UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

¨	TRANSITION REPORT PURSUANT TO 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 registrant as specified in its charter)

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

11494 Sorrento Valley Road, San Diego, CA 92121

(Address of principal executive offices) (Zip Code)

(858) 558-6064

(Registrant’s telephone number, including area code)

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

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

Large accelerated

filer ¨

Accelerated
filer ¨

Non-accelerated filer ¨

(Do not check if a smaller reporting

company)

Smaller reporting

company þ

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

The number of shares of the registrant’s common stock issued and outstanding as of November 20, 2009 was 112,959,272.

PROTEIN POLYMER TECHNOLOGIES, INC.

FORM 10-Q — QUARTERLY REPORT

FOR THE PERIOD ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

			Page

PART I. FINANCIAL INFORMATION
	Item 1.	Financial Statements
		Condensed Balance Sheets as of September 30, 2009 (unaudited) and December 31, 2008	3
		Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)	4
		Condensed Statements of Cash Flows for the Three and Nine Months Ended September 30, 2009 and 2008 (unaudited)	5
		Notes to Condensed Financial Statements (unaudited)	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	18
	Item 4T.	Controls and Procedures	18

PART II. OTHER INFORMATION
	Item 1.	Legal Proceedings	20
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3.	Defaults Upon Senior Securities	20
	Item 4.	Submission of Matters to a Vote of Security Holders	20
	Item 5.	Other Information	20
	Item 6.	Exhibits	21

SIGNATURES			22

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Protein Polymer Technologies, Inc.

Condensed Balance Sheets

	September 30, 2009			December 31,
	(unaudited)			2008
Assets
Current assets:
Cash	$	17,398		$	1,291
Prepaid expenses and other current assets		77,525			35,011
Total current assets		94,923			36,302

Deposits		29,979			29,679
Equipment and leasehold improvements, net		13,381			24,429
Investment		520,000			520,000
Total assets	$	658,283		$	610,410

Liabilities and stockholders’ deficit
Current liabilities:
Accounts payable	$	1,101,345		$	969,435
Accrued liabilities		1,278,816			844,073
Secured notes payable – related party		6,414,837			6,414,837
Note payable – Surgica - other		-			519,071
Secured notes payables, net of unamortized debt discount		50,688			-
Notes payable – other, net of unamortized debt discount		278,015			158,589
Deferred revenue		50,000			-
Fair value of warrant and embedded derivative liability obligations		1,553,306			-
Total current liabilities		10,727,007			8,906,005

Commitments and contingencies

Stockholders’ deficit:
Convertible preferred stock, $0.01 par value; 5,000,000 shares authorized; 20,237 shares issued and outstanding at September 30, 2009 and December 31, 2008 – liquidation preference of $2,086,273 and $2,082,930 at September 30, 2009 and December 31, 2008, respectively.		1,834,299			1,834,299
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 112,959,272 and 109,387,843 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively.		1,129,593			1,093,878
Additional paid-in capital		59,606,301			61,982,390
Accumulated deficit		(72,638,917	)		(73,206,162	)
Total stockholders’ deficit		(10,068,724	)		(8,295,595	)
Total liabilities and stockholders’ deficit	$	658,283		$	610,410

The accompanying notes are an integral part of these condensed financial statements.

Protein Polymer Technologies, Inc.

Condensed Statements of Operations

(unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2009			2008			2009			2008
Revenues	$	100		$	17,213		$	2,745		$	23,968

Operating expenses:
Research and development		30,139			127,721			88,295			1,253,211
Selling, general and administrative		292,412			236,570			893,285			748,062
Total expenses		322,551			364,291			981,580			2,001,273

Net loss from operations		(322,451	)		(347,078	)		(978,835	)		(1,977,305	)

Other income (expenses):
Interest and other income		-			194			-			194
Interest and other expense		(212,387	)		(183,029	)		(565,544	)		(561,271	)
Gain on sale of equipment		-			-			-			40,646
Gain on settlement of note payable – Surgica		-			-			638,380			-
Gain from change in fair value of warrant and embedded derivative obligations		64,325			-			26,121			-
Total other income (expense)		(148,062	)		(182,835	)		98,957			(520,431	)

Net loss		(470,513	)		(529,913	)		(879,878	)		(2,497,736	)

Dividends on preferred stock		1,127			69,789			3,343			207,850

Net loss applicable to common shareholders	$	(471,640	)	$	(599,702	)	$	(883,221	)	$	(2,705,586	)

Basic and diluted net loss per common share	$	(0.004	)	$	(0.006	)	$	(0.008	)	$	(0.029	)

Weighted average number of common shares outstanding – basic and diluted		112,959,272			105,944,857			112,802,286			93,614,046

The accompanying notes are an integral part of these condensed financial statements.

Protein Polymer Technologies, Inc.

Condensed Statements of Cash Flows

(unaudited)

	Nine months ended
	September 30,
	2009			2008
Operating activities
Net loss	$	(879,878	)	$	(2,497,736	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation		11,048			39,435
Stock-based compensation expense		2,422			7,164
Debt discount amortization		133,868			135,449
Gain from change in fair value of warrant and embedded derivative obligations		(26,121	)		-
Gain on sale of fixed assets		-			(40,646	)
Gain on settlement of note payable – Surgica		(638,380	)		-
Changes in operating assets and liabilities:
Deposits		(300	)		-
Prepaid expenses and other current assets		(42,514	)		(25,592	)
Accounts payable		131,910			114,711
Accrued liabilities		554,052			490,839
Deferred revenue		50,000			-
Net cash used for operating activities		(703,893	)		(1,776,376	)

Investing activities:
Proceeds from sale of equipment		-			101,000
Net cash provided by investing activities		-			101,000

Financing activities:
Proceeds from sale of common stock		75,000			1,655,000
Proceeds from issuance of note payable		645,000			-
Net cash provided by financing activities		720,000			1,655,000

Net increase (decrease) in cash		16,107			(20,376	)
Cash at beginning of the period		1,291			21,936
Cash at end of the period	$	17,398		$	1,560

Supplemental disclosures of cash flow information
Interest paid	$	1,358		$	2,129
Non cash investing and financing activity
Debt discount recorded in connection with issuance/amendment of warrants	$	-		$	135,449
Warrants issued with common stock and debt	$	551,539		$	-
Secured note payable-related party issued for payment of accrued interest	$	-		$	538,837

The accompanying notes are an integral part of these condensed financial statements.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

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

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q under the modified rules and regulations for “Smaller Reporting Companies”. Accordingly, they do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. However, the Company believes that the condensed financial statements, including the disclosures herein, include all adjustments necessary in order to make the financial statements presented not misleading. The balance sheet as of December 31, 2008 was derived from the Company’s audited financial statements. The financial statements herein should be read in conjunction with our financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the U.S. Securities and Exchange Commission. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2009.

Going Concern and Liquidity

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the nine months ended September 30, 2009, the Company incurred net losses and negative cash flows from operating activities of approximately $880,000 and $704,000, respectively, and at September 30, 2009, the Company had a working capital deficit of approximately $10,632,000 and an accumulated deficit of approximately $72,639,000. The Company’s cash balance as of September 30, 2009 was approximately $17,000 and, in combination with anticipated additional contract and license payments, is insufficient to meet ongoing capital requirements.

From January 1, 2009 through September 30, 2009, required operating capital has been obtained through proceeds totaling $75,000 from equity issuances and proceeds totaling $645,000 from issuance of debt.

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

Use of Estimates

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

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Revenue Recognition

Revenues are recognized when earned in accordance with the terms and performance requirements of the contracts, If the research and development activities are not successful, the Company is not obligated to refund payments previously received.

Research and Development Costs

Research and development costs are expensed as incurred.

Stock-Based Compensation

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-Merton option-pricing model.

Investment

The investment balance at September 30, 2009 and December 31, 2008 represents shares of common stock owned by the Company in a privately held company which were acquired pursuant to a license agreement. Based on the Company’s limited ownership percentage, the investment is reported using the cost method. Under the cost method, the Company does not record its proportional share of earnings and losses of the investee, and income on the investment is only recorded to the extent of dividends distributed from earnings of the investee received subsequent to the date of acquisition.

