		Page No.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Balance Sheets
March 31, 2007 and December 31, 2006		3

Statements of Operations
For three months ended March 31, 2007 and 2006		4

Statements of Cash Flows
For the three months ended March 31, 2007 and 2006.		5

Notes to Financial Statements		6

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Controls and Procedures		18

PART II. OTHER INFORMATION

Item 6. Exhibits		18

Signatures		19

Protein Polymer Technologies, Inc.
Balance Sheets
(unaudited)

	March 31,			December 31,
	2007			2006
Assets
Current assets:
Cash and cash equivalents	$	87,812		$	73,495
Contract receivable		20,818			21,068
Current portion of rent receivable		24,527			39,527
Prepaid expenses and other current assets		76,378			49,940
Total current assets		209,535			184,030

Deposits		30,479			29,679
Equipment and leasehold improvements, net		203,171			228,475
Investment, at cost		520,000			520,000
Total assets	$	963,185		$	962,184

Liabilities and stockholders' (deficit) equity
Current liabilities:
Accounts payable	$	778,159			1,098,820
Accrued liabilities		461,718			422,730
Secured note payable - related party		4,683,416			3,461,516
Current maturities of notes payable		161,697			146,697
Total current liabilities		6,084,990			5,129,763

Notes payable, net of current maturities		357,374			372,374
Deferred rent		13,269			13,269
Total liabilities		6,455,633			5,515,406

Commitments and contingencies

Stockholders' deficit:
Convertible preferred stock, $0.01 par value; 5,000,000 shares authorized; 65,645 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively - liquidation preference of $6,564,500 at March 31, 2006 and December 31, 2005, respectively		6,019,917			6,019,917

Common stock, $0.01 par value; 120,000,000 shares authorized; 67,809,204 and 67,409,204 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		678,092			674,092
Additional paid-in capital		55,906,894			55,760,511
Accumulated deficit		(68,097,351	)		(67,007,742	)
Total stockholders' deficit		(5,492,448	)		(4,553,222	)
Total liabilities and stockholders' deficit	$	963,185		$	962,184

Protein Polymer Technologies, Inc.
Statements of Operations
(unaudited)

	Three months ended
	March 31,
	2007			2006
Revenues:
Contract and licensing revenue	$	136,088		$	220,919
Product and other income		—			18,558
Total revenues		136,088			239,477

Operating expenses:
Cost of sales		—			803
Research and development		718,769			1,036,440
Selling, general and administrative		414,719			1,887,311
Total expenses		1,133,488			2,924,554

Net loss from operations		(997,400	)		(2,685,077	)

Other income (expense):
Interest income		—			2,524
Interest expense		(94,292	)		(10,900	)
Gain on derivative liability		10,408			—
Total other income (expense)		(83,884	)		(8,376	)

Net loss		(1,081,284	)		(2,693,453	)

Undeclared, imputed and/or paid dividends on preferred stock		76,784			157,409

Net loss applicable to common shareholders	$	(1,158,068	)	$	(2,850,862	)

Basic and diluted net loss per common share	$	(0.02	)	$	(0.04	)

Shares used in computing basic and diluted net loss per common share		67,520,315			67,311,606

Protein Polymer Technologies, Inc.
Statements of Cash Flows
(unaudited)

	Three months ended
	March 31,
	2007			2006
Operating activities
Net loss	$	(1,081,284	)	$	(2,693,453	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		25,304			40,344
Share based compensation expense		80,991			1,038,395
Gain on warrant derivative liability		10,408			–
Changes in operating assets and liabilities:
Deposits		(800	)		(800	)
Prepaid expenses		(26,438	)		2,053
Rent receivable		15,000			35,000
Contracts receivable		250			(107,127	)
Accounts payable		(320,661	)		561,108
Accrued expenses		89,647			(5,807	)
Deferred rent		–			3,307
Net cash used in operating activities		(1,207,583	)		(1,126,980	)

Investing activities
Purchase of equipment and improvements		–			(35,641	)
Issuance of notes receivable		–			(3,518	)
Net cash used in investing activities		–			(39,159	)

Financing activities
Net proceeds from exercise of options and warrants
and sale of common stock		–			3,177
Proceeds from issuance of debt - related party		1,221,900			–
Net cash provided by financing activities		1,221,900			3,177

Net increase (decrease) in cash and cash equivalents		14,317			(1,162,962	)
Cash and cash equivalents at beginning of the period		73,495			1,211,748
Cash and cash equivalents at end of the period	$	87,812		$	48,786

Supplemental disclosures of cash flow information
Interest paid	$	2,398		$	2,090

Non cash investing and financing activity
Imputed dividend on extension of warrants	$	8,325		$	88,950
Issuance of common stock in settlement of indemnification obligation	$	61,067		$	–

See accompanying notes.

