1999 and
1998 is based on the weighted average number of shares of common stock
outstanding during the periods. Potentially dilutive securities include options,
warrants and convertible preferred stock; however, such securities have not been
included in the calculation of the net loss per

                                      F-11
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

1.  Organization and Significant Accounting Policies (continued)

common share as their effect is antidilutive. Since this is the case, there is
no difference between the basic and dilutive net loss per common share for any
of the periods presented and none of the prior periods were required to be
restated. For purposes of this calculation, net loss in 2000, 1999 and 1998 has
been adjusted for accumulated and/or paid dividends on the Preferred Stock.

Comprehensive Income

SFAS No. 130, Reporting Comprehensive Income, requires that the Company
disclose, either in the income statement or in a separate financial statement,
net income as currently reported and other components of comprehensive income.
Comprehensive income is defined as the change in shareholders' equity during a
period resulting from transactions and other events and circumstances from non-
owner sources. The Company adopted this standard during 1998. For the years
ended December 31, 2000, 1999 and 1998 the Company did not have any components
of comprehensive income as defined in SFAS No. 130.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which will be
effective January 1, 2001. SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument, including certain
derivative instruments imbedded in other contracts, be recorded in the balance
sheet as either an asset or liability measured at its fair value. The statement
also requires that changes in the derivative's fair value be recognized in
earnings unless specified hedge accounting criteria are met. Management believes
the adoption of SFAS No. 133 will not have an effect on the financial
statements, as the Company does not engage in the activities covered by SFAS No.
133.

In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, Revenue Recognition (SAB 101). SAB 101 provides the
SEC Staff's views in applying generally accepted accounting principles to
various revenue recognition issues and specifically addresses revenue
recognition for upfront, non-refundable fees earned in connection with research
collaboration agreements. It is the SEC's position that such fees should
generally be recognized over the term of the agreement. The Company expects to

                                      F-12
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

1.  Organization and Significant Accounting Policies (continued)

apply this accounting to its future collaborations. The Company believes its
historical revenue recognition policy is in compliance with SAB 101.

In March 2000, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 44 ("FIN44"), Accounting for Certain Transactions Involving
Stock Compensation. The Company adopted FIN 44 effective July 1, 2000 with
respect to certain provisions applicable to new awards, exchanges of awards in a
business combination, modifications to outstanding awards, and changes in
grantee status that occur on or after that date. FIN 44 addresses practice
issues related to the application of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. The adoption of FIN 44 had no impact
on the Company's financial position or results of operations.

Use of estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the amount of revenue and expense reported during the period. Actual results
could differ from those estimates.

2.  Stockholders' Equity

Convertible Preferred Stock

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 a total 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.

In April 1999, the Company received approximately $508,000 from the exercise of
redeemable, publicly traded, warrants originally issued as part of PPTI's
Initial Public

                                      F-13
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

2.  Stockholders' Equity (continued)

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.

In 1998, the Company raised approximately $5.4 million from the sale of 54,437
shares of the Company's 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 recorded a non-cash
"imputed dividend" expense of $3,266,250 in order to account for the difference
between the fair market value of the common stock and the conversion price of
the preferred stock into common stock.

Each share of Series E Stock is convertible at any time at the election of the
holder into 80 shares of common stock at a conversion price of $1.25 per share,
subject to certain antidilution adjustments.

Each share of Series E Stock received two common stock warrants. One warrant is
exercisable at any time for 40 shares of common stock at an exercise price of
$2.50 per share, and expired approximately 18 months after the close of the
offering; the other warrant is exercisable at any time for 20 shares of common
stock at an exercise price of $5.00 per share, and expires approximately 36
months after the close of the offering. In addition, an 18 month warrant to
acquire 200,000 common shares exercisable at $2.50 per share and a 36 month
warrant to acquire 100,000 common shares exercisable at $5.00 per share were
issued as a finder and document review fee paid to a lead investor. An 18 month
warrant to acquire 32,000 common shares exercisable at $2.50 per share, a 24
month warrant to acquire 16,000 common shares exercisable at $5.00 per share,
and 5 year warrants to acquire an aggregate of 25,200 common shares exercisable
at $2.50 per share were issued to certain persons for service as finders in
relation to the private placement.

In connection with the above private placement, the Company issued 26,420 shares
of its Series F Convertible Preferred Stock ("Series F Stock") in exchange for
the same number

                                      F-14
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

2.  Stockholders' Equity (continued)

of shares of outstanding Series D Convertible Preferred Stock ("Series D
Stock").