The Company reviews the carrying value of its cost-method investment for impairment when indicators of impairment are present. When an impairment test demonstrates that the fair value of an investment is less than its cost, Company management will determine whether the impairment is either temporary or other-than-temporary. Examples of factors which may be indicative of an other-than-temporary impairment include i) the length of time and extent to which market value has been less than cost, ii) the financial condition and near-term prospects of the issuer, iii) and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. If the decline in fair value is determined by management to be other-than-temporary, the cost basis of the investment is written down to its estimated fair value as of the balance sheet date of the reporting period which the assessment is made. This fair value becomes the investment’s new cost basis, which is not changed for subsequent recoveries in fair value. Any recorded impairment write-down will be included in earnings as a realized loss in the period such write-down occurs.

As of September 30, 2009, the Company was not aware of any indicators of impairment and believes that the carrying amount of its investment was not impaired at September 30, 2009.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Fair Value Measurements

The carrying value of the Company’s cash, accounts payable and accrued expenses approximate their respective fair values because of the short maturities of these instruments. The carrying value of the Company’s notes payable obligations approximates their fair value as the stated interest rates of these instruments reflect rates currently available to the Company.

The Company measures the fair value of applicable financial and non-financial assets based on the following levels of inputs:

Level 1: Quoted prices in an active market for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

At September 30, 2009, the Company re-measured the fair value of warrants and embedded derivatives to purchase shares of common stock that were classified as liabilities (see Note 4). These instruments were valued using Level 3 inputs because there are certain unobservable inputs associated with them. The following table reconciles the liability for these instruments measured at fair value on a recurring basis using Level 3 inputs for the nine months ended September 30, 2009:

Balance at December 31, 2008	$	-
Cumulative effect of accounting change (Note 7)		933,000
Issuance of new warrants and embedded derivatives		646,000
Gain on change in fair value included in net loss		(26,000	)
Balance at September 30, 2009	$	1,553,000

Fair Value of Warrant and Embedded Derivative Obligations

Effective January 1, 2009, 50,687,119 of the Company’s warrants and embedded derivatives to purchase common stock previously treated as equity pursuant to the derivative treatment exemption were no longer afforded equity treatment due to exercise price reset and anti-liquidation features.

On January 1, 2009, the Company reduced additional paid-in capital by $2,380,000 and decreased the beginning accumulated deficit by $1,447,000 as a cumulative effect to establish a long-term warrant and embedded derivative liability of $933,000 to recognize the fair value of such instruments.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

These instruments were initially issued in connection with placement of the Company’s common stock. The instruments were not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. The instruments do not qualify for hedge accounting, and as such, all future changes in the fair value of these instruments will be recognized currently in earnings until such time as the instruments are exercised or expire. These instruments do not trade in an active securities market, and as such, we estimate the fair value of these instruments using the Black-Scholes-Merton option pricing model using the following assumptions at September 30, 2009:

Annual dividend yield	0	%
Expected life (years)	0.4 – 4.3
Risk-free interest rate	0.2% - 2.4	%
Expected volatility	246% - 476	%

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods that correspond to the expected life of the instruments. The Company believes this method produces an estimate that is representative of our expectations of future volatility over the expected term of these instruments. The Company currently has no reason to believe future volatility over the expected remaining life of these instruments is likely to differ materially from historical volatility. The expected life is estimated by management based on the remaining term of the instruments. The risk-free interest rate is based on the rate for U.S. Treasury securities over the expected life.

Income Taxes

The Company records income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their future respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recorded or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce the deferred tax asset if it is more likely that the related tax benefits will not be realized in the future.

Net Loss per Common Share

Basic loss per share is calculated using the weighted-average number of outstanding common shares during the period. Diluted loss 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 September 30, 2009 and 2008 were 86,492,424 and 143,710,780 shares, respectively, issuable upon conversion of convertible preferred stock, and common stock options and warrants, because the effect of the inclusion of these shares would be anti-dilutive.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Reclassifications

Certain prior year amounts have been reclassified to conform to the 2009 presentation.

Recent Accounting Pronouncements

Effective September 2009, the Company revised references to authoritative accounting literature in accordance with FASB Accounting Standards Codification (the “Codification”). The Codification became the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date, the Codification superseded all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification became non-authoritative.

Note 2.

Investment

The investment included on our balance sheets at September 30, 2009 and December 31, 2008 represents the Company’s cost basis in shares of common stock of Spine Wave, Inc. (“Spine Wave”), a privately held company focused on the development and commercialization of innovative products and technologies for the treatment of spinal disorders.

As of September 30, 2009 the Company was not aware of any indicators of impairment with respect to its investment in Spine Wave, and it was not practicable for the Company to estimate the fair value of this investment because of the lack of quoted market prices and the inability to otherwise estimate fair value without incurring excessive costs. Management believed that the carrying amount of its investment in Spine Wave was not impaired at September 30, 2009.

As discussed in Note 4, all of the Spine Wave shares owned by the Company serve as collateral for a currently outstanding note payable.

Note 3.

Accrued Liabilities

Accrued liabilities consist approximately of the following:

	September 30,		December 31,
	2009		2008
Payroll and employee benefits	$	91,000		67,000
Professional fees		14,000		-
Accrued interest		920,000		610,000
Insurance premium financing		69,000		27,000
Directors fees		130,000		100,000
Other		55,000		40,000
	$	1,279,000		844,000

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Note 4.

Notes Payable

Secured Notes Payable – Related Party

As of September 30, 2009, the amount due on the secured notes payable – related party note includes the $6,415,000 outstanding balance plus $885,000 of accrued interest. On September 21, 2009, the Company extended the maturity date to September 30, 2010.

The note is secured by a senior security interest in and general lien upon (i) 2,400,000 shares of Spine Wave, Inc. common stock owned by the Company; and (ii) all U.S. patents owned by the Company.

Secured Notes Payable – Other

On September 3, 2009, the Company received proceeds of $150,000 as a secured loan. This note is due on March 2, 2010 and bears an annual interest rate of 10%. The interest is payable on the maturity date, either in cash or common stock at a rate of $0.04 per share at the discretion of the Company. The note is convertible into the Company’s common stock at the rate of $0.04 per share subject to applicable anti-dilution provisions and future pricing provisions. As of September 30, 2009 the total amount of accrued interest owed was $1,000. The note is secured by a junior interest in and general lien upon (i) 2,400,000 shares of Spine Wave, Inc. common stock owned by the Company; and (ii) all U.S. patents owned by the Company.

A portion of the proceeds totaling $99,000 were allocated to the future pricing provisions as debt discount. The fair value of this embedded derivative was estimated on the issuance date using the Black-Scholes-Merton option valuation model with the following assumptions:

Expected annual dividends	0	%
Risk-free interest rate	0.21	%
Expected term (in years)	0.5
Expected Volatility	466	%

The carrying value of the secured notes payable - other at September 30, 2009, is comprised of the following:

Principal value of notes	$	150,000
Less: Unamortized debt discount		(99,000	)
	$	51,000

The total debt discount recorded is being amortized as interest expense over the expected term of the notes using the effective interest method. During the nine months ended September 30, 2009, the Company did not record non-cash interest expense based on the debt discount amortization of the embedded derivative.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Notes Payable - Other

On July 7, 2009 and August 14, 2009, the Company received proceeds of $50,000 and $30,000, respectively, as unsecured loans. These notes are due on July 6, 2010 and August 13, 2010, respectively, and bear an annual interest rate of 8%. The interest and principal are payable on the maturity dates, either in cash or common stock at a rate of $0.034, and $0.025 per share, respectively, at the discretion of the Company. In connection with the loans, the Company granted warrants to the noteholders to purchase an aggregate of 1,492,537, and 1,200,000, shares, respectively, of the Company’s common stock at an exercise price of $0.034 and $0.025 per share, respectively. As of September 30, 2009 the total amount of accrued interest owed was $1,000.