The financial statements of Protein Polymer Technologies, Inc. (the "Company") for the three months ended March 31, 2007 are unaudited. These financial statements reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary to present fairly, in all material respects, the financial position, results of operations and cash flows for the interim period presented. The balance sheet as of December 31, 2006 was derived from the Company's audited financial statements. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the year ending December 31, 2007. 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, 2006, filed with the Securities and Exchange Commission.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the three months ended March 31, 2007, the Company incurred a net loss of approximately $1,081,000 and had a working capital deficit of approximately $5,875,000 at March 31, 2007. Our cash and cash equivalents of approximately $88,000 in combination with anticipated additional contract and license payments are insufficient to meet our anticipated capital requirements.

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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.

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

Excluded from diluted loss per common share as of March 31, 2007 and 2006 were 26,341,157 and 19,810,678 shares, respectively, issuable upon conversion of convertible preferred stock, and options and warrants to purchase 29,098,074 and 28,968,076 shares of common stock, respectively, because the effect would be anti-dilutive. For purposes of this calculation, net loss in 2006 and 2005 has been adjusted for imputed, accumulated and/or paid dividends on the preferred stock.

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

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

In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," (FIN 48). FIN 48 clarifies the accounting for uncertainty in tax positions and requires that a Company recognize in its financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The adoption of this standard, effective January 1, 2007, did not have any impact on the Company's financial position, results of operation or cash flows.

In February 2007, the FASB issued SFAS No. 159 The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115 (“SFAS No. 159”), which permits entities to choose to measure many financial instruments and certain other items at fair value. The fair value option established by this Statement permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Adoption is required for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS Statement No. 159. The Company is currently evaluating the impact of adopting SFAS No. 159 on our financial statements.

In March 2007, the Company determined to discontinue its efforts to further develop and commercialize products licensed from Surgica Corporation (‘Surgica”) and the Company received notification from Surgica that Surgica was terminating the License Agreement due to alleged breaches of the agreement by the Company. Accordingly, the Company recorded an impairment charge of $1,046,503 at December 31, 2006 to reduce the carrying value of the License Agreement to $0.

	March 31, 2006		December 31, 2006
Payroll and employee benefits	$	99,000	$	94,000
Accounting and professional fees		25,000		25,000
Accrued interest		238,000		147,000
Property tax		26,000		21,000
Insurance premium financing		48,000		39,000
Indemnification obligation		-		61,000
Warrant derivative liability		26,000		36,000
	$	462,000	$	423,000

On April 13, 2006, an accredited investor loaned $1,000,000 (the “Loan”) to the Company ($500,000 in cash and an additional $500,000 deposited with an escrow agent as a line of credit) represented by a note (the “Note”) issued by the Company to the investor in the principal amount of $1,000,000 (the “Principal”). The Note was originally due on July 7, 2006 (the “Maturity Date”) and bears annual interest at the rate of 8% payable on the Maturity Date. It is secured, in accordance with the terms of a security agreement (the “Security Agreement”), by a continuing security interest in and a general lien upon (i) 1,000,000 shares of Spine Wave, Inc. common stock owned by the Company; (ii) a warrant to purchase 1,000,000 shares of Spine Wave, Inc. common stock owned by the Company which has since been exercised; and (iii) all U.S. patents owned by the Company. The Note and the Security Agreement are both dated April 13, 2006. As consideration for the Loan the Company granted a warrant to the investor to purchase an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.30 per share. The investor’s counsel acts as the escrow agent and now serves as our outside general counsel.

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

Based on the termination of the Surgica License Agreement in March 2007 the Company believes that it will be relieved of its liability for the assumed notes payable. However, until a final settlement agreement is reached between the Company and Surgica with respect to the disposition of the notes, the Company will continue to carry the notes on its balance sheet.