Each share Series D and F Stock earns a cumulative dividend at the annual rate
of $10 per share, payable if and when declared by the Company's Board of
Directors, in the form of cash, common stock or any combination thereof. The
Series D and F Stock is convertible into common stock after two years from the
date of issuance at the holder's option. The conversion price at the time of
conversion is the lesser of $3.75 or the market price. The Series D and F Stock
is redeemable at the Company's option after four years from the date of
issuance. Automatic conversion of all of the Series D and F Stock will occur if:
(a) the Company completes a public offering of common stock at a price of $2.50
or higher; or (b) the holders of a majority thereof elect to convert. The
Company has the option to demand conversion of the Series D and F Stock if the
average market price of its common stock equals or exceeds $5.00 per share over
a period of twenty business days. The Series D Stock has a liquidation
preference of $100 per share plus accumulated dividends.

The Series E Stock is convertible, at the option of the holder, into shares of
the Company's common stock, subject to anti-dilution adjustments, and has a
preference in liquidation of $100 per share, but only after any preference is
paid or declared set apart for the Series D Stock. The Company's Series F Stock
is equivalent to the Company's Series E Stock with regard to liquidation
preferences. All other terms of the Series F Stock remain the same as the
Company's Series D Stock.

Holders of the Series E Stock are entitled to receive dividends when and if
declared by the Board of Directors; however, no such dividends will be declared
or paid on the Series E Stock until the preferential cumulative dividends on the
Series D and F Stock have been fully paid or declared and set apart. Automatic
conversion of all Series E Stock will occur if: (a) the Company completes a
public offering of common stock at a price of $7.50 or higher; or (b) the
holders of more than 75% of outstanding Series E Stock elect to convert.

Series D, E and F Convertible Preferred Stock has been designated as non-voting
stock.

Stock option plans

In September 1996 the Company established the Protein Polymer Technologies,
Inc.,

                                      F-15
<PAGE>

                      Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

2.  Stockholders' Equity (continued)

Employee Stock Purchase Plan ("Plan"). The Plan commenced January 2, 1997, and
allows for offering periods of up to two years with quarterly purchase dates
occurring the last business day of each quarter. The purchase price per share is
generally calculated at 85% of the lower of the fair market value on an eligible
employee's entry date or the quarterly purchase date. The maximum number of
shares available for issuance under the Plan is 500,000; an eligible employee
may purchase up to 5,000 shares per quarter. The Plan Administrator consists of
a committee of at least two non-employee directors of the Company. The Board may
modify the Plan at any time. During 2000, a total of 287,303 shares were
purchased under the Plan at prices ranging from $0.27 to $0.96. The value of
shares issued under the Plan as calculated in accordance with Statement 123 is
not significant and is not included in the following pro forma information.

In June 1996, the Company adopted the 1996 Non-Employee Directors Stock Option
Plan ("1996 Plan"), which provides for the granting of nonqualified options to
purchase up to 250,000 shares of common stock to directors of the Company. Such
grants of options to purchase 5,000 shares of common stock are awarded
automatically on the first business day of June during each calendar year to
every Participating Director then in office, subject to certain adjustments. No
Participating Director is eligible to receive more than one grant per year. The
purchase price of each option is set at the fair market value of the common
stock on the date of grant. Each option has a duration of ten years, and is
exercisable six months after the grant date. The Board (or a designated
committee of the Board) administers the 1996 Plan. At December 31, 2000, 165,000
options to purchase have been granted under the 1996 Plan.

The Company adopted the 1992 Stock Option Plan, which provides for the issuance
of incentive and non-statutory stock options for the purchase of up to 1,500,000
shares of common stock to its key employees and certain other individuals.  The
options will expire ten years from their respective dates of grant. Options
become exercisable ratably over periods of up to five years from the dates of
grant. At December 31, 2000, options to purchase 643,000 shares of common stock
were exercisable, and 311,500 shares were available for future grant.

The Company adopted the 1989 Stock Option Plan, which provided for the issuance
of incentive and non-statutory stock options for the purchase of up to 500,000
shares of common stock to key employees and certain other individuals. The 1989
Stock Option Plan

                                      F-16
<PAGE>

                       Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000


2. Stockholders' Equity (continued)

expired as of March 17, 1999. Options granted in the plan became exercisable
ratably over periods of up to five years from the date of grant. At December 31,
2000, options for 380,000 shares were exercisable.