A portion of the proceeds totaling $79,000 were allocated to the warrant liabilities and as debt discount. The fair value of these warrants was estimated on the date of grant using the Black-Scholes-Merton option valuation model with the following assumptions:

	7/7/09 Warrant			8/14/09 Warrant
Expected annual dividends		0	%		0	%
Risk-free interest rate		1.55	%		1.48	%
Expected term (in years)		3.0			3.0
Expected Volatility		287	%		299	%

The carrying value of the notes payable - other at September 30, 2009, is comprised of the following:

Principal value of notes	$	725,000
Less: Unamortized debt discount		(447,000	)
	$	278,000

The total debt discount recorded is being amortized as interest expense over the expected term of the notes using the effective interest method. During the nine months ended September 30, 2009, the Company recorded non-cash interest expense of approximately $134,000 based on the debt discount amortization of the warrants.

Surgica Notes

In December 2005, in connection with a license agreement with Surgica Corporation for the rights to certain intellectual property, the Company assumed several notes payable agreements with an aggregate principal balance of $519,000.

In March 2007, the license agreement with Surgica was terminated. On October 15, 2008, the noteholders instituted suit against the Company in Superior Court of California, County of Sacramento seeking payment of these notes. Until a final determination was made with respect to the disposition of the notes, the Company continued to carry them on its balance sheet.

On May 19, 2009, the plaintiffs filed a request for dismissal with prejudice of the action against the Company, and the Company paid nothing to plaintiffs in exchange for the dismissal. The dismissal was granted, and the Company reversed the principal liability balance of $519,000 and the accrued interest of $119,000 relating to this license agreement and recorded a gain on extinguishment of $638,000 for the three-month period ended June 30, 2009. As such, neither the liability nor the related accrued interest appears on the Company’s balance sheet as of September 30, 2009.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Note 5.

Common Stock

The Company’s Board of Directors agreed to the terms of a Stock Purchase Agreement (“SPA”) and a Registration Rights Agreement (“RRA”), each dated as of September 27, 2007 and amended on November 28, 2007, with TAG Virgin Islands, Inc.(“TAG”), as agent for certain purchasers of the Company’s common stock. TAG is a registered investment advisor and advises a number of the Company’s stockholders, including certain members of the Company’s Board of Directors, in investment decisions, including decisions about whether to invest in the Company’s stock. The SPA essentially provides for the Company selling, from time to time, shares of its common stock, par value $0.01, to the purchasers at a purchase price determined as the closing price of the stock on sale date. As a component of the purchase of the common stock, the purchaser also will receive a warrant to purchase the same number of shares of common stock in the future. Each warrant expires in five years from the date of purchase and is exercisable at a per share price, subject to certain anti-dilution provisions, equal to 100% of the purchase price paid by the purchase. The SPA can be terminated at any time by TAG. The purchasers have certain registration rights, as provided by the RRA, to require the Company, at its cost, to file an effective registration statement with the Securities and Exchange Commission.

For the nine months ended September 30, 2009, the Company received an aggregate of $75,000 in subscriptions for the purchase of 3,571,429 shares of common stock and 3,571,429 warrants, subject to the terms of the SPA and RRA. Between September 27, 2007 and September 30, 2009, the Company received proceeds of $2,357,000 for the purchase of 46,070,548 shares of common stock and 46,070,548 warrants pursuant to this Stock Purchase Agreement.

Note 6.

Stock Options

The Company did not grant options during the nine months ended September 30, 2009. Stock option activity for the nine months ended September 30, 2009 is as follows:

	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2008		3,507,500		$	0.68		4.40
Issued		-			-
Exercised		-			-
Cancelled		(77,500	)	$	0.46
Outstanding at September 30, 2009		3,430,000		$	0.69		3.74
Exercisable at September 30, 2009		3,430,000		$	0.69		3.74

During the three and nine month periods ended September 30, 2009, the Company recognized $0 and $2,400 in stock-based compensation expense. The charges in the comparable periods ended September 30, 2008 were $2,900 and $7,200, respectively. As of September 30, 2009, all unrecognized compensation expense related to unvested share-based compensation arrangements was fully recognized. There was no intrinsic value related to the stock options outstanding as of September 30, 2009.

Protein Polymer Technologies, Inc.

Notes to Condensed Financial Statements

(unaudited)

Note 7.

Warrants to Purchase Common Stock

The Company has reserved for issuance, out of currently authorized and unissued shares of common stock, shares underlying outstanding warrants to purchase common stock. The fair values of the warrant obligations were recorded as liabilities on the dates of issuance. Upon exercise of the warrants, shares of common stock will be issued out of currently authorized and unissued shares. A summary of warrant activity for the nine months ended September 30, 2009 is as follows:

	Number of Warrants Outstanding and Exercisable			Weighted- Average Exercise Price
Outstanding, December 31, 2008		63,246,315		$	0.14
Granted		26,437,043		$	0.02
Exercised		-		$	-
Expired		(12,468,589	)	$	0.50
Outstanding, September 30, 2009		77,214,769		$	0.04

At September 30, 2009, the weighted-average remaining contractual life of the warrants was approximately 3.10 years.

Note 8.

Sanyo Contract

On June 29, 2009, the Company received from Sanyo Chemical Industries, Ltd. (“Sanyo”) a fully executed copy of a License Agreement between Sanyo and the Company. The effective date of the Agreement is June 18, 2009. Pursuant to the Agreement, the Company has granted a non-exclusive, world-wide license to Sanyo of its technology, know-how, and intellectual property relating to recombinant, repetitive unit proteins and peptides, for the purposes of developing and commercializing products related to Sanyo’s specific fields of business. The Agreement remains in effect until the expiration of the last to expire of the Company’s patents licensed by Sanyo under this Agreement. The Agreement further provides the Company with initial and ongoing license fees, technical service and training fees, and a percentage royalty on the quarterly net sales of any new products developed by Sanyo under this Agreement.

Note 9.

Subsequent Events

On October 21, 2009 and November 12, 2009, the Company received proceeds of $100,000 and $100,000, respectively, pursuant to note payable agreements entered into with clients of TAG. These loans are represented by secured notes issued by the Company. These notes are due on April 20, 2010 and May 11, 2010, respectively, and bear an annual interest rate of 10%. The interest is payable on the maturity dates, either in cash or common stock at a rate of $0.04 per share at the discretion of the Company. These notes are convertible into the Company’s common stock at the rate of $0.04 per share subject to applicable anti-dilution provisions. The Company did not grant warrants to the noteholders in connection with these loans. These notes are secured by a junior interest in and general lien upon (i) 2,400,000 shares of Spine Wave, Inc. common stock owned by the Company; and (ii) all U.S. patents owned by the Company.

The Company evaluated subsequent events through November 20, 2009, which is the date the financial statements were issued.

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

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

Company and Technology Background

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

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

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

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

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

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

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

· combine properties of different proteins found in nature;

· reproduce and amplify selected activities of natural proteins;

· eliminate undesired properties of natural proteins; and

· incorporate synthetic properties via chemical modifications

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

Results of Operations

Revenue. Product and licensing revenues for the three and nine months ended September 30, 2009 were approximately $0 and $3,000, respectively, compared to $17,000 and $24,000, respectively, for revenue from product sales for the comparable periods in 2008.

Research and Development Expenses. Research and development expenses for the three and nine months ended September 30, 2009 were $30,000 and $88,000, respectively, compared to $128,000 and $1,253,000, respectively, for the comparable periods in 2008. The decline resulted from our inability to raise additional capital, and the closing of our laboratory and administrative facility, and the subsequent sub-contracting of the laboratory function in 2008. We expect our research and development expenses will increase in the future only to the extent that additional capital is obtained or future collaborative development and licensing agreements are secured.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three and nine months ended September 30, 2009 were $292,000 and $893,000, respectively, as compared to $237,000 and $748,000, respectively, for the comparable periods in 2008. To the extent possible, we continue to concentrate on controlling costs in this area. We expect our selling, general and administrative expenses will increase in the future only to the extent that additional capital is obtained or future collaborative development and licensing agreements are secured.

