As filed with the Securities and Exchange Commission on January 19, 2001

Registration No. 333-

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

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

---------------

FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

---------------

UNIGENE LABORATORIES, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 2833 22-2328609
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Incorporation Industrial Classification Identification Number)
or Organization) Code Number)

---------------

110 Little Falls Road
Fairfield, New Jersey 07004
(973) 882-0860
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)

---------------

WARREN P. LEVY
President With copies to:
Unigene Laboratories, Inc. D. Michael Lefever, Esq.
110 Little Falls Road Covington & Burling
Fairfield, New Jersey 07004 1201 Pennsylvania Avenue, NW
(973) 882-0860 Washington, D.C. 20004-2401
(Name, Address, including Zip Code, (202) 662-5276
and Telephone Number, including Area
Code, of Agent For Service)

--------------

Approximate date of commencement of proposed sale to the public: From
time to time after this Registration Statement becomes effective.

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [x]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]

CALCULATION OF REGISTRATION FEE

=============================== =================== ======================= ============================= ==========================
Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
To be Registered Registered (1) Offering Price Aggregate Registration
Per Share (2) Offering Price (2) Fee

- ------------------------------- ------------------- ----------------------- ----------------------------- --------------------------

Common Stock, par value 7,331,009 $1.38 $10,116,792 $2,529
$.01 per share
=============================== =================== ======================= ============================= ==========================

(1) This Registration Statement registers the offer and sale of 7,331,009
shares of common stock, par value $.01 per share of the registrant (the
"Common Stock"). Pursuant to Rule 416 under the Securities Act of 1933, as
amended, the number of shares registered hereby includes such additional
number of shares of Common Stock as are required to prevent dilution
resulting from stock splits, stock dividends or similar transactions.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) based on the average of the bid and asked prices of
the Common Stock on the OTC Bulletin Board on January 16, 2001.

********************************************************************************
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
********************************************************************************

Prospectus Subject To Completion
Dated January 19, 2001

7,331,009 Shares
of
Unigene Laboratories, Inc.
Common Stock
(par value $.01 per share)

--------------

This prospectus relates to the offer and sale by Fusion Capital Fund II,
LLC of up to 7,331,009 shares of common stock of Unigene Laboratories, Inc., a
Delaware corporation.

On December 18, 2000, Unigene entered into an agreement with Fusion under
which Fusion has committed to purchase from Unigene up to $21,000,000 in Unigene
common stock, at the rate of $875,000 per month, beginning on the date that is
within five (5) business days of the date the registration statement to which
this prospectus relates is declared effective by the Securities and Exchange
Commission (SEC). The purchase price under the agreement will be based on the
future market price of our common stock. Unigene can elect to terminate or
suspend the agreement under certain circumstances without payment or liability
to Fusion.

6,000,000 shares of our common stock are being registered hereby in
connection with purchases by Fusion under the agreement. Upon commencement of
the agreement with Fusion, Fusion will also receive 1,331,009 shares of our
common stock as a commitment fee, which shares are also being registered hereby
and which shares may not be sold by Fusion until the earliest of termination of
the agreement, default under the agreement, or approximately two years from the
date hereof. Fusion and its affiliates have agreed not to engage in any direct
or indirect short selling or hedging of our common stock.

Unigene will not receive any of the proceeds from the sale of the shares of
Unigene common stock offered in this prospectus. However, Unigene may receive up
to $21,000,000 from the sale of our common stock to Fusion under the agreement
with Fusion.

The Unigene common stock is listed on the OTC Bulletin Board under the
symbol "UGNE."

Investing in the common stock involves risks. See "Risk Factors" beginning
on page 5.

Fusion is deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended. Any broker executing selling orders on
behalf of Fusion may be deemed to be an "underwriter." Commissions received by
any broker may be deemed to be underwriting commissions.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.

----------------

TABLE OF CONTENTS

Page

PROSPECTUS SUMMARY..................................................... 3
RISK FACTORS........................................................... 5
FORWARD-LOOKING STATEMENTS............................................. 8
USE OF PROCEEDS........................................................ 9
PRICE RANGE OF COMMON STOCK............................................ 9
DIVIDEND POLICY........................................................ 9
SELECTED CONSOLIDATED FINANCIAL DATA................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................... 11
BUSINESS............................................................... 16
MANAGEMENT............................................................. 21
PRINCIPAL STOCKHOLDERS................................................. 26
THE FINANCING TRANSACTION.............................................. 27
SELLING STOCKHOLDER.................................................... 31
PLAN OF DISTRIBUTION................................................... 32
LEGAL MATTERS.......................................................... 35
EXPERTS................................................................ 36
ADDITIONAL INFORMATION................................................. 36
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................. F-1

"Unigene," the Unigene logo, "Forcaltonin," and "Fortical" are
registered trademarks of Unigene Laboratories, Inc.

Prospectus Summary

The following summary highlights information contained elsewhere in this
prospectus. It may not contain all of the information that is important to you.
You should read the entire prospectus carefully, especially the discussion
regarding the risks of investing in Unigene common stock under the heading "Risk
Factors," before investing in Unigene common stock.

Business

o Injectable Calcitonin. Our injectable Calcitonin product, which has the
trade name FORCALTONIN TM, has been approved for the treatment of
Paget's disease and hypercalcemia in the 15 member states of the
European Union. Sales to date have been minimal.

o Nasal Calcitonin. A clinical study demonstrating equivalent bio
-availability between our formulation and that of an existing nasal
Calcitonin product was successfully completed in December 2000. A second
clinical study is underway and expected to conclude in early 2001. We
are seeking to license our nasal Calcitonin formulation in the U.S. and
other countries for the treatment of osteoporosis.

o Oral Calcitonin. In 1997, we entered into an agreement under which we
granted to the Parke-Davis division of Warner-Lambert Company (which
merged with Pfizer in June 2000), a worldwide license to make, use and
sell our oral Calcitonin technology. In December 1999, Warner Lambert
filed an Investigational New Drug application with the U.S. Food and
Drug Adiminstration (FDA) for the conduct of clinical trials in the
United States of our oral Calcitonin product. A Phase I/II study
commenced in April 2000. Patient dosing has been completed and results
are being analyzed.

Our business strategy is to develop proprietary products and processes with
applications in human health care to generate revenues from license fees,
royalties on third-party sales and direct sales of bulk or finished products.
Generally, we fund our internal research activities and intend to rely on
licensees, which are likely to be established pharmaceutical companies, to
provide development funding. We also generally expect to rely on these licensees
to take responsibility for obtaining appropriate regulatory approvals, clinical
testing, and marketing of products derived from our research activities.
However, we may, in some cases, retain the responsibility for clinical testing
and for obtaining the required regulatory approvals for a particular product.

Corporate Information

Unigene was incorporated under the laws of the State of Delaware in 1980.
Our executive offices are located at 110 Little Falls, Fairfield, New Jersey
07004, and our telephone number at this location is (973) 882-0860. The address
of our web site is www.unigene.com. Information on our web site is not part of
this prospectus.