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

Under the modified prospective approach, SFAS No. 123R applies to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased or cancelled. Under the modified prospective approach, compensation cost recognized for the first quarter of fiscal 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested on, January 1, 2006, based on the grant-date fair value estimated in accordance with the pro forma provisions of SFAS No. 123R, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R. Prior periods were not restated to reflect the impact of adopting the new standard. During the three month periods ended March 31, 2007 and 2006, the Company recorded $81,000 and $1,038,000, respectively in non-cash charges for the implementation of SFAS No. 123R. As of March 31, 2007, there was approximately $113,000 of total unrecognized compensation costs related to unvested options.

The Company did not grant options during the 1^st quarter of 2007. The fair value of stock options granted in 2006 were estimated using the Black-Scholes model. Expected volatility is based on the historical volatilities of the Company's common stock. The expected life of employee stock options is determined using historical data of employee exercises and represents the period of time that stock options are expected to be outstanding. The risk free interest rate is based on U.S. Treasury constant maturity for the expected life of the stock option. The following assumptions were used in the Black-Scholes model:

	Options Outstanding			Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2006		12,454,582		$	0.66				$	—
Issued		—			—					—
Cancelled		(25,000	)		(3.00	)				—
Exercised		—			—					—
Outstanding at March 31, 2007		12,429,582		$	0.66			6.3		—
Exercisable at March 31, 2007		12,151,782		$	0.66			6.3	$	—

Prior to their expiration date of January 31, 2007, the Board of Directors extended the expiration date of warrants to acquire 855,303 shares of the Company’s common stock from January 31, 2007 to January 31, 2008. The Company recorded an imputed dividend of approximately $8,000 during the quarter ended March 31, 2007 to reflect additional benefit created for the preferred stockholders in connection with the extension.

In accordance with EITF 00-19, warrants classified as derivative liabilities are adjusted to estimated fair market value each reporting period with the corresponding non-cash gain or loss reflected in the current period. At March 31, 2007 the estimated fair value of the warrant derivative liability was $25,600, and during the quarter ended March 31, 2007, the Company recorded a gain of $10,400 based on the change in the estimated fair value during the period.

In March 2007, the Company received notification from Surgica’s legal counsel alleging that the Company had breached the Technology License Agreement and the Supply Agreement, and based thereon, Surgica was terminating these agreements. In connection with its allegations, Surgica demanded that the Company reassign the 510K Clearances, as defined in the Technology License Agreement, back to Surgica. The Company does not believe it has breached these agreements, nor that they are obligated to reassign the 510K Clearances back to Surgica.

The Company recorded impairment charges at December 31, 2006 related to the capitalized costs of the Technology License Agreement and notes receivable entered into in connection with the Surgica Agreements of $1,046,503 and $257,133, respectively, in order to reduce the carrying value of these assets to $-0-. Additional costs may be incurred by the Company in connection with the resolution this matter with Surgica, and there is a possibility that litigation between the two companies may occur. In the event that litigation in this matter does transpire, the Company intends to vigorously defend it position and to seek the recovery of costs and other amounts expended pursuant to the Surgica Agreements.

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

Protein Polymer Technologies, Inc. is a biotechnology company engaged in the research, development, production and clinical testing of medical products based on materials created from our patented technology to produce proteins of unique design. Additionally, we are committed to the acquisition of faster-to-market medical products in certain complementary growth markets. Since 1992, we have focused primarily on developing technology and products to be used for soft tissue augmentation, tissue adhesives and sealants; wound healing support; and drug delivery devices. We have been unprofitable to date, and as of March 31, 2007 had an accumulated deficit of approximately $68.1 million.

Contract and Licensing Revenue. We earned $136,000 in contract and licensing revenue for the quarter ended March 31, 2007 as compared to $221,000 for the quarter ended March 31, 2006. The revenue in the 2007 quarter resulted primarily from $100,000 in licensing fess from our contractual relationship with Genencor International. We do not anticipate any additional payments to be earned from Genencor in 2007. Contract revenue in 2006 was earned by primarily from providing for materials and services in the development of an adhesive product for the repair of spinal discs laboratory services for Spine Wave, Inc.