Change in Fair Value of Warrant and Embedded Derivative Obligations

We recognized a non-cash gain from the change in fair value of the warrant and embedded derivative obligations for the three and nine months ended September 30, 2009 of $64,000 and $26,000, respectively.

Operating Losses. For the three months ended September 30, 2009, we recorded a net loss applicable to common shareholders of $472,000 or $0.004 per share, as compared to a loss of $600,000 or $0.006 per share for the comparable period in 2008. For the nine months ended September 30, 2009, we recorded a net loss applicable to common shareholders of $883,000 or $0.008 per share, as compared to a loss of $2,706,000 or $0.029 per share for the comparable period in 2008.

Liquidity and Capital Resources

As of September 30, 2009, we had cash totaling approximately $17,000, as compared to $1,000 at December 31, 2008. As of September 30, 2009, we had a working capital deficit of $10,632,000 compared to a working capital deficit of $8,870,000 at December 31, 2008.

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 September 30, 2009. During the nine months ended September 30, 2009, we did not purchase or sell any capital equipment or leasehold improvements. We do not anticipate significant expenditures for capital equipment or leasehold improvements for the remainder of 2009.

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 not be sufficient to meet our anticipated capital requirements during 2009. Substantial additional capital resources are required to fund continuing expenditures related to our operating, research, development, manufacturing and business development activities.

As discussed in Note 5 to the financial statements, the Company entered into a common stock purchase agreement (hereafter “SPA”) in September 2007 and has raised $2,357,000 as of September 30, 2009, as a result of that SPA. The SPA has been our main source of external financing since September 2007.

Prior to the SPA, required funding was provided to us through a note payable agreement (known as the Szulik Loan) by Matthew Szulik, one of our stockholders. On January 9, 2008, we replaced the Szulik Loan by issuing to Mr. Szulik a new note in the principal amount of $6,415,000. On September 21, 2009, the scheduled maturity date was extended to September 30, 2010.

Between October 2, 2008 and November 20, 2009, the Company received proceeds of $1,075,000 as loans from clients of TAG. These loans are represented by notes issued by the Company. The term of these notes range from six months to one year after issuance, and bear an annual interest rate ranging from 8% to 10%. The interest and principal on the notes representing $725,000 of these loans are payable on the maturity dates, either in cash or common stock, at the discretion of the Company, at rates ranging from $0.02 to $0.05 per share. The interest and principal on the notes representing $350,000 of these loans are also payable on the maturity dates, but the interest is payable, either in cash or common stock, at the discretion of the Company, at a rate of $0.04 per share and these notes are convertible at the rate of $0.04 per share, subject to applicable anti-dilution clauses.

As noted above, we believe our existing available cash as of September 30, 2009 will not be sufficient to meet our anticipated capital requirements during 2009. We are unable to pay certain vendors in a timely manner and remain over 90 days past due with certain critical vendors, such as outside laboratories and law firms. Additionally, we are currently outsourcing administrative and accounting functions as a result of cutbacks necessitated by insufficient monetary resources. We are attempting to remedy this problem. Our ability to continue operating is dependent on the receipt of additional funding and substantial additional capital resources will be required to fund continuing expenditures related to our research, development, manufacturing and business development activities. If adequate funds are not available, we will be required to significantly curtail our operating plans and most likely cease operations. We are still in discussions with other potential financing sources and collaborative partners, and are seeking additional funding in the form of equity investments, license fees, loans, milestone payments or research and development payments. We cannot assure that any of these other sources of funding will be consummated in the timeframes needed for continuing operations or on terms favorable to us, if at all.

Inflation

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

Caution on Forward-Looking Statements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations, and therefore are not required to provide the information requested by this Item.

Item 4T. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and Interim Principal Financial Officer, who is the same person, to allow timely decisions regarding required disclosure. As reported in our Annual Report on Form 10-K for the year ended December 31, 2008 (filed on July 24, 2009), Company management identified material weaknesses in our internal accounting control over financial reporting as of December 31, 2008, including:

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

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

Controls over managerial override;

Controls to prevent or reduce the risk of fraudulent activity;

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

Controls related to risk assessment.

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

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

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

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

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

As a result of these material weaknesses, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2008.

As of September 30, 2009, our management, including our Interim Chief Executive Officer and Interim Principal Financial Officer, who is the same person, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). As part of its evaluation, management evaluated whether the previously reported material weaknesses in internal control over financial reporting continue to exist. Company management has determined that it cannot assert that the reported material weaknesses have been effectively remediated as of September 30, 2009. Accordingly, Company management, including our Interim Chief Executive Officer and Interim Principal Financial Officer, who is the same person, has concluded that Company’s disclosure controls and procedures were not effective as of September 30, 2009.

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

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

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

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

During the nine months ended September 30, 2009, we received an aggregate of $75,000 for the purchase of 3,571,429 common shares and 3,571,429 warrants to purchase our common stock. Between January 1, 2009 and November 20, 2009, we sold notes in the aggregate principal amount of $845,000 and issued warrants in connection therewith to purchase 22,865,614 shares of our common stock. Reference is made to Liquidity and Capital resources under Management’s Discussion and Analysis of Financial Condition and Results of Operations or information relating to these sales. The sales were made pursuant to the exemption from the registration provisions of the Securities Act of 1933 provided by Section 4 (2) thereof.

As of November 20, 2009, we had used substantially all of the net proceeds which were generated from the sale of our securities described in the preceding paragraph to fund ongoing operations. We have no remaining proceeds from these sales and will require further sales or other financing transactions or collaborative development agreements to maintain ongoing operations.

Item 3. Defaults upon Senior Securities

Not applicable.

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

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following documents are included or incorporated by reference:

Exhibit Number		Description
10.6.1*		Secured Promissory Note issued to Matthew J. Szulik, dated as of January 9, 2008.
10.6.2**		Form of Promissory Note issued to noteholders, dated as of October 2, 2008, November 3, 2008, December 11, 2008, February 6, 2009, March 18, 2009, April 20, 2009, May 7, 2009, June 5, 2009, July 7, 2009, and August 14, 2009.
10.6.3**		Form of Warrant to Purchase Shares of Common Stock of the Company in connection with the Promissory Note issued to noteholders, dated as of October 2, 2008, November 3, 2008, December 11, 2008, February 6, 2009, March 18, 2009, April 20, 2009, and May 7, 2009, June 5, 2009, July 7, 2009, and August 14, 2009.
10.6.4***		License Agreement, effective June 18, 2009 and dated June 29, 2009, between the Company and Sanyo Chemical Industries, Ltd.
10.6.5		Secured Promissory Note Replacement Agreement, dated as of September 21, 2009, between the Company and Matthew J. Szulik.
10.6.6		Form of Promissory Note issued to noteholders, dated as of September 3, 2009, October 21, 2009, and November 12, 2009.
31.1		Certification of Interim Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Interim Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Interim Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Interim Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 960 of the Sarbanes-Oxley Act of 2002.

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

Incorporated by reference to Registrant’s Report on Form 10-Q for the quarter ended September 30, 2008, SEC File No. 000-19724, as filed with the Commission on November 19, 2008.

***

Incorporated by reference to Registrant’s Report on Form 10-K for the fiscal year ended December 31, 2008, SEC File No. 000-19724, as filed with the Commission on July 24, 2009.

SIGNATURES

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

	PROTEIN POLYMER TECHNOLOGIES, INC.

Date: November 20, 2009	By:	/s/ James B. McCarthy
		James B. McCarthy
		Interim Chief Executive Officer

Date: November 20, 2009	By:	/s/ James B. McCarthy
		James B. McCarthy
		Interim Principal Financial Officer

EX-10.6.5

EX-10.6.6

PROTEIN POLYMER TECHNOLOGIES, INC.