Unigene Common Stock

Unigene common stock trades on the OTC Bulletin Board under the symbol
"UGNE."

The Offering

Fusion Capital Fund II, LLC, the selling stockholder is offering for
sale up to 7,331,009 shares of Unigene common stock. The shares being offered
consist of up to 6,000,000 shares of common stock that Fusion has agreed to
purchase from Unigene and 1,331,009 shares of common stock that Unigene has
agreed to issue to Fusion as compensation for its purchase commitment. As of
January 19, 2001, there were 45,756,938 shares of Unigene common stock
outstanding, including the 1,331,009 shares that Unigene has agreed to issue to
Fusion as compensation for its purchase commitment.

The number of shares ultimately offered for sale is dependent upon the
number of shares purchased by Fusion. This number may be affected by other
factors more fully described under the heading "The Financing Transaction."

Risk Factors

An investment in Unigene common stock involves a high degree of risk. You
should carefully consider the following factors and other information in this
prospectus before deciding to invest in shares of Unigene common stock. If any
of the following risks actually occur, our business, financial condition,
results of operations and prospects for growth would likely suffer. As a result,
the trading price of Unigene common stock could decline, and you could lose all
or part of your investment.

Prospective investors should consider carefully these factors concerning our
business before purchasing the securities offered by this prospectus. Various
statements in this section constitute "forward-looking statements" under Section
27A of the Securities Act of 1933. See "Forward-Looking Statements."

We have significant historical losses and expect continued future losses.

We have incurred annual operating losses since our inception. As a result,
at September 30, 2000, we had an accumulated deficit of $71,619,000. Our gross
revenues for the nine months ended September 30, 2000 and the years ended
December 31, 1999, 1998 and 1997 were $2,361,000, $9,589,000, $5,050,000 and
$3,003,000, respectively, with losses from operations of $7,892,000, $1,997,000,
$6,060,000 and $10,098,000, respectively. Our net losses for the nine months
ended September 30, 2000 and the years ended December 31, 1999, 1998 and 1997
were $8,711,000, $1,577,000, $6,881,000 and $10,128,000, respectively. There are
risks that revenues could fluctuate or drop significantly and that we might
never be profitable in the future.

We will require additional financing to sustain our operations.

At September 30, 2000, we had a working capital deficiency of $9,670,000.
The independent auditors' report for the year ended December 31, 1999, includes
an explanatory paragraph stating that the operating losses, accumulated deficit
and working capital deficiency discussed above raise substantial doubt about our
ability to continue as a going concern. We had an operating cash flow deficit of
$6,278,000 in 1997, an operating cash flow deficit of $4,864,000 in 1998, an
operating cash flow deficit of $1,400,000 in 1999 and for the nine months ended
September 30, 2000, an operating cash flow deficit of $3,086,000. We believe
that we do not have sufficient financial resources to fund our operations at the
current level. Therefore, excluding any funding that we might receive from
Fusion, we need additional funds to continue our operations. The agreement with
Fusion could provide Unigene with sufficient funding to sustain its operations
for up to two years, beginning in the first quarter of 2001. However, assuming
we do not receive any funding from Fusion, there is a risk that we will not be
able to generate revenues that are sufficient to sustain our operations and we
would require additional sources of financing in order to satisfy our working
capital needs, which may be unavailable or prohibitively expensive. Should such
financing be unavailable or prohibitively expensive when we require it, we would
not be able to sustain our working capital needs, which would have a material
adverse effect on our business, operating results and financial condition.

Even if we are able to access $875,000 per month over the next 24 months,
available under the common stock purchase agreement with Fusion, we may still
need additional capital to fully implement our business, operating and
development plans. In addition, one result of the raising of additional capital
through the common stock purchase agreement with Fusion would be the issuance of
additional shares of our common stock. The issuance of additional shares to
Fusion pursuant to the common stock purchase agreement could result in
substantial dilution to our existing stockholders. We only have the right to
receive $875,000 per month under the common stock purchase agreement unless our
stock price equals or exceeds $4.00 per share, in which event greater amounts
may be received. In addition, the agreement may be terminated by Fusion in the
event of a default under the agreement. See "The Financing Transaction-Events of
Default." Since we have initially registered 6,000,000 shares in this offering,
the selling price of our stock to Fusion will have to average at least $3.50 per
share for us to receive the maximum proceeds of $21,000,000 without registering
or issuing any additional shares. We may need to seek shareholder approval to
increase the total number of authorized shares of our common stock. Sales of
Unigene common stock to Fusion cannot begin until a registration statement
registering the shares for resale by Fusion is declared effective by the SEC.
Unigene cannot predict with certainty if or when this will occur. We believe
that satisfying our long-term capital requirements will require the successful
commercialization of one of our peptide products. There is no assurance that any
of our products will be commercially successful.

We may not be successful in our efforts to develop products that will produce
revenues that are sufficient to sustain our operations.

Our injectable Calcitonin product has been approved for commercial sale in
Europe, but there is a limited market for the indications for which it has been
approved. None of our products have been approved for sale in the U.S. The
commercial manufacture and sale of pharmaceutical products in the U.S. is
subject to the approval of the U. S. Food and Drug Administration. Similar
regulatory approvals are required for the sale of pharmaceutical products
outside of the United States. The commercialization of our products requires
further clinical testing. These clinical trials must show that our products are
safe and effective in order to obtain the regulatory approvals required for
commercial sale. If any of our products are approved for commercial sale, the
product will need to be manufactured in commercial quantities at a reasonable
cost in order for it to be a successful product that will generate profits for
us. Because of our limited clinical, manufacturing and regulatory experience and
the lack of a marketing organization, we are likely to rely on licensees or
other parties to perform one or more tasks for the commercialization of
pharmaceutical-grade products.

We believe that expanded consumer acceptance of Calcitonin pharmaceutical
products depends on the development of a consumer-accepted delivery system. We
are currently conducting human clinical trials in conjunction with Pfizer to
evaluate an oral delivery system for Calcitonin. This oral delivery system may
not prove successful in clinical trials and may not receive U.S. Food and Drug
Administration and foreign governmental approvals that are necessary to market
this delivery system. Other companies may develop oral or other delivery systems
to compete with or surpass any oral delivery system that we develop.

We have made a substantial investment in our production facility which we
will need to upgrade or expand in order to manufacture our products in
commercial quantities.

We have constructed and are operating a facility intended to produce
pharmaceutical-grade Calcitonin and other peptide hormones. This facility has
been approved by European regulatory authorities for the manufacture of
Calcitonin for human pharmaceutical use, but has not yet been inspected or
approved by the U.S. Food and Drug Administration. The risks associated with
this facility include the failure to achieve targeted production and
profitability goals, the development by others of superior processes and
products, and the absence of

a market for products produced by the facility. In addition, the successful
commercialization of an oral Calcitonin product will require us to make
additional expenditures to expand or upgrade our manufacturing operations to
satisfy our supply obligations under the Pfizer license agreement. Currently, we
cannot determine the cost or timing of these capital expenditures.