Research and Development Expenses. Research and development expenses for the three months ended March 31, 2007 were $719,000, compared to $1,036,000 for the comparable period in 2006. The decline from 2006 resulted from significantly reduced activity levels in 2007 of clinical testing and regulatory consulting costs. Additionally, we only funded one month’s operating expenses for Surgica Corporation in 2007 as the result of our determination in March 2007 to discontinue our efforts to develop and commercialize the Surgica products. We expect our research and development expenses will increase in the future, to the extent additional capital is obtained, due to the expansion of product-directed development efforts including preclinical development of our surgical sealants. We do not anticipate that any additional operating expenses with respect to Surgica will be incurred in 2007.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the quarter ended March 31, 2007 were $415,000, as compared to $1,887.000 for 2006. We made significant reductions in administration expenses in the second half of 2006. Several highly compensated positions were eliminated and all non-mission sensitive expenses were reviewed and either eliminated or reduced. Additionally, during the first quarter of 2006 we recognized non-cash charges aggregating $1,038,000 as the result of adopting SFAS No. 123 (revised 2004) “Share Based Payment” for stock options.

To the extent possible, we continue to concentrate on controlling costs reflected in reduced travel, office supplies, and non-regulatory consulting costs. We expect our selling, general and administrative expenses will increase in the future, to the extent additional capital is obtained, consistent with supporting our research and development efforts and as business development, patent, legal and investor relations activities require.

Interest Income/(Expense). Interest expense increased significantly from $11,000 in the three months ended March 31, 2006 to $94,000 in the three months ended 2007. This increase resulted directly from incurring approximately $4,800,000 of secured financing from a stockholder to sustain our operations since April 2006 and the assumption of $519,000 of promissory notes in connection with the Surgica transaction during December 2005.

Operating Losses. For the three months ended March 31, 2007, we recorded a net loss applicable to common shareholders of $1,158,000 or $0.02 per share, as compared to $2,850,000 or $0.04 per share in 2006. The difference in the net losses is as discussed in detail previously. The undeclared or imputed dividends in quarter ended March 31, 2006 was greater than the comparable period in 2007 as the result of a non-cash imputed dividend that resulted from repricing and extending the term of certain warrants in 2006.

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

We do not have any off balance sheet financing activities and do not have any special purpose entities. We had no long-term capital lease obligations as of March 31, 2007 or December 31, 2006. For the quarter ended March 31, 2007, our cash expenditures for capital equipment and leasehold improvements were $0, as compared to $36,000 for the same period in the prior year. We do not anticipate any significant capital expenditures in 2007. We may enter into capital equipment lease arrangements in the future if available at appropriate rates and terms.

On April 13, 2006, an accredited investor loaned us $1,000,000 (the “Loan”) ($500,000 in cash and an additional $500,000 deposited with an escrow agent as a line of credit) represented by a note (the “Note”) issued by us to the investor in the principal amount of $1,000,000 (the “Principal”). The Note was originally due on July 12, 2006 (the “Maturity Date”) and bears annual interest at the rate of 8% payable on the Maturity Date. It is secured, in accordance with the terms of a security agreement (the “Security Agreement”), by a continuing security interest in and a general lien upon (i) 1,000,000 shares of Spine Wave, Inc. common stock owned by us (ii) a warrant to purchase 1,000,000 shares of Spine Wave, Inc. common stock owned by us which has since been exercised; and (iii) all U.S. patents owned by us. The Note and the Security Agreement are both dated April 13, 2006. As consideration for the Loan us granted a warrant to the investor to purchase an aggregate of 500,000 shares of our common stock at an exercise price of $0.30 per share. The investor’s counsel acts as the escrow agent and now serves as our outside general counsel.

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

We believe our existing available cash and cash equivalents as of March 31, 2007, in combination with continuing contractual commitments will be sufficient to meet our anticipated capital requirements only through May 2007. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. We are pursuing a number of alternatives available to meet the continuing capital requirements of our operations, such as collaborative agreements and public or private financings. We are currently in discussions with potential financing sources and collaborative partners, and additional funding in the form of equity investments, license fees, loans, milestone payments or research and development payments could be generated. There can be no assurance that any of these fundings will be consummated in the timeframes needed for continuing operations or on terms favorable to us, if at all. If adequate funds are not available, we will be required to significantly curtail our operating plans and would likely have to sell or license out significant portions of our technology, and possibly cease operations.

We have incurred operating losses since our inception in 1988, and will continue to do so for at least several more years. As of March 31, 2007, our accumulated deficit was approximately $68,097,000 and we have continued to incur losses since that date. The losses have resulted principally from expenses of research and development and to a lesser extent, from general and administrative expenses. If these losses continue, they could cause the value of our stock to decline.