10% CONVERTIBLE SECURED NOTE

DUE ____________, 200_

$ __________

________, 200_

THIS NOTE IS ISSUED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND QUALIFICATION PROVISIONS OF APPLICABLE STATE SECURITIES LAWS. NEITHER IT NOR THE SHARES OF COMMON STOCK INTO WHICH IT CAN BE CONVERTED CAN BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS REGISTERED PURSUANT TO THE SECURITIES ACT AND QUALIFIED UNDER APPLICABLE STATE LAW OR, IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO MAKER, AN EXEMPTION THEREFROM IS AVAILABLE.

FOR VALUE RECEIVED, the undersigned, Protein Polymer Technologies, Inc., with an address at 11494 Sorrento Valley Road, San Diego, California 92121, ("Maker"), promises to pay to Hunter & Co., with an address at P.O. Box 5756, Boston, Massachusetts 02206, as agent ("Payee"), on ___________, 200_, or sooner as otherwise provided herein (the "Maturity Date"), the principal amount of _______________ ($_________) Dollars in lawful money of the United States of America (the "Principal”). This Note bears interest (the "Interest"), payable on the earlier of the Maturity Date or the date on which this Note is converted into Maker's common stock as provided herein, at the annual rate of ten percent (10%), except as otherwise provided herein, until the Principal and all accrued Interest thereon (collectively the “Obligations”) shall be paid in full. This Note is convertible into Maker's common stock, par value $0.01 per share (the "Common Stock"), as set forth below.

1. Interest. Maker shall pay the Interest, in arrears, on the Maturity Date. Interest on the Note will accrue from the most recent date to which Interest has been paid or, if no Interest has been paid, from the date of delivery of the Note. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

2. Method of Payment. Maker will pay Principal and Interest in money of the United States that at the time of payment is legal tender for the payment of public and private debts. All payments shall be sent to Payee at its address first set forth above or such other address as Payee shall notify Maker pursuant to the provisions of Paragraph 13 (g) below. Anything to the contrary notwithstanding, Maker, at its option, may pay Interest in shares of its Common Stock at the rate of ______ ($______) _____ per share.

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

3. Security. This Note shall be secured (the “Lien”) by an interest the “Collateral,” as defined in the security agreement (the “Security Agreement”) between Maker and TAG Virgin Islands, Inc., as agent (“TAG”) dated as of the date hereof, subject to the Permitted Encumbrances as defined and set forth in the Security Agreement, and is entitled to the benefits of and security provided under the Security Agreement a patent security agreement (the “Patent Security Agreement”) between Maker and TAG dated as of the date hereof and the related documents. The Collateral also secures (the “Szulik Lien”) a note issued by Maker to Matthew J. Szulik in the principal amount of $6,414,837.00 dated as of January 9, 2008 and subsequently amended (the “Szulik Note”). The Lien is subordinate to the Szulik Lien. This Note, the Security Agreement, the Patent Security Agreement and the related documents are sometimes collectively referred to herein as the "Credit Documents."

4. Conversion.

(a) Payee's right to Convert. Except as provided in Paragraph 4(d)(iii) of this Section 4 below, Payee shall have the right, at any time commencing on the date hereof until the close of business on the day the Obligations are paid in full, to cause the conversion of all or any portion (if such portion is Five Thousand [$5,000] Dollars or a whole multiple of Five Thousand [$5,000] Dollars) of the Principal (the "Convertible Obligations") into shares of Common Stock (the "Underlying Shares"). The price for conversion, subject to adjustment as provided in Section 5 below, shall be Four ($0.04) Cents per share (the “Conversion Price”). Maker will not issue a fractional share of Common Stock upon conversion but will round any fractional share to the nearest share so that if the fraction is less than 0.5 no share shall be issued and if the fraction is 0.5 or higher the Company shall issue one full share

(b) Manner of Conversion. Payee may exercise its conversion right by giving notice thereof to Maker setting forth the amount of the Convertible Obligations to be converted. Within fifteen (15) days after the giving of such notice Maker shall issue the number of Underlying Shares into which the Convertible Obligations are to be converted in accordance with the Conversion Price and deliver to Payee a certificate or certificates therefor, registered in its name or in accordance with its instructions, representing such Shares against delivery to Maker of this Note marked paid in full. If only a portion of the Convertible Obligations then outstanding is converted, Maker shall deliver to Payee, together with the aforesaid certificate(s), a new note, in form and substance identical to this Note, except that the principal amount thereof shall equal that portion of the Obligations then outstanding that has not been converted. If required by applicable federal or state securities laws or regulations, Payee shall represent in writing to Maker prior to the receipt of the Underlying Shares that such Shares will be acquired by him for investment only and not for resale or with a view to the distribution thereof, and shall agree that any certificates representing the Shares may bear a legend, conspicuously noting such restriction, as Maker shall deem reasonably necessary or desirable to enable it to comply with such federal or state securities laws or regulations.

(c) Taxes on Shares Issued. The issue of stock certificates on conversion of this Note shall be made without charge to Payee for any issue or transfer tax in respect of such issue. Maker shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of Common Stock in any name other than that of Payee, and Maker shall not be required to issue or deliver any certificates representing such Common Stock unless and until the person or persons requesting the issue thereof shall have paid to Maker the amount of such tax or shall have established to the satisfaction of Maker that such tax has been paid.

-2-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(d) Covenants of Maker Relating to Conversion. Maker covenants and agrees that from and after the date hereof and until the date of repayment in full of the Obligations, or full conversion of the Convertible Obligations:

(i) It shall provide, free from preemptive rights, out of its authorized but unissued shares, or out of shares held in its treasury, sufficient shares to provide for the conversion of this Note from time to time as the Note is presented for conversion;

(ii) All Underlying Shares that may be issued upon conversion of the Convertible Obligations will upon issue be validly issued, fully paid and non-assessable, free from all taxes, liens and charges with respect to the issue thereof, and will not be subject to the preemptive rights of any stockholder of Maker;

(iii) If any Underlying Shares to be provided for the purpose of conversion of the Convertible Obligations require registration with or approval of any governmental authority under any federal or state law before such shares may be validly issued upon conversion, Maker will in good faith and as expeditiously as possible endeavor to secure such registration or approval, as the case may be, and Maker's obligation to deliver shares of the Common Stock upon conversion of the Convertible Obligations shall be abated until such registration or approval is obtained; provided, however, that this Note and the Obligations shall remain outstanding unless paid in full until Maker delivers the Underlying Shares and any then accrued but unpaid Interest to Payee and in no event shall this Note be converted until Maker effects such delivery; and

(iv) If, and thereafter so long as the Common Stock shall be listed on any securities exchange, market or other quotation system, Maker will, if permitted by the rules of such exchange, market or other quotation system, list and keep listed and for sale so long as the Common Stock shall be so listed on such exchange, market or other quotation system, upon official notice of issuance, all Underlying Shares issuable upon conversion of the Convertible Obligations.

-3-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

5. Adjustment in Conversion Price.

(a) Adjustments for Change in Capital Stock. Except as provided in Paragraph 5(n) below, if Maker shall (i) declare a dividend on all its outstanding Common Stock in shares of its capital stock, (ii) subdivide all its outstanding Common Stock, (iii) combine all its outstanding Common Stock into a smaller number of shares, or (iv) issue any shares of its capital stock by reclassification of its Common Stock (including any such reclassification in connection with a consolidation or merger in which Maker is the continuing corporation), then in each such case the conversion privilege and the Conversion Price in effect immediately prior to such action shall be adjusted so that if the Note is thereafter converted, Payee may receive the number and kind of shares that it would have owned immediately following such action if it had converted the Note immediately prior to such action. Such adjustment shall be made successively whenever such an event shall occur. The adjustment shall become effective immediately after the record date in the case of a dividend or distribution and immediately after the effective date in the case of a subdivision, combination or reclassification. If after an adjustment Payee upon conversion of this Note may receive shares of two or more classes of capital stock of Maker, Maker's Board of Directors, in good faith, shall determine the allocation of the adjusted Conversion Price between the classes of capital stock. After such allocation, the conversion privilege and Conversion Price of each class of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock in this Section 5.