Since inception, the Company has granted non-qualified options outside the
option plans to employees, directors and consultants of the Company. At December
31, 2000, options for 115,000 shares were exercisable.

The following table summarizes the Company's stock option activity:

<TABLE>
<CAPTION>
                                                               Years ended December 31,
                                 --------------------------------------------------------------------------------------
                                            2000                          1999                           1998
                                 -------------------------      -----------------------        ------------------------
                                                  Weighted                     Weighted                        Weighted
                                                  Average                      Average                         Average
                                                  Exercise                     Exercise                        Exercise
                                  Options          Price         Options         Price          Options          Price
                                 ---------        --------      ---------      --------        ---------       ---------
<S>                             <C>                <C>         <C>               <C>          <C>                <C>
Outstanding - beginning
      of year                    1,998,000          $1.23       1,765,000         $1.51        1,540,600          $1.52

   Granted                         173,500          $1.07         548,500         $0.44          568,000          $0.99
   Exercised                       (85,500)         $0.87               -             -          (12,000)         $0.67
   Forfeited/Expired              (168,500)         $1.52        (315,500)        $1.40         (331,600)         $0.83
                                 ---------          -----       ---------         -----        ---------          -----

Outstanding - end of year        1,917,500          $1.22       1,998,000         $1.23        1,765,000          $1.51
                                 =========          =====       =========         =====        =========          =====
 Exercisable - end of year       1,298,000          $1.34       1,152,000         $1.37        1,093,600          $1.36
                                 =========          =====       =========         =====        ==========         =====
</TABLE>

The exercise prices for options outstanding as of December 31, 2000 range from
$0.88 to $1.31. The weighted average remaining contractual life of these options
is approximately 6.56 years.


Statement 123 pro forma information

Pro forma information regarding net loss is required by SFAS No. 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair

                                      F-17
<PAGE>

                       Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

2.  Stockholders' Equity (continued)

value method prescribed by SFAS No. 123, using the Black-Scholes option pricing
model. The fair value was estimated using the following weighted-average
assumptions: a risk free interest rate of 5.50% for 2000, 5.50% for 1999 and
6.00% for 1998; a volatility factor of the expected market price of the
Company's common stock of 100% for 2000, 100% for 1999 and 89% for 1998;
expected option lives of 10 years for 2000, 5 years for 1999, 5 years for 1998;
and no dividend yields for all years.

The Black-Scholes option valuation model was originally developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the expected life of the options. The Company's pro
forma information is as follows:

<TABLE>
                                                   2000               1999                1998
                                                   ----               ----                ----
<S>                                           <C>                 <C>                 <C>
Net loss as reported                           $(2,775,716)        $(4,535,170)        $(9,182,526)
Net loss per share as reported                       (0.16)              (0.36)              (0.88)
Net loss pro forma                              (3,077,468)         (4,772,359)         (9,877,344)
Net loss per share pro forma                         (0.17)               (.38)               (.94)
Weighted average fair value per share
  of options granted during the year           $      0.95         $      0.34         $      0.87
</TABLE>

The pro forma effect on net loss for 2000, 1999 and 1998 is not representative
of the pro forma effect on net loss in future years because it does not take
into consideration pro forma compensation expense from option grants made prior
to 1995.

3.  Stockholder Protection Agreement

In 1997, the Board of Directors of the Company adopted a Stockholder Protection
Agreement ("Rights Plan") that distributes Rights to stockholders of record as
of

                                      F-18
<PAGE>

                       Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

3.  Stockholder Protection Agreement (continued)

September 10, 1997. The Rights Plan contains provisions to protect stockholders
in the event of an unsolicited attempt to acquire the Company. The Rights trade
together with the common stock, and generally become exercisable ten business
days after a person or group acquires or announces the intention to acquire 15%
or more of the outstanding shares of Company common stock, with certain
permitted exceptions.  The Rights then generally allow the holder to acquire
additional shares of Company capital stock at a discounted price. The issuance
of the Rights is not a taxable event, does not affect the Company's reported
earnings per share, and does not change the manner in which the Company's common
stock is traded.

4.  Commitments

The Company leases its office and research facilities totaling 27,000 square
feet under an operating lease, which expires in May 2005. The facilities lease
is subject to an annual escalation provision based upon the Consumer Price
Index. The lease provides for deferred rent payments; however, for financial
purposes rent expense is recorded on a straight-line basis over the term of the
lease. Accordingly, deferred rent in the accompanying balance sheet represents
the difference between rent expense accrued and amounts paid under the lease
agreement.