We believe our existing available cash, cash equivalents and accounts receivable, in combination with anticipated contract research payments and revenues received from the transfer of clinical testing materials, will be sufficient to meet our anticipated capital requirements only through May 2007. Substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. If we do not raise adequate funds, we will be required to significantly curtail or cease our operations, and may have to sell or license out significant portions of our technology or potential products.

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. However, these alternatives may not be consummated in the necessary time frames needed for continuing operations or on terms favorable to us. Since April, 2006, one of our stockholders has been providing financing to us to support our operations. As of the date hereof we have borrowed and aggregate of $4,800,000 from this stockholder. We cannot assure that this stockholder will continue to provide financing to us when needed. Our business and financial condition will be materially adversely affected in the event that he ceases to provide this financing if needed.

Our principal strategy is to enter into partnerships or licensing arrangements with medical or pharmaceutical companies with appropriate marketing and distribution capabilities to reduce the time and costs for developing and commercializing our potential products. We may not be able to establish additional strategic partnerships or licensing arrangements, or, if available, they may not be on terms and conditions favorable to our business. Additionally, these arrangements generally may be terminated under various circumstances, including termination at the discretion of the strategic partner without cause or without prior notice. Termination of the arrangements could seriously harm our business and financial condition. Furthermore, our strategy may lead to multiple alliances regarding different product opportunities that are active at the same time. We may not be able to successfully manage multiple arrangements in various stages of development.

We are discussing other potential collaboration agreements with prospective marketing partners. Furthermore, from time to time, we are party to certain materials evaluation agreements regarding biomedical applications of our products, polymers and technology, including applications in areas other than those identified as product candidates above. These agreements provide, or are intended to provide, for the evaluation of product feasibility. We may not be able to establish these agreements at all or do so in a timely manner and on reasonable terms. In addition, these agreements may not lead to successful product development and commercialization.

Our technological strategy of designing and producing unique products based on genetically engineered proteins that do not have a harmful effect on biological systems, such as the human body, is commercially unproven. The process of developing products and achieving regulatory approvals is time consuming and prone to delays. We have completed only a few products that require collaboration and marketing partners, and have not generated any significant revenues from product sales.

We operate in the biomedical and surgical repair markets that involve intense competition. Our competitors in those markets include major pharmaceutical, surgical product, chemical and specialized biopolymer companies, many of which have financial, technical, research and development and marketing resources significantly greater than ours. Our biomaterials are used primarily in the manufacture of end-use products for medical applications that compete with other products that rely on the use of alternative materials or components. As a result, we compete with diverse, complex and numerous rapidly changing technologies. We believe that our ability to compete will be enhanced by the breadth of our issued patent claims, our other pending patent applications and our experience in protein engineering. However, we currently do not have the resources to compete commercially without the use of collaborative agreements with third parties.

Our product technology competes for corporate development and marketing partnership opportunities with numerous other biotechnology companies, research institutes, academic institutions and established pharmaceutical companies. We also face competition from academic institutions and other public and private research organizations that are conducting research and seeking patent protection, and may commercialize products on their own or through joint ventures. Although most of our competitors depend on technology other than protein engineering for developing products, we believe that several university laboratories are currently conducting research into similar protein engineering technology. Our competitors may succeed in developing products based on our technology or other technologies that are more effective than the ones we are developing, or that would render our technology and products obsolete and non-competitive, which may harm our business.

To date, we have manufactured only limited amounts of our biomedical products for internal testing, initial human clinical testing and, in certain cases, evaluation and testing by corporate partners and other third parties. We will be required to upgrade our manufacturing facilities to obtain manufacturing approvals from the FDA for the development and commercialization of certain biomedical products.

We have not yet developed a process to manufacture our products on a commercial scale and may not be able to, or have another party on our behalf, develop a process at a cost or in quantities necessary to become commercially viable. We may need to evaluate alternative methods to produce commercial quantities of our products. We may not be able to successfully assess the ability of other production methods or establish contract-manufacturing arrangements to meet our commercial objectives.

Regulation by governmental authorities in the United States and other countries affects the success of products resulting from biotechnological research. Our current operations and products are, and anticipated products and operations will be, subject to substantial regulation by a variety of local, state, federal and foreign agencies, particularly those products and operations related to biomedical applications. A few examples of the laws that govern our products and operations are:

Compliance with the applicable laws and regulations is a costly and time-consuming process. We believe we are currently in substantial compliance with the laws and regulations applicable to our current operations. Although we intend to use our best efforts to comply with all applicable laws and regulations in the future, we may not be able to fully comply with the laws and regulations and as such, our business operations would be seriously harmed.