(b) Subscription Offerings. In case Maker shall issue to all of its existing stockholders or otherwise grant rights, options, or warrants entitling the holders thereof to subscribe for or purchase Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share (or having a conversion price per share, in the case of a security convertible into or exchangeable for Common Stock) less than the Current Market Price per share (as defined in Paragraph 5(d) below) on the record date for the determination of stockholders entitled to receive such rights or granting date, as the case may be, then in each such case the Conversion Price in effect immediately prior to such action (the “Existing Conversion Price”) shall be adjusted by multiplying the Existing Conversion Price in effect immediately prior to such record or granting date by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding on such record or granting date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so to be offered (or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price and of which the denominator shall be the number of shares of Common Stock outstanding on such record or granting date plus the number of additional shares of Common Stock to be offered for subscription or purchase (or into which the convertible or exchangeable securities so to be offered are initially convertible or exchangeable). Such adjustment shall become effective at the close of business on such record or granting date; provided, however, that, to the extent the shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock) are not delivered, the Conversion Price shall be readjusted after the expiration of such rights, options, or warrants (but only to the extent that this Note is not converted after such expiration), to the Conversion Price which would then be in effect had the adjustments made upon the issuance of such rights or warrants been made upon the basis of delivery of only the number of shares of Common Stock (or securities convertible into or exchangeable for shares of Common Stock) actually issued. In case any subscription price may be paid in a consideration part or all of which shall be in a form other than cash, the value of such consideration shall be as determined by Maker's Board of Directors, in good faith. Shares of Common Stock owned by or held for the account of Maker or any majority-owned subsidiary shall not be deemed outstanding for the purpose of any such computation.

-4-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(c) Other Rights to Acquire Common Stock. In case Maker shall distribute to all holders of its Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions paid from retained earnings of Maker) or rights or warrants to subscribe for or purchase Common Stock (excluding those referred to in Paragraph 5(b) above), then in each such case the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction of which the numerator shall be the Current Market Price per share (as defined in Paragraph 5(d) below) of the Common Stock on the record date mentioned below less the then fair market value (as determined in good faith by the Board of Directors of Maker) of the portion of the assets or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator shall be the Current Market Price per share of the Common Stock. Such adjustment shall become effective immediately after the record date for the determination of shareholders entitled to receive such distribution.

(d) Current Market Price. For the purpose of any computation under Paragraphs 5(b) and (c) above, the "Current Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily “Closing Price” for the thirty (30) consecutive trading days commencing forty five (45) trading days before such date. The "Closing Price" for each day shall mean the last reported sales price regular way or, in case no such reported sale takes place on such day, the closing bid price regular way, in either case on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the highest reported bid price as furnished by the Financial Industry Regulatory Authority through NASDAQ or similar organization if NASDAQ is no longer reporting such information, or by the Pink Sheets, LLC or similar organization if the Common Stock is not then quoted on an inter-dealer quotation system. If on any such date the Common Stock is not quoted by any such organization, the fair value of the Common Stock on such date, as determined in good faith by Maker's Board of Directors, shall be used.

(e) Action to Permit Valid Issuance of Common Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value, if any, of the shares of Common Stock issuable upon conversion of this Note, Maker will take all corporate action which may, in the opinion of its counsel, be necessary in order that Maker may validly and legally issue shares of such Common Stock at such adjusted Conversion Price.

(f) Minimum Adjustment. No adjustment in the Conversion Price shall be required if such adjustment is less than 1% of the then Existing Conversion Price; provided, however, that any adjustments which by reason of this Paragraph 5(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be. Anything to the contrary notwithstanding, Maker shall be entitled to make such reductions in the Conversion Price, in addition to those required by this Paragraph 5(f), as it in its discretion shall determine to be advisable in order that any stock dividends, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock hereafter made by Maker to its stockholders shall not be taxable.

-5-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(g) Referral of Adjustment. In any case in which this Section 5 shall require that an adjustment in the Conversion Price be made effective as of a record date for a specified event, if the Note shall have been converted after such record date Maker may elect to defer until the occurrence of such event issuing to Payee the shares, if any, issuable upon such conversion event over and above the shares, if any, issuable upon such conversion on the basis of the Conversion Price in effect prior to such adjustment; provided, however, that Maker shall deliver to Payee a due bill or other appropriate instrument evidencing Payee's right to receive such additional shares upon the occurrence of the event requiring such adjustment.

(h) Number of Shares. Upon each adjustment of the Conversion Price as a result of the calculations made in Paragraphs 5(a) through (c) above, this Note shall thereafter evidence the right to purchase, at the adjusted Conversion Price, that number of shares (calculated to the nearest one-hundredth) obtained by dividing (i) the product obtained by multiplying the number of shares issuable upon conversion of this Note prior to adjustment of the number of shares by the Conversion Price in effect prior to adjustment of the Conversion Price by (ii) the Conversion Price in effect after such adjustment of the Conversion Price.

(i) When No Adjustment Required. No adjustment need be made for a transaction referred to in Paragraphs 5(a) through (c) above if Payee is permitted to participate in the transaction on a basis no less favorable than any other party and at a level which would preserve Payee's percentage equity participation in the Common Stock upon conversion of the Note. No adjustment need be made for sales of Common Stock pursuant to any Maker plan for reinvestment of dividends or interest, the granting of options and/or the exercise of options outstanding under any of Maker's stock option plans, the exercise of any other of Maker's currently outstanding options, or any currently authorized warrants, whether or not outstanding. No adjustment need be made for a change in the par value of the Common Stock, or from par value to no par value. If the Note becomes convertible solely into cash, no adjustment need be made thereafter. Interest will not accrue on the cash.

(j) Notice of Adjustment. Whenever the Conversion Price is adjusted, Maker shall promptly mail to Payee a notice of the adjustment together with a certificate from Maker's Chief Financial Officer briefly stating (i) the facts requiring the adjustment, (ii) the adjusted Conversion Price and the manner of computing it, and the date on which such adjustment becomes effective. The certificate shall be evidence that the adjustment is correct, absent manifest error.

-6-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(k) Voluntary Reduction. Maker from time to time may reduce the Conversion Price by any amount for any period of time if the period is at least twenty (20) days and if the reduction is irrevocable during the period. Whenever the Conversion Price is reduced, Maker shall mail to Payee a notice of the reduction. Maker shall mail the notice at least fifteen (15) days before the date the reduced Conversion Price takes effect. The notice shall state the reduced Conversion Price and the period it will be in effect. A reduction of the Conversion Price does not change or adjust the Conversion Price otherwise in effect for purposes of Paragraphs 5(a) through (c) above. Anything to the contrary notwithstanding, this Paragraph 5(k) shall be void and of no effect if it violates the rules and/or regulations of any exchange on which the Common Stock is then listed for trading.

(l) Prohibition against Certain Reductions of Exercise Price. Anything to the contrary notwithstanding, in no event shall the Conversion Price be reduced below the par value of the Common Stock.

(m) Notice of Certain Transactions. If (i) Maker takes any action that would require an adjustment in the Conversion Price pursuant to this Section 5; or (ii) there is a liquidation or dissolution of Maker, Maker shall mail to Payee a notice stating the proposed record date for a distribution or effective date of a reclassification, consolidation, merger, transfer, lease, liquidation or dissolution. Maker shall mail the notice at least fifteen (15) days before such date. Failure to mail the notice or any defect in it shall not affect the validity of the transaction.