                                      F-19
<PAGE>

                       Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                   Notes to Financial Statements (continued)
                               December 31, 2000

4.  Commitments (continued)

Annual future minimum operating and capital lease payments are as follows:

<TABLE>
<CAPTION>
                                                                                Obligations
                                                          Operating               Under
             Year ending December 31,                       Leases            Capital Leases
             ------------------------                     ----------          --------------
<S>                                                      <C>                      <C>
2001                                                      $  460,933               $ 25,651
2002                                                         461,782                      -
2003                                                         473,200                      -
2004                                                         487,396                      -
2005                                                         164,064                      -
Thereafter                                                         -                      -
                                                          ----------               --------
Total minimum operating and capital
  lease payments                                          $2,047,375                 25,651
                                                          ==========
Less amount representing interest                                                      (563)
                                                                                   --------
Present value of remaining minimum
  capital lease payments                                                             25,088
Less amount due in one year                                                         (25,088)
                                                                                   --------
Long-term portion of obligations under
  capital leases                                                                   $      -
                                                                                   ========
</TABLE>

Cost and accumulated depreciation of equipment held under capital leases as of
December 31, 2000 was $279,497 and $201,761, respectively. The carrying amount
of the Company's obligations under its capital lease agreements approximate
their fair value and the implicit interest rate approximates the Company's
borrowing rate.

Rent expense was approximately $367,415, $417,000, $442,633, and $4,005,048 for
the years ended December 31, 2000, 1999 and 1998 and for the period July 6, 1988
(inception) through December 31, 2000, respectively.

5.  Income Taxes

At December 31, 2000, the Company had net operating loss carryforwards of
approximately $32,300,000 for federal income tax purposes, which may be applied
against future income, if any, and will begin expiring in 2004 unless previously
utilized. In addition, the Company had

                                      F-20
<PAGE>

                       Protein Polymer Technologies, Inc.
                         (A Development Stage Company)

                         Notes to Financial Statements
                               December 31, 2000

5.  Income Taxes (continued)

California net operating loss carryforwards of approximately $11,900,000. The
California tax loss carryforwards continue to expire ($1,012,000 expired in
2000). The difference between the tax loss carryforwards for federal and
California purposes is attributable to the capitalization of research and
development expenses for California tax purposes, the required 50% limitation in
the utilization of California loss carryforwards, and the expiration of certain
California tax loss carryforwards.

The Company also has federal and California research and development tax credit
carryforwards of approximately $1,162,000 and $547,000, respectively, which will
begin expiring in 2004 unless previously utilized.

As a result of an ownership change that occurred in January 1992, approximately
$2,700,000 of the Company's federal net operating loss carryforwards will be
subject to an annual limitation regarding utilization against taxable income in
future periods.  However, the Company believes that such limitations will not
have a material impact upon the utilization of the carryforwards.

Significant components of the Company's deferred tax assets as of December 31,
2000 are shown below. A valuation allowance of $13,943,000 has been recognized
to offset the deferred tax assets as realization of such assets is uncertain.


<TABLE>

                                                                        2000                1999
                                                                    --------------------------------
<S>                                                                <C>                 <C>
Deferred tax assets:
 Net operating loss carryforwards                                   $ 11,990,000        $ 11,410,000
 Research and development credits                                      1,517,000           1,354,000
 Other, net                                                              436,000             103,000
                                                                    --------------------------------
 Total deferred tax assets                                            13,943,000          12,867,000
Valuation allowance for deferred tax assets                          (13,943,000)        (12,867,000)
                                                                    --------------------------------
Net deferred tax assets                                             $          -        $          -
                                                                    ================================
</TABLE>

6.  Employee Benefits Plan

On January 1, 1993, the Company established a 401(k) Savings Plan for
substantially all employees who meet certain service and age requirements.
Participants may elect to defer up to 20% of their compensation per year,
subject to legislated annual limits. Each year the Company may provide a
discretionary matching contribution. As of December 31, 2000, the Company had
not made a contribution to the Savings Plan.

                                      F-21
<PAGE>

                                   SIGNATURE


     Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to the annual report to be signed on
its behalf by the undersigned hereunto duly authorized.


                              PROTEIN POLYMER TECHNOLOGIES, INC.


February 22, 2001         By  /s/ J. Thomas Parmeter
                              ----------------------------------
                                  J. Thomas Parmeter
                                  Chairman of the Board, Chief
                                  Executive Officer, President