We are dependent on partners for the commercial development of our products.

We do not currently have, nor do we expect to have in the near future,
sufficient financial resources and personnel to develop our products on our own.
Accordingly, we expect to continue to depend on large pharmaceutical companies
for revenues from sales of products, research sponsorship and distribution of
our products. We have granted to Pfizer a worldwide license to make, use and
sell our oral Calcitonin products in exchange for which we are entitled to
receive milestone payments at various stages in the development process and
royalties on sales if the product is successfully commercialized.

In June 2000, we entered into a joint venture with a pharmaceutical company
in the People's Republic of China for the manufacture and distribution of
injectable and nasal Calcitonin products in China and possibly other Asian
markets, for the treatment of osteoporosis. This joint venture is in the early
stages of development and it is uncertain whether it will generate meaningful
revenues or profits for Unigene. We also have entered into distribution
agreements for our injectable formulation of Calcitonin in the United Kingdom,
Ireland and Israel. To date, these distribution agreements have not produced
material revenues.

We intend to pursue additional opportunities to license, or enter into
distribution arrangements for, our technologies for injectable and nasal
formulations of Calcitonin. However, we may not be successful in these efforts.

Our operations are subject to extensive government regulations.

Our laboratory research, development and production activities, as well as
those of our collaborators and licensees, are subject to significant regulation
by federal, state, local and foreign governmental authorities. In addition to
obtaining U.S. Food and Drug Administration approval and other regulatory
approvals of our products, we must obtain approvals for our manufacturing
facility to produce Calcitonin and other peptides for human use. The regulatory
approval process for a pharmaceutical product requires substantial resources and
may take many years. Our inability to obtain approvals or delays in obtaining
approvals would adversely affect our ability to continue our development
program, to manufacture and sell our products, and to receive revenue from
milestone payments, product sales or royalties.

Our production facility may be audited by the FDA or other regulatory
agencies at any time to ensure compliance with cGMP guidelines. These guidelines
require that the production operation be conducted in strict compliance with our
written protocols for reagent qualification, process execution, data recording,
instrument calibration and quality monitoring. The agencies can suspend
production operations and product sales if they find significant or repeated
deviations from the protocols. A suspension could have a material adverse impact
on our operations.

We compete against large pharmaceutical companies and other entities with
superior resources.

Unigene is engaged in a rapidly evolving and highly competitive field. To
date, Unigene has concentrated its commercial efforts on one compound --
Calcitonin -- for treating osteoporosis and other indications. Like the market
for any pharmaceutical product, the market for treating osteoporosis and these
other indications has the potential for rapid, unpredictable and significant
technological change. Competition is intense from specialized biotechnology
companies, major pharmaceutical and chemical companies and universities and
research institutions. Most of our competitors have substantially greater
financial resources, research and development staffs and facilities, and
regulatory experience than we do. Major competitors in the field of osteoporosis
treatment include Novartis, American Home Products, Merck, Eli Lilly, and
Procter and Gamble. Any one of these entities could, at any time, develop
products or a manufacturing process that could render our technology or products
noncompetitive or obsolete.

Our success is dependent upon our ability to obtain and defend patents, maintain
trade secrets and operate without infringing on the intellectual property rights
of others.

We filed applications for U.S. patents relating to proprietary peptide
manufacturing and drug delivery technologies that we have invented in the course
of our research. To date, six U.S. patents have issued and other applications
are pending. We have also made patent application filings in selected foreign
countries and numerous foreign patents have issued. There is a risk that any of
our pending applications will not issue as patents. There is also a risk that
our issued patents will not provide us with significant competitive advantages
if, for example, a competitor were to independently develop or obtain similar or
superior technologies. Although we believe our patents and patent applications
are valid, the invalidation of our key patents or the failure of our pending
applications to issue as patents could have a material adverse effect upon our
business.

We also rely on trade secrets to protect our inventions. Our policy is to
include confidentiality obligations in all research contracts, joint development
agreements and consulting relationships that provide access to our trade secrets
and other know-how. However, there is a risk that these secrecy obligations will
be breached to our detriment. If licensees, consultants or other third parties
use technological information independently developed by them or by others in
the development of our products, disputes may arise from the use of this
information and as to the proprietary rights to products developed using this
information. These disputes may not be resolved in our favor.

Our technology or products could give rise to product liability claims.

Our business exposes us to the risk of product liability claims that are
inherent in the clinical testing, manufacturing and commercial use of
pharmaceutical products. We may not have sufficient resources to defend against
or satisfy these claims. Although we maintain product liability insurance
coverage, product liability or other judgments against us, as well as the cost
of defending such claims in excess of insurance limits, could have a material
adverse effect upon our business and financial condition.

The loss of our key executives could have a negative effect on our business.

Dr. Warren Levy and Dr. Ronald Levy have been the principal executive
officers since our inception. We rely on them for their leadership and business
direction. Each of them has entered into an agreement with us providing that he
shall not engage in any other employment or business for the period of his
employment with us. The loss of the services of either of these individuals
could have a material adverse effect on our business.

The outcome of our arbitration proceeding with The Tail Wind Fund is uncertain.

In July 2000, the Tail Wind Fund, Ltd., the holder of $2,000,000 in
principal amount of our 5% convertible debentures filed with the American
Arbitration Association a demand for arbitration of its claim that it was owed,
as of June 30, 2000, approximately $3,4000,000, consisting of principal,
interest and penalties, resulting from our default under various provisions of
the debentures and related agreements. See "Business -- Litigation" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Capital Resources and Liquidity." We have denied the amount of
Tail Wind's claim and have made certain counterclaims. The outcome of the
arbitration proceeding is uncertain. An extremely unfavorable ruling could have
a material adverse effect on Unigene.

The market price of Unigene common stock may be highly volatile.

The market price of Unigene common stock has been and is expected to
continue to be highly volatile. Factors, including announcements of
technological innovations by us or other companies, regulatory matters, new or
existing products or procedures, concerns about our financial position,
operating results, litigation, resolution of the arbitration involving our
outstanding convertible debentures, government regulation, developments or
disputes relating to agreements, patents or proprietary rights, and public
concern over the safety of activities or products may have a significant impact
on the market price of our stock. In addition, potential dilutive effects of
future sales of shares of Unigene common stock by Unigene and its stockholders
including Fusion pursuant to this prospectus and by the exercise and subsequent
sale of Unigene common stock by the holders of warrants and options could have
an adverse effect on the prices of our securities.

We do not anticipate paying cash dividends on the Unigene common stock.

We have not paid any cash dividends on the Unigene common stock since our
inception and we do not anticipate paying cash dividends in the foreseeable
future. Rather, we intend to retain any cash flow we generate for investment in
our business. Accordingly, Unigene common stock may not be suitable for
investors who are seeking current income from dividends.