As of April 1, 2007, we had eighteen full-time employees, two of whom hold Ph.D. degrees. Our success will depend largely upon the efforts of our scientists and certain of our executive officers who have been employed by us since the early stages of our business and understand our technology and business objectives. The loss of the services of any one of these individuals would seriously harm our business opportunities and prospects. Our success also depends on the recruitment and retention of additional qualified management and scientific personnel. We may not be able to attract and retain required personnel on acceptable terms, due to the competition for experienced personnel from other biotechnology, pharmaceutical and chemical companies, universities and non-profit research institutions. We do not maintain "key-man" or similar life insurance policies with respect to these persons to compensate us in the event of their deaths, which may harm our business.

We may face product liability claims with respect to our technology or products either directly or through our strategic partners. We may also be exposed to potential product liability risks whenever human clinical testing is performed or upon the use of any commercially marketed medical product. We believe that our prior sales of SmartPlastic(R), ProNectin (R) F and ProNectin(R) L products do not pose any material product liability risk. To our knowledge no product liability claims have ever been made against us. Before initiating human clinical testing of our technology, we procured product liability insurance that is limited to coverage of $1,000,000 per occurrence and in the aggregate $5 million. If plaintiffs succeed in their claims against us, if any, and if the coverage under our insurance policies is insufficient, our business would be seriously harmed.

We have 26 United States patents, 14 foreign patents, and five additional United States patent applications are pending. We have not yet marketed, sold or developed our products outside the United States, except for limited amounts of ProNectin(R) F, ProNectin(R) L and SmartPlastic(R) cell culture products. The patent position of biotechnology companies, such as ours, is highly uncertain and involves complex legal, scientific and factual questions. For example:

our competitors may have filed patent applications or may have obtained patents and other proprietary rights relating to products or processes similar to and competitive with ours. The scope and validity of such patents may not be known or the extent to which we may be required to obtain licenses under these patents or other proprietary rights. If required, we may not be able to obtain any licenses on acceptable terms, if at all;

Our common stock was delisted from the Nasdaq SmallCap Market on September 20, 1999, and now trades on the National Association of Securities Dealers' Electronic Bulletin Board. As a consequence of the delisting, it is more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock. In addition, the delisting made our common stock substantially less attractive as collateral for margin and purpose loans, for investment by financial institutions under their internal policies or state investment laws, or as consideration in future capital raising transactions.

Our common stock is also subject to regulation as a "penny stock." The Securities and Exchange Commission has adopted regulations that generally define "penny stock" to be any equity security that has a market price or exercise price less than $5.00 per share, subject to certain exceptions, including listing on the Nasdaq SmallCap Market. For transactions covered by the penny stock rules, the broker-dealer must consider the suitability of the purchaser, receive the purchaser's written consent before the purchase, deliver a risk disclosure document before the purchase and disclose the commission payable for the purchase. Additionally, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

The requirements of the penny stock rules restrict the ability to sell our common stock in the secondary market and the price at which our common stock can be sold. Since our common stock was delisted from the Nasdaq SmallCap Market, we have seen a decline in our average daily trading volume, and as a result, the trading price of our common stock has experienced wide fluctuations.

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and our the principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on that evaluation, as required by paragraph (b) of rules 13a-15 and 15d-15, our principal executive officer and our the principal financial officer have concluded that such disclosure controls and procedures were effective in alerting them in a timely manner to material information relating to the Company required to be included in its periodic reports filed with the Securities and Exchange Commission.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of rules 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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

	2006
Expected volatility		90	%
Weighted-average volatility		90	%
Expected dividends	$	0.00
Expected term (in years)		3.6
Risk-free interest rate		5.1	%

	Number of Warrants Outstanding and Exercisable			Weighted- Average Exercise Price
Outstanding, December 31, 2006		17,178,494		$	0.55
Granted		—		$	—
Exercised		—		$	—
Expired		(510,000	)	$	0.93
Outstanding, March 31, 2007		16,668,494		$	0.52


	PROTEIN POLYMER TECHNOLOGIES, INC.

Date: May 15, 2007	By:	/s/ William N. Plamondon, III
		William N. Plamondon, III
		Chief Executive Officer



Date: May 15, 2007	By:	/s/ William N. Plamondon, III
		William N. Plamondon, III
		Principal Financial Officer