(n) Reorganization of Company. If Maker and/or the holders of Common Stock are parties to a merger, consolidation or a transaction in which (i) Maker transfers or leases substantially all of its assets; (ii) Maker reclassifies or changes its outstanding Common Stock; or (iii) the Common Stock is exchanged for securities, cash or other assets; the person who is the transferee or lessee of such assets or is obligated to deliver such securities, cash or other assets shall assume the obligations under this Note. If the issuer of securities deliverable upon conversion of the Note is an affiliate of the surviving, transferee or lessee corporation, that issuer shall join in such assumption. The assumption agreement shall provide that the Payee may convert the Obligations into the kind and amount of securities, cash or other assets that it would have owned immediately after the consolidation, merger, transfer, lease or exchange if it had converted the Note immediately before the effective date of the transaction. The assumption agreement shall provide for adjustments that shall be as nearly equivalent as may be practical to the adjustments provided for in this Section 5. The successor company shall mail to Payee a notice briefly describing the assumption agreement. If this Paragraph applies, Paragraph 4(a) above does not apply.

6. Covenants. Maker covenants and agrees that from and after the date hereof and until the date of repayment in full of the Obligations it shall comply with the following conditions:

(i) Maintenance of Existence and Conduct of Business. Maker shall, and shall cause each of its subsidiaries, if any, to (A) do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence and rights and maintain its property; and (B) continue to conduct its business so that the business carried on in connection therewith may be properly and advantageously conducted at all times.

-7-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(ii) Books and Records. Maker shall, and shall cause each of its subsidiaries, if any, to keep adequate books and records of account with respect to its business activities.

(iii) Insurance. Maker shall, and shall cause each of its subsidiaries, if any, to maintain insurance policies insuring such risks as are customarily insured against by companies engaged in businesses and/or with property similar to those operated and/or owned or leased by Maker or any such subsidiaries, as the case may be, including but not limited to, insurance policies covering real property acceptable to Payee on which Payee is named as an additional insured. All such policies are to be carried with reputable insurance carriers and shall be in such amounts as are customarily insured against by companies with similar assets and properties engaged in a similar business.

(iv) Compliance with Law. Maker shall, and shall cause each of its subsidiaries, if any, to comply in all material respects with all federal, state, local and other laws and regulations applicable to it or any such subsidiaries, as the case may be, which, if breached, would have a material adverse effect on Maker's or any such subsidiaries', as the case may be, business or financial condition.

(v) Compliance with Material Agreements, Licenses, Patents and Financial Obligations. All of the terms of Maker’s material agreements, licenses, Patents as defined in the Security Agreement and financial obligations shall be complied with, and each of them shall be kept in full force and effect in accordance with their respective terms.

(vi) Maintenance of Collateral. Maker will keep the Collateral free and clear of all liens and encumbrances except for those created by or referred to in the Credit Documents.

7. Reorganization of Maker. If Maker is party to a merger, consolidation or a transaction in which it is not the surviving or continuing entity or transfers or leases all or substantially all of its assets, the person who is the surviving or continuing entity or is the transferee or lessee of such assets shall assume the terms of this Note and the Obligations.

-8-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

8. Representations and Warranties of Maker. Maker represents and warrants that: (i) it, and each of its subsidiaries, if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and has all requisite power to carry on its business as now conducted and to own its properties and assets it now owns; (ii) it, and each of its subsidiaries, if any, is duly qualified or licensed to do business as a foreign corporation in good standing in the jurisdictions in which ownership of property or the conduct of its business requires such qualification except jurisdictions in which the failure to qualify to do business will have no material adverse effect on its business, prospects, operations, properties, assets or condition (financial or otherwise); (iii) it, and each of its subsidiaries, if any, and/or affiliates thereof, holds all material licenses and patents and otherwise complies with all material laws, rules and regulations required to permit it to own its property and conduct its business in the jurisdictions in which it owns its property and conducts its business; (iv) it owns the Collateral, free and clear of all liens and encumbrances except for those held by Payee in accordance with the terms of this Note and the Security Agreement, the Patent Security Agreement, the Szulik Lien and any encumbrances that may exist pursuant to the Permitted Encumbrances, as that term is defined in the Security Agreement; (v) the Patents are in full force and effect and Maker is entitled to all rights relating thereto; (vi) it has full power and authority to execute and deliver this Note, and that the execution and delivery of this Note will not result in the breach of or default under, with or without the giving of notice and/or the passage of time, any other agreement, financial instrument, arrangement or indenture to which it is a party or by which it may be bound, or the violation of any law, statute, rule, decree, judgment or regulation binding upon it; (vii) it has filed all reports, schedules, forms, statements and other documents required to be filed by it with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933 (the “Securities Act”) and the Securities Exchange Act of 1934 (the “Exchange Act”) (the “SEC Documents”); (viii) the SEC Documents have complied in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the Commission promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the Commission, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (ix) as of their respective dates, Maker’s financial statements included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, such financial statements have been prepared in accordance with accounting principles generally accepted in the United States as in effect from time to time, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial condition of Maker as of the respective dates thereof and the results of its operations and cash flows for the respective periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments); (x) except as may be set forth in the SEC Documents, Maker has not received notification from the Commission and/or any federal or state securities bureaus that any investigation (informal or formal), inquiry or claim is pending, threatened or in process against Maker and/or relating to any of Maker’s securities; (xi) except as may be set forth in the SEC Documents, there is no action, suit, proceeding, or investigation pending or currently threatened against Maker, and (xii) it has taken and will take all acts required, including but not limited to authorizing the signatory hereof on its behalf to execute this Note, so that upon the execution and delivery of this Note, it shall constitute the valid and legally binding obligation of Maker enforceable in accordance with the terms thereof.

-9-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

9. Defaults and Remedies.

(a) Events of Default. The occurrence or existence of any one or more of the following events or conditions (regardless of the reasons therefor) shall constitute an "Event of Default" hereunder:

(i) Maker shall fail to make any payment of Principal or Interest when due and payable or declared due and payable pursuant to the terms hereof or the Szulik Note;

(ii) Maker shall fail to perform any other obligation and/or covenant as required by this Note, any of the other Credit Documents or the Szulik Note in accordance with the respective terms thereof and such failure to perform shall not have been cured within five (5) business days after Maker’s receipt of notice of such failure to perform;

(iii) Any representation or warranty made in this Note, any of the other Credit Documents or the Szulik Note by Maker shall be untrue or incorrect in any material respect as of the date when made or deemed made;

(iv) Any money judgment, writ or warrant of attachment, or similar process not covered by insurance in excess of Twenty Five Thousand ($25,000) Dollars in the aggregate shall be entered or filed against Maker or any of its properties, including, but not limited to, the Collateral, or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of ten (10) days;

(v) Maker shall make an assignment for the benefit of creditors or shall be unable to pay its debts as they become due;

(vi) Maker shall have received a written notice of default related to any material agreement to which it is a party and such act of default shall remain uncured after any applicable cure period;

(vii) A case or proceeding shall have been commenced against Maker, or any of its subsidiaries, if any, (each a “Proceeding Company”) in a court having competent jurisdiction seeking a decree or order in respect of a Proceeding Company, (A) under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law; (B) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of a Proceeding Company, or any of its properties, including but not limited to the Collateral; or (C) ordering the winding-up or liquidation of the affairs of a Proceeding Company, and such case or proceeding shall remain unstayed or undismissed for a period of ten (10) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding; or

-10-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(viii) A Proceeding Company shall (A) file a petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law; or (B) consent to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or the taking of possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of such Proceeding Company, or any of its properties, including but not limited to the Collateral.

(b) Remedies. Upon the occurrence of an Event of Default specified in Paragraph 9(a) above, all Obligations then remaining unpaid hereunder shall immediately become due and payable in full, plus interest on the unpaid portion of the Obligations at the highest rate permitted by applicable law, without notice to Maker and without presentment, demand, protest or notice of protest, all of which are hereby waived by Maker together with all reasonable costs and expenses of the collection and enforcement of this Note, including reasonable attorney's fees and expenses, all of which shall be added to the amount due under this Note. The rights, powers, privileges and remedies of Payee pursuant to the terms hereof are cumulative and not exclusive of any other rights, powers, privileges and remedies which Payee may have under this Note or any other instrument or agreement.