The Unigene common stock is classified as a "penny stock" under SEC rules that
may make it more difficult for Unigene stockholders to resell their Unigene
common stock.

The Unigene common stock is traded on the OTC Bulletin Board. As a result,
the holders of Unigene common stock may find it more difficult to obtain
accurate quotations concerning the market value of the stock. Stockholders also
may experience greater difficulties in attempting to sell the stock than if it
was listed on a stock exchange or quoted on the Nasdaq National Market or the
Nasdaq Small-Cap Market. Because Unigene common stock is not traded on a stock
exchange or on the Nasdaq National Market or the Nasdaq Small-Cap Market, and
the market price of the common stock is less than $5.00 per share, the common
stock is classified as a "penny stock." SEC Rule 15g-9 under the Exchange Act
imposes additional sales practice requirements on broker-dealers that recommend
the purchase or sale of penny stocks to persons other than those who qualify as
an "established customer" or an "accredited investor." This includes the
requirement that a broker-dealer must make a determination that investments in
penny stocks are suitable for the customer and must make special disclosures to
the customer concerning the risks of penny stocks. Application of the penny
stock rules to the Unigene common stock could adversely affect the market
liquidity of the shares, which in turn may affect the ability of holders of the
Unigene common stock to resell the stock.

The sale of Unigene common stock to Fusion could cause substantial dilution and
the sale of the shares acquired by Fusion could cause the price of Unigene
common stock to decline.

The price at which Fusion is obligated to purchase shares of Unigene common
stock under the common stock purchase agreement will fluctuate based on the
market price of our common stock. See "The Financing Transaction--Purchase of
shares under the common stock purchase agreement" for a detailed description of
the purchase price.

All of the shares offered for sale by Fusion under this prospectus are
freely tradeable. However, Fusion has agreed that it will not sell or otherwise
transfer the 1,331,009 commitment shares until the earlier of the termination of
the common stock purchase agreement, the occurrence of an event of default by us
under this agreement or the maturity date of the agreement which is
approximately two years from the date hereof. Fusion may sell none, some or all
of the shares of common stock purchased from Unigene at any time. We expect that
shares registered in this offering will be sold over a period of up to 24 months
from the date of this prospectus. Depending upon market liquidity at the time, a
sale of shares registered in this offering at any given time could cause the
trading price of the Unigene common stock to decline. The sale of a substantial
number of shares of Unigene common stock under this offering, or anticipation of
such sales, could make it more difficult for Unigene to sell equity or equity
related securities in the future at a time and at a price that it might
otherwise wish to effect sales.

If Fusion purchased the full amount of shares purchasable under the common
stock purchase agreement on the date of this prospectus, at a price equal to
$1.85, the closing sale price of the Unigene common stock on January 19, 2001,
Fusion would have been able to purchase a total of 11,351,351 shares of common
stock. These shares, along with the 1,331,009 shares that will be issued to
Fusion as a commitment fee, would represent 22% of our then outstanding common
stock as of the date of this prospectus. This would result in significant
dilution to the ownership interests of other holders of our common stock. The
amount of dilution would be higher if the market price of our common stock is
lower than the current market price at the time Fusion purchases shares under
the common stock purchase agreement, as a lower market price would cause more
shares of our common stock to be issuable to Fusion. See "The Financing
Transaction-Purchase of shares under the common stock purchase agreement" for a
table that shows the number of shares issuable and potential dilution based on
varying market prices. Although we have the right to suspend Fusion purchases if
the market price of our common stock is below $15.00 for three consecutive
trading days, the financial condition of Unigene at the time may require Unigene
to forgo its right to suspend purchases notwithstanding a decline in the market
price. If the closing sale price of our common stock prior to the first trading
day of any 30-day period is at least $4.00, we have the right to require
purchase by Fusion of part or all of the remaining balance of the $21 million
during the next two 30-day periods, provided the closing sale price of our
common stock during such 30-day periods remains at least $4.00.

The existence of the agreement with Fusion to purchase shares of Unigene common
stock could cause downward pressure on the market price of the Unigene common
stock.

Both the actual dilution and the potential for dilution resulting from sales
of Unigene common stock to Fusion could cause holders to elect to sell their
shares of Unigene common stock, which could cause the trading price of the
Unigene common stock to decrease. In addition, prospective investors
anticipating the downward pressure on the price of the Unigene common stock due
to the shares available for sale by Fusion could refrain from purchases or
effect sales or short sales in anticipation of a decline of the market price.

Forward-Looking Statements

Various statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this
prospectus are "forward-looking statements" within the meaning of Section 27A of

the Securities Act of 1933. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or activities of our business, or industry results, to be
materially different from any future results, performance or activities
expressed or implied by the forward-looking statements. These factors include:
general economic and business conditions, our financial condition, competition,
our dependence on other companies to commercialize, manufacture and sell
products using our technologies, the uncertainty of results of preclinical and
clinical testing, the risk of product liability and liability for human clinical
trials, our dependence on patents and other proprietary rights, dependence on
key management officials, the availability and cost of capital, the availability
of qualified personnel, changes in, or the failure to comply with, governmental
regulations, the failure to obtain regulatory approvals for our products and
other factors discussed in this prospectus.

Use of Proceeds

Unigene will not receive any of the proceeds from the sale of the shares of
Unigene common stock offered for sale by Fusion by under this prospectus.
However, we may receive up to $21,000,000 from the sale of our common stock to
Fusion under the agreement with Fusion.

Price Range of Common Stock

The Unigene common stock has been quoted on the OTC Bulletin Board under the
symbol UGNE since October 1999, when it was delisted from the Nasdaq National
Market. The following table presents, for the periods indicated, the high and
low sales prices per share of the Unigene common stock as reported on the Nasdaq
National Market from January 1, 1998 to October 4, 1999, and on the OTC Bulletin
Board from October 5, 1999 through the date of this prospectus.

Fiscal Year Ended December 31, 1999 High Low
---- ---
First Quarter $1.47 $0.94
Second Quarter $1.13 $0.63
Third Quarter $1.06 $0.63
Fourth Quarter $0.84 $0.23

Fiscal Year Ended December 31, 2000 High Low
---- ---
First Quarter $5.38 $0.54
Second Quarter $3.66 $1.44
Third Quarter $3.03 $2.00
Fourth Quarter $3.00 $0.97

Fiscal Year Ended December 31, 2001 High Low
---- ---
First Quarter (through January 19, 2001) $1.87 $1.34

On January 19, 2001, the last reported sale price of the Unigene common stock on
the OTC Bulletin Board was $1.85. As of January 19, 2001, there were 490 holders
of record of the Unigene common stock.

Dividend Policy

Unigene has never paid a cash dividend on the Unigene common stock, and we
do not anticipate paying cash dividends in the foreseeable future. Instead, we
currently plan to retain all earnings, if any, for use in the operation of our
business and to fund future growth.

Selected Financial Data

The selected financial data as of December 31, 1998 and 1999, and for the
years ended December 31, 1997, 1998 and 1999, that is set forth below have been
derived from Unigene's financial statements included in this prospectus, which
have been audited by KPMG LLP, independent certified public accountants. The
report of KPMG LLP covering these financial statements contains an explanatory
paragraph that states that the Company's recurring losses from operations and
working capital deficiency raise substantial doubt about the entity's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty. The selected
financial data below as of December 31, 1995, 1996 and 1997, and for the years
ended December 31, 1995 and 1996 have been derived from our audited financial
statements that are not included in this prospectus. The selected financial data
below as of and for the nine months ended September 30, 1999 and 2000, have been
derived from our unaudited financial statements, included in this prospectus
which, in our opinion, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of our financial position and
results of operations. Historical results are not necessarily indicative of
results to be expected for any future period. You should read the data below
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the financial statements and related notes included
in this prospectus.

STATEMENT OF OPERATIONS DATA
(In thousands, except per share data)

Nine Months Ended
Year Ended December 31, September 30,
----------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
Revenue: (Unaudited) (Unaudited)

Licensing & other revenue $ 8 $ 308 $ 3,003 $ 5,050 $ 9,589 $9,528 $2,361

Costs and expenses:
Research & development expenses 6,876 8,298 9,416 9,042 9,375 7,262 7,836
General and administrative 2,158 2,115 2,016 2,068 2,212 1,654 2,418
Income (loss) before (9,435) (10,597) (10,128) (6,737) (1,577) 151 (8,711)
extraordinary item
Extraordinary item -- -- -- (144) -- -- --

Net income (loss) (9,435) (10,597) (10,128) (6,881) (1,577) 151 (8,711)

Basic and diluted income (loss)
per share:
Income (loss) before
extraordinary item
(.44) (.38) (.27) (.17) (.04) -- (.20)
Extraordinary item -- -- -- (.01) -- -- --

Net income (loss) (.44) (.38) (.27) (.18) (.04) -- (.20)
Weighted average number of shares
outstanding 21,658 27,943 37,397 38,701 40,719 40,285 43,869

BALANCE SHEET DATA
(In thousands) December 31, September 30,
-------------------------------------------------------- ------------------------
1995 1996 1997 1998 1999 1999 2000
---- ---- ---- ---- ---- ---- ----
(Unaudited) (Unaudited)

Cash and cash equivalents $ 259 $ 4,491 $ 2,126 $ 403 $ 683 $ 668 $ 49
Working capital (deficiency) (4,061) 2,954 310 (1,805) (2,759) (1,091) (9,670)
Total assets 13,332 17,169 13,692 11,564 13,778 14,211 11,452
Long-term debt 3,955 2,788 1,608 3,931 1,003 3,987 823
Total liabilities 8,709 5,309 4,258 7,344 9,049 8,517 13,339
Total stockholders' equity
(deficit) 4,623 11,860 9,433 4,220 4,729 5,694 (1,887)

Management's Discussion and Analysis of
Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial
statements and the notes appearing elsewhere in this prospectus. The following
discussion contains forward-looking statements. Our actual results may differ
materially from those projected in the forward-looking statements. Factors that
might cause future results to differ materially from those projected in the
forward-looking statements include those discussed in "Risk Factors" and
elsewhere in this prospectus.

Nine months and three months ended September 30, 1999 and 2000

Revenue. Revenue for the three-month period ended September 30, 2000
decreased 81% to $1,359,000 from $7,001,000 for the three-month period ended
September 30, 1999. Revenue for the first nine months of 2000 decreased 75% to
$2,361,000 from $9,528,000 for the first nine months of 1999. In both years the
revenue consists primarily of revenue from Pfizer, resulting from the
achievement of milestones in the development of an oral Calcitonin product for
treating osteoporosis. Yearly revenue is affected by the timing of the
completion of the various milestones.

Research and Development Expenses. Research and development, Unigene's
largest expense, increased 10% to $2,905,000 from $2,652,000 for the three
months ended September 30, 2000, and increased 8% to $7,836,000 from $7,262,000
for the nine months ended September 30, 2000, as compared to the same periods in
1999. The increases for both periods were primarily attributable to expenses
related to Unigene's ongoing clinical trials for its nasal Calcitonin product,
partially offset by a reduction in consulting fees related to the Pfizer
collaboration. Expenses for the three months ended September 30, 2000 also
include additional expenditures related to an increase in Calcitonin production.

General and Administrative Expenses. General and administrative expenses
increased 43% to $801,000 from $562,000 for the three months ended September 30,
2000, and increased 46% to $2,418,000 from $1,654,000 for the nine months ended
September 30, 2000, as compared to the same periods in 1999. The increases for
the three month and nine month periods ended September 30, 2000 were primarily
due to the recognition of non-cash expenses of $220,000 due to the issuance of
warrants to a consultant and due to stock option compensation of $205,000 for
the three months ended September 30, 2000 and $273,000 for the nine months ended
September 30, 2000. The nine month period ended September 30, 2000 also includes
the recognition of a $350,000 expense in June 2000 to terminate Unigene's former
joint venture in China.

Interest Income. Interest income decreased $9,000 and increased $12,000 for
the three months and nine months ended September 30, 2000, respectively, as
compared to the same periods in 1999, due to the amount of funds available for
investment in 2000.

Interest Expense. Interest expense increased $204,000 or 189% for the three
months ended September 30, 2000 to $312,000 from $108,000 for the three months
ended September 30, 1999. Interest expense increased $370,000 or 76% for the
nine months ended September 30, 2000 to $860,000 from $490,000 for the nine
months ended September 30, 1999. Interest expense for the nine month period
ended September 30, 1999 includes the amortization of the value of the
beneficial conversion feature and related warrants of Unigene's 5% Convertible
Debentures (the "5% Debentures") in the amount of $197,000. Excluding the effect
of the amortization charged to interest, interest expense increased in the three
month and nine month periods ended September 30, 2000, as compared to the
comparable periods in 1999, primarily due to an increase in the annual interest
rate on the $2,000,000 in outstanding principal amount of the 5% Debentures to
20% resulting from the failure of Unigene to make a semi-annual interest payment
that was due in January 2000. In addition, since October 1999, Unigene has been
accruing additional interest expense monthly in an amount equal to 2% of the
outstanding principal amount of the 5% Debentures as a result of the removal of
the Unigene common stock from trading on the Nasdaq Stock Market in October
1999. The expenses incurred in connection with the 5% Debentures were partially
offset by a 50% decrease in the principal balance outstanding as a result of
conversions to Unigene common stock.

Net Loss. Due to a $5.7 million decrease in revenue from Pfizer in the three
month period ended September 30, 2000, in addition to increased operating
expenses and interest expense, net loss increased $6,347,000 from the profit of
$3,693,000 for the corresponding period in 1999. Due to a $7.2 million decrease
in revenue from Pfizer in the nine-month period ended September 30, 2000, in
addition to increases in operating expenses and interest expense, net loss
increased $8,862,000 from the profit of $151,000 for the corresponding period in
1999.