10. Acknowledgment of Payee's Investment Representations. By accepting this Note, Payee acknowledges that, except as provided in the Registration Rights Agreement dated as of September 3, 2009 between Maker and TAG, neither this Note nor the Underlying Shares have been or will be registered under the Securities Act or qualified under any state securities laws and that the transferability thereof is restricted by the registration provisions of the Securities Act as well as such state laws. Based upon the representations and agreements being made by it herein, this Note is being and any Underlying Shares will be issued to it pursuant to an exemption from such registration provided by Section 4(2) of the Securities Act, and applicable state securities law qualification exemptions. Payee represents that it (i) is an “Accredited Investor” as that term is defined in Rule 501 (a) of Regulation D promulgated under the Securities Act, and (ii) is acquiring this Note and will acquire any Underlying Shares for its own account, for investment purposes only and not with a view to resale or other distribution thereof, nor with the intention of selling, transferring or otherwise disposing of all or any part of these securities for any particular event or circumstance, except selling, transferring or disposing of them only upon full compliance with all applicable provisions of the Securities Act, the Exchange Act, the Rules and Regulations promulgated by the Commission thereunder, and any applicable state securities laws. In addition, Payee understands and acknowledges that any routine sales of these securities made in reliance upon Rule 144 promulgated by the Commission under the Securities Act can be effected only in the amounts set forth in and pursuant to the other terms and conditions, including applicable holding periods, of that Rule. Payee further understands and agrees that no transfer of this Note shall be valid unless made in compliance with the restrictions set forth on the front of this Note, effected on Maker's books by the registered holder hereof, in person or by an attorney duly authorized in writing, and similarly noted hereon as provided in Paragraph 13(h) below.

-11-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

11. Limitation of Interest Payments. Nothing contained in this Note or in any other agreement between Maker and Payee requires Maker to pay or Payee to accept interest in an amount that would subject Payee to any penalty or forfeiture under applicable law. In no event shall the total of all charges payable hereunder, whether of interest or of such other charges, which may or might be characterized as interest, exceed the maximum rate permitted to be charged under the laws of the States of California, New York or Delaware, the United States Virgin Islands or any other state or domestic or other jurisdiction in which either Maker or Payee may be located or may conduct business or the Collateral my be located. Should Payee receive any payment that is or would be in excess of that permitted to be charged under such laws, such payment shall have been and shall be deemed to have been made in error and shall automatically be applied to reduce the Principal outstanding on this Note.

12. Maker’s Right to Prepay the Note. Maker may prepay this Note without penalty at any time after thirty (30) day’s notice to Payee.

13. Miscellaneous.

(a) Effect of Forbearance. No forbearance, indulgence, delay or failure to exercise any right or remedy by Payee with respect to this Note shall operate as a waiver or as an acquiescence in any default.

(b) Effect of Single or Partial Exercise of Right. No single or partial exercise of any right or remedy by Payee shall preclude any other or further exercise thereof or any exercise of any other right or remedy by Payee.

(c) Governing Law; Waiver of Right to Jury Trial; Venue. This Note shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the internal laws of the jurisdiction to be determined by Payee applicable to contracts made and to be performed entirely within such jurisdiction. Maker hereby waives all right to trial by jury in any action, suit or proceeding brought to enforce or defend any rights or remedies under this Note, and agrees that any lawsuit brought to enforce or interpret the provisions of this Note shall be instituted in state or federal courts, as appropriate, in the jurisdiction to be determined by Payee, and Maker further agrees to submit to the personal jurisdiction of such court and waives any objection which it may have, based on improper venue, forum non conveniens or sufficiency of contact with the forum state, to the conduct of any proceeding in any such court and waives personal service of any and all process upon it, and consents that all such service of process be made by mail or messenger directed to it at the address set forth in Paragraph 12(g) below and that service so made shall be deemed to be completed upon the earlier of actual receipt or three (3) days after the same shall have been posted to its address. Nothing contained in this Paragraph 12(c) affects the right of Payee to serve legal process in any other manner permitted by law or affects the right of Payee to bring any action or proceeding against Maker or its property in the courts of any other jurisdiction.

-12-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(d) Headings. The headings and captions of the various sections herein are for convenience of reference only and shall in no way modify any of the terms or provisions of this Note.

(e) Loss, Theft, Destruction or Mutilation of Note. Upon receipt by Maker of evidence reasonably satisfactory to it of loss, theft, destruction or mutilation of this Note, Maker shall make and deliver or caused to be made and delivered to Payee a new Note of like tenor in lieu of this Note.

(f) Modification of Note or Waiver of Terms Thereof Relating to Payee. No modification or waiver of any of the provisions of this Note shall be effective unless in writing and signed by Payee and then only to the extent set forth in such writing, or shall any such modification or waiver be applicable except in the specific instance for which it is given. This Note may not be discharged orally but only in writing duly executed by Payee.

(g) Notice. Any notice or other communication under the provisions of this Note shall be in writing, and shall be given by postage prepaid, registered or certified mail, return receipt requested, by hand delivery with receipt acknowledged, or by a recognized overnight courier service, directed to the parties at their respective addresses as set forth above, or to any new address of which either party shall have informed the other party by the giving of notice in the manner provided herein. Copies of all notices sent to Hunter & Co. shall be sent to TAG, at The Tunick Building, 1336 Beltjen Road, Suite 202, St. Thomas, VI 00802. All notices or communications shall be effective upon receipt if hand delivered or sent by overnight courier service, or, if mailed, four days after mailing or ten days after mailing if mailed to the United States Virgin Islands. Notice may also be given by facsimile or email transmission to a party that provides its facsimile number or email address to the other party and such notice shall be effective upon confirmation to the sender of receipt.

(h) Transfer. This Note shall be transferable only on the books of Maker upon delivery thereof duly endorsed by Payee or by its duly authorized attorney or representative, or accompanied by proper evidence of succession, assignment, or authority to transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his authority shall be produced. Upon any registration of transfer, Maker shall deliver a new Note or Notes to the person entitled thereto. Notwithstanding the foregoing, Maker shall have no obligation to cause Notes to be transferred on its books to any person if, in the opinion of counsel to Maker, such transfer does not comply with the provisions of the Securities Act and the rules and regulations thereunder.

(i) Successors and Assigns. This Note shall be binding upon Maker, its successors, assigns and transferees, and shall inure to the benefit of and be enforceable by Payee and its successors and assigns.

-13-

Convertible Secured Note

of Protein Polymer Technologies, Inc.

payable to Hunter & Co.

as agent dated ______, 2____

(j) Severability. If one or more of the provisions or portions of this Note shall be deemed by any court or quasi-judicial authority to be invalid, illegal or unenforceable in any respect, the invalidity, illegality or unenforceability of the remaining provisions, or portions of provisions contained herein shall not in any way be affected or impaired thereby.

(k) Gender. The use herein of the masculine pronouns or similar terms shall be deemed to include the feminine and neuter genders as well and vice versa and the use of the singular pronouns shall be deemed to include the plural as well and vice versa.

IN WITNESS WHEREOF, Maker has caused this Note to be executed on its behalf by an officer thereunto duly authorized as of the date set forth above.

Protein Polymer Technologies, Inc.,

a Delaware corporation

By:
	Name: James B. McCarthy,
	Title: Interim Chief Executive Officer

-14-

EXHIBIT 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James B. McCarthy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Protein Polymer Technologies, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 20, 2009

/s/ JAMES B. MCCARTHY

James B. McCarthy

Interim Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James B. McCarthy, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Protein Polymer Technologies, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 20, 2009

/s/ JAMES B. MCCARTHY

James B. McCarthy

Interim Principal Financial Officer

EXHIBIT 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Protein Polymer Technologies, Inc. (the "Company") for the quarterly period ended September 30, 2009 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JAMES B. MCCARTHY

James B. McCarthy

Interim Chief Executive Officer

Date: November 20, 2009

EXHIBIT 32.2

CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(1)

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JAMES B. MCCARTHY

James B. McCarthy

Interim Principal Financial Officer

Date: November 20, 2009