Income Taxes. As of December 31, 1999, Unigene had available for federal
income tax reporting purposes net operating loss carryforwards of approximately
$58,200,000, expiring from 2000 through 2019, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. For
the nine months ended September 30, 2000, Unigene accumulated additional

operating loss carryforwards of approximately $8,700,000. In addition, as of
December 31, 1999, Unigene has federal investment tax credits and research and
development credits in the amounts of $14,000 and $2,376,000, respectively,
which are available to reduce the amount of future federal income taxes. These
credits expire from 2000 through 2019. As of December 31, 1999, Unigene had New
Jersey operating loss carryforwards in the approximate amount of $26,500,000,
expiring from 2003 through 2006, which are available to reduce future earnings
subject to state income tax. Approximately $25,000,000 of these New Jersey loss
carryforwards has been approved for future sale pursuant to a program of the New
Jersey Economic Development Authority (the "NJEDA"). In order to realize these
benefits, Unigene must apply to the NJEDA each year and must meet various
requirements for continuing eligibility. In addition, the program must continue
to be funded by the State of New Jersey.

Unigene follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes". Given Unigene's past history of incurring
operating losses, any deferred tax assets that are recognizable under SFAS 109
have been fully reserved. As of December 31, 1999, under SFAS 109, Unigene had
deferred tax assets of approximately $26,000,000, subject to a valuation
allowance of $26,000,000. The deferred tax assets are primarily a result of
Unigene's net operating losses and tax credits generated. For the nine-month
period ended September 30, 2000, Unigene's deferred tax assets and valuation
allowances each increased by approximately $3,500,000.

Years ended December 31, 1997, 1998 and 1999

Revenue. Revenue increased 90% to $9,589,000 for the year ended December
31, 1999 as compared to $5,050,000 for the year ended December 31, 1998. Revenue
increased 68% to $5,050,000 for the year ended December 31, 1998 as compared to
$3,003,000 for the year ended December 31, 1997. Revenue consists primarily of
milestone revenue from Warner-Lambert as the result of the achievement of
milestones in the development of an oral Calcitonin product for treating
osteoporosis. Revenue in each year is affected by the timing of the completion
of the various milestones.

Research and Development Expenses. Research and development, our largest
expense, increased 4% in 1999 to $9,375,000 from $9,042,000 in 1998, after
decreasing 4% in 1998 from $9,416,000 in 1997. The 1999 increase was primarily
attributable to development expenses related to our nasal Calcitonin product,
consulting and analytical testing expenses related to our European Type II
variation for our injectable Calcitonin product, and consulting fees related to
our collaboration with Warner-Lambert partially offset by a reduction in
production supplies. The 1998 decrease was primarily due to reduced regulatory
filing fees and regulatory consultant expenses as compared to 1997, as well as
to the reimbursement in 1998 of certain research expenses by Warner-Lambert. In
addition, 1998 expenditures were reduced for both production and laboratory
supplies, partially offset by increased personnel expenditures. Expenditures for
the sponsorship of collaborative research programs were $250,000 in 1999,
$280,000 in 1998 and $465,000 in 1997, which are included as research and
development expenses.

Cost of Settlement. Settlement of contractual right expense was $1,669,000
in 1997. In February 1997, we issued an aggregate of 490,000 shares of Unigene
common stock to the holders of our 9.5% senior secured convertible debentures.
This issuance was in consideration for the cancellation of our obligation to pay
to the holders a fee equal to 2% of the sum of the market value as of December
31, 1998 of all of the outstanding shares of Unigene common stock plus the
principal amount of all of our outstanding debt, less our cash on deposit, up to
a maximum fee of $3,000,000. The expense associated with this transaction was
valued at $1,669,000, based on a closing price of the Unigene common stock of
$3.40625 on February 7, 1997.

General and administrative expenses. General and administrative expenses
increased 7% in 1999 to $2,212,000 from $2,068,000 in 1998, after increasing 3%
in 1998 from $2,016,000 in 1997. The 1999 increase was primarily due to
increased personnel costs and professional fees partially offset by reductions
in public relations and travel expenses. The 1998 increase was primarily due to
increased costs in 1998 for employee health insurance and public relations,
partially offset by reduced legal fees due to the non-recurrence of legal fees
incurred in 1997 related to the Warner-Lambert (now Pfizer) license agreement.

Interest Income. Interest income decreased $70,000 or 65% in 1999 from 1998,
after decreasing $96,000 or 47% in 1998 from 1997. The decreases were due to
lower interest income resulting from reduced funds available for investment.

Interest Expense. Interest expense increased $386,000 or 49% in 1999 to
$1,171,000 from $785,000 in 1998. Interest expense increased $551,000 or 235% in
1998 from $234,000 in 1997. Included in 1999 and 1998 interest expense are
$197,000 and $490,000, respectively, of the amortization of the value of the
beneficial conversion feature and related warrants of our 5% convertible
debentures. Excluding the change in the amortization charged to interest,
interest expense increased in 1999 as compared to 1998 as a result of an
increase in notes payable to stockholders, the redemption premium resulting from
our exceeding the share limit on the 5% debentures, and the 2% delisting penalty

on the 5% debentures. This was partially offset by a decrease in the balance
outstanding under our 5% debentures as a result of partial conversions to
Unigene common stock.

Income Tax Benefit. Income tax benefit in 1999 of $1,553,000 consisted of
proceeds received for the sale of a portion of our state tax net operating loss
carryforwards under a NJEDA program. This program allows various New Jersey
taxpayers to sell their state tax benefits to third parties. The purpose of the
New Jersey program is to provide financial assistance to high-tech and
biotechnology companies in order to facilitate future growth and job creation.

Extraordinary Item. Extraordinary item, loss on early extinguishment of
debt, was $144,000 for 1998. The loss was due to redemption at a premium of a
portion of our 10% convertible debentures in September 1998.

Net Income (Loss). During 1999, revenue increased $4,540,000 from 1998 due
to the achievement of various milestones in the Pfizer agreement. In addition,
we received $1,553,000 from the partial sale of our state tax benefits. These
revenues were partially offset by an increase in operating and interest
expenses. As a result, the net loss decreased $5,304,000 or 77% for the year
ended December 31, 1999 from the prior year. During 1998, revenue increased more
than $2,000,000 from 1997 due to the achievement of various milestones in the
Pfizer agreement. In addition, in 1998 total operating expenses decreased almost
$2,000,000 from 1997, primarily due to the one-time settlement of a contractual
right expense in 1997. These were partially offset by a decline in interest
income, an increase in interest expense and loss on early extinguishment of
debt. As a result, the net loss decreased $3,247,000 or 32% for the year ended
December 31, 1998 from the prior year.

Liquidity and Capital Resources

Unigene maintains its peptide production facility on leased premises in
Boonton, New Jersey. The facility began production under current Good
Manufacturing Practice guidelines in 1996. The current lease expires in 2004.
Unigene has two consecutive ten-year renewal options under the lease, as well as
an option to purchase the facility. During 2000, Unigene invested approximately
$433,000 in fixed assets and leasehold improvements. The majority of these
expenditures were to increase Unigene's analytical testing capabilities. There
currently are no material commitments outstanding for capital expenditures
relating to either the Boonton facility or our office and laboratory facility in
Fairfield, New Jersey.

At September 30, 2000, Unigene had cash and cash equivalents of $49,000, a
decrease of $634,000 from December 31, 1999.

Unigene has incurred annual operating losses since its inception and, as a
result, at September 30, 2000, had an accumulated deficit of approximately
$71,619,000 and a working capital deficiency of approximately $9,670,000. The
independent auditors' report covering Unigene's 1999 financial statements
includes an explanatory paragraph stating that these factors raise substantial
doubt about our ability to continue as a going concern. However, the financial
statements have been prepared on a going concern basis and as such do not
include any adjustments that might result from the outcome of this uncertainty.
In October 1999, the Unigene common stock was delisted by the Nasdaq Stock
Market. The delisting of the common stock may have an adverse effect on our
ability to raise capital.

Unigene's future ability to generate cash from operations will depend
primarily upon signing research or licensing agreements, achieving defined
benchmarks in such agreements that entitle Unigene to receive milestone
payments, receiving regulatory approval for its licensed products, and the
commercial sale of these products.

In July 1997, Unigene entered into an agreement under which it granted to
Warner-Lambert Company a worldwide license to use our oral Calcitonin
technology. In June 2000, Warner-Lambert was acquired by Pfizer Inc. Through
September 30, 2000, Unigene had received $3 million for an equity investment, $3
million for a licensing fee and recognized an aggregate of $16.5 million in
milestone revenue under the agreement, including a $1 million payment received
in October 2000 for a milestone achieved in September 2000. Unigene is eligible
to receive up to an additional $32 million in milestone revenue during the
course of the development program. Early-stage milestones primarily relate to
the product's performance characteristics, while the latter-stage milestones are
primarily related to regulatory activities and approvals. If the product is
successfully commercialized, we also would receive revenue from royalties on
product sales by Pfizer and its affiliates and from the sale of raw material to
Pfizer. Unigene has retained the right to license the use of its technologies
for injectable and nasal formulations of Calcitonin on a worldwide basis.
Unigene has licensed distributors in the United Kingdom, Ireland and in Israel
for its injectable formulation. In June 2000, we entered into a joint venture
agreement in China with SPG to manufacture and market our injectable and nasal
formulations. See "Business -- Strategy -- China Joint Venture." We are actively
seeking other licensing and/or supply agreements with pharmaceutical companies

for our injectable and nasal Calcitonin products and for other pharmaceutical
products that can be manufactured and/or delivered using our patented
technologies. However, there is no assurance that any additional
revenue-generating agreements will be signed.

Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during the 2001 and up to an additional
$495,000 in cash within two years thereafter. However, these amounts may be
reduced or offset by our share of joint venture profits. No amounts have been
invested as of September 30, 2000. In addition, Unigene is obligated to pay to
the Qingdao General Pharmaceutical Company an aggregate of $350,000 in 14
monthly installment payments of $25,000 in order to terminate its former joint
venture in China, of which $75,000 had been paid as of December 31, 2000. The
entire $350,000 obligation was recognized as an expense in the second quarter of
2000.

In June 1998, Unigene completed a private placement of $4,000,000 in
principal amount of 5% convertible debentures from which we realized net
proceeds of approximately $3,750,000. The 5% debentures were convertible into
shares of Unigene common stock. The interest on the debentures, at Unigene's
option, was payable in shares of Unigene common stock. Upon conversion, the
holder of a 5% debenture was entitled to receive warrants to purchase a number
of shares of Unigene common stock equal to 4% of the number of shares issued
pursuant to the conversion. However, the number of shares of Unigene common
stock that we are obligated to issue, in the aggregate, upon conversion, when
combined with the shares issued in payment of interest and upon the exercise of
the warrants, is limited to 3,852,500 shares. After this share limit is reached,
Unigene is obligated to redeem all 5% debentures tendered for conversion at a
redemption price equal to 120% of the principal amount, plus accrued interest.
In December 1999, Unigene was unable to convert $200,000 in principal of the 5%
debentures tendered for conversion because the conversion would have exceeded
the share limit. As a result, we accrued, as of December 31, 1999, an amount
equal to $400,000 representing the 20% premium on the outstanding $2,000,000 in
principal amount of 5% debentures that had not been converted. As of September
30, 2000, all of the $2,000,000 in principal amount of 5% debentures were
tendered for conversion and therefore are classified as a current liability in
the amount of $2,400,000.

Through December 31, 2000, we issued a total of 3,703,362 shares of Unigene
common stock upon conversion of $2,000,000 in principal amount of the 5%
debentures and in payment of interest on the 5% debentures. Also, we issued an
additional 103,032 shares of Unigene common stock upon the cashless exercise of
all of the 141,123 warrants issued upon conversion of the 5% debentures.

On January 5, 2000, Unigene failed to make the required semi-annual
interest payment on the outstanding 5% debentures. As a result, the interest
rate on the outstanding 5% debentures has increased to 20% per year. The
semi-annual interest payments due July 5, 2000 and January 5, 2001, also have
not been made. As of December 31, 2000, the accrued and unpaid interest on the
5% debentures totaled approximately $467,000. In addition, due to the delisting
of the Unigene common stock from the Nasdaq National Market in October 1999,
Unigene became obligated under a separate agreement to pay the holder of the 5%
debentures an amount equal to 2% of the outstanding principal amount of the
debentures per month. Unigene has not made any of these payments to date, but
has accrued the amounts as an expense. As of December 31, 2000, the accrued and
unpaid amount of this penalty totaled approximately $617,000.

The holder of the 5% debentures has commenced an arbitration proceeding in
which the holder claims that it is entitled, as of June 30, 2000, to payments in
respect of the 5% debentures in the amount of approximately $3,400,000. See
"Business -- Litigation."

To satisfy Unigene's short-term liquidity needs, Jay Levy, the Chairman of
the Board and an officer of Unigene, and Warren Levy and Ronald Levy, directors
and officers of Unigene, and another Levy family member from time to time have
made loans to Unigene. During February 2000, Jay Levy loaned us $300,000. This
loan was repaid in April 2000. During the third and fourth quarters of 2000, Jay
Levy and another family member loaned Unigene an aggregate of $1,655,000 and
Warren Levy and Ronald Levy loaned Unigene an aggregate of $78,323. As of
December 31, 2000, the outstanding loans by these individuals to Unigene
consisted of:

o joint loans from the four individuals in the aggregate principal amount
of $2,873,323, which are evidenced by demand notes bearing a floating
interest rate equal to the Merrill Lynch Margin Loan Rate plus .25%
(9.875% at December 31, 2000) that are classified as short-term debt.

o loans from Jay Levy in the aggregate principal amount of $1,870,000
evidenced by term notes maturing January 2002, and bearing interest at
the fixed rate of 6% per year. These loans are secured by a security
interest in all of Unigene's equipment and a mortgage on Unigene's real
property. The terms of the notes require Unigene to make installment
payments of principal and interest beginning in October 1999 and ending
in January 2002 in an aggregate amount of $72,426 per month. No
installment payments have been made to date. Jay Levy has agreed to
postpone temporarily current payments.

Unigene's cash requirements to operate its research and peptide
manufacturing facilities and develop its products are approximately $10 to 11
million per year. In addition to its obligations with respect to the 5%
Debentures, Unigene has principal and interest obligations over the next several
years under its outstanding notes payable to stockholders as well as obligations
relating to its current and former joint venture in China.

At September 30, 2000, we had a working capital deficiency of $9,670,000. The
independent auditors' report for the year ended December 31, 1999, includes an
explanatory paragraph stating that the operating losses, accumulated deficit and
working capital deficiency discussed above raise substantial doubt about our
ability to continue as a going concern. We had an operating cash flow deficit of
$6,278,000 in 1997, an operating cash flow deficit of $4,864,000 in 1998, an
operating cash flow deficit of $1,400,000 in 1999 and for the nine months ended
September 30, 2000, an operating cash flow deficit of $3,086,000. We believe
that we do not have sufficient financial resources to fund our operations at the
current level. Therefore, excluding any funding that we might receive from
Fusion, we need additional funds to continue our operations. The agreement with
Fusion could provide Unigene with sufficient funding to sustain its operations
for up to two years, beginning in the first quarter of 2001. However, assuming
we do not receive any funding from Fusion, there is a risk that we will not be
able to generate revenues that are sufficient to sustain our operations and we
would require additional sources of financing in order to satisfy our working
capital needs, which may be unavailable or prohibitively expensive. Should such
financing be unavailable or prohibitively expensive when we require it, we would
not be able to sustain our working capital needs, which would have a material
adverse effect on our business, operating results and financial condition.

Unigene follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Given our past history of incurring operating
losses, any deferred tax assets that are recognizable under SFAS No. 109 were
fully reserved. As of December 31, 1999, under SFAS No. 109, we had deferred tax
assets of approximately $26,000,000, subject to a valuation allowance of
$26,000,000. The deferred tax assets are primarily a result of our net operating
losses and tax credits generated. For the nine-month period ended September 30,
2000, our deferred tax assets and valuation allowances each increased by
approximately $3,500,000.

Other

The Unigene common stock has been delisted from the Nasdaq National Market
System effective October 5, 1999, and is now trading on the OTC Bulletin Board.
In order to be relisted on the Nasdaq National Market or the Nasdaq SmallCap
Market, we must meet the initial listing requirements.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133, as amended, will be effective for our fiscal
year beginning January 1, 2001. The adoption of SFAS No. 133 is not expected to
have a material effect on our financial position or results of operations.

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements and specifically addresses revenue recognition in the biotechnology
industry for non-refundable technology access fees and other non-refundable
fees. We must adopt SAB No. 101, as amended, in the fourth quarter of 2000 with
an effective date of January 1, 2000, and the recognition of a cumulative effect
adjustment, calculated as of January 1, 2000. Unigene is evaluating SAB No. 101
and the effect it may have on the financial statements and our current revenue
recognition policy.

Market Risk

In the normal course of business, Unigene is exposed to fluctuations in
interest rates due to the use of debt as a component of the funding of its
operations. We do not employ specific strategies, such as the use of derivative
instruments or hedging, to manage our interest rate exposure. Since December 31,
1999, Unigene's interest rate exposure on the 5% convertible debentures has been
affected by Unigene's delisting from the Nasdaq National Market and failure to
make the semi-annual interest payment in January 2000.

The information below summarizes Unigene's market risks associated with debt
obligations as of September 30, 2000. The table below presents principal cash
flows and related interest rates by year of maturity based on the terms of the
debt.

Under the terms of the 5% convertible debentures, no additional shares may
be issued to convert the remaining principal balance. Therefore, the information
presented as to the debentures is without consideration as to conversion
features. Variable interest rates disclosed represent the rates at September 30,
2000.

Year of Maturity
-----------------------------------------------------
Carrying Fair
Amount Value 2000 2001 2002 2003 2004
-------- ----- ---- ---- ---- ---- ----

Notes payable - stockholders $2,498,323 2,498,323 2,498,323 -- -- -- --
Variable interest rate 9.875% -- -- -- --

Notes payable - stockholders $1,870,000 1,736,000 960,606 837,328 72,066 -- --
Fixed interest rate 6% 6% 6% -- --

5% convertible debentures $2,400,000 2,400,000 2,400,000 -- -- -- --
Fixed interest rate (1) 20%

- ---------------------
(1) As a result of Unigene's failure to make the semi-annual interest
payment that was due January 5, 2000, the interest rate on the 5%
convertible debentures has increased from 7% at December 31, 1999, to
20% beginning January 5, 2000.

Business

Overview

Unigene is a biopharmaceutical company engaged in the research, production
and delivery of valuable therapeutic peptide hormones. We have a patented
manufacturing technology for producing many peptides cost-effectively. We also
have a patented drug delivery technology that has been shown to deliver orally
therapeutic levels of Calcitonin, an amidated peptide, into the bloodstream. Our
primary focus has been on the development of Calcitonin products for the
treatment of osteoporosis and other indications. We have the facilities and the
technology for manufacturing pharmaceutical grade Calcitonin in accordance with
cGMP and have an injectable Calcitonin product that is approved for sale in the
European Union. We are continuing, directly and through a licensee, the
preclinical and clinical testing of oral and nasal Calcitonin formulations.

Our Accomplishments

Among our major accomplishments are:

o Development of a Proprietary Peptide Hormone Production Process. One of
our principal scientific accomplishments is our success in combining our
proprietary amidation process with our proprietary bacterial recombinant DNA
technology to develop a peptide hormone production process. Several patents
relating to this process have issued. We believe that these proprietary
processes are key steps in the more efficient and economical commercial
production of various peptide hormones with diverse therapeutic applications.
Many of these hormones cannot be produced at a reasonable cost in sufficient
quantities for clinical testing or commercial use by currently available
production processes. Using our proprietary process, we have produced
laboratory-scale quantities of various peptide hormones. We have constructed and
are operating a manufacturing facility employing this process to produce
Calcitonin.

o Development of a Proprietary Oral Delivery Technology. We have also
developed and patented an oral delivery technology that has successfully
delivered Calcitonin into the bloodstream of human subjects. The formulation has
been shown in repeated clinical studies regularly to deliver measurable
quantities of the hormone into the human bloodstream. We believe that this
formulation may expedite the regulatory approval process for an oral Calcitonin
product because it should be easier to establish its performance efficacy as
compared to a formulation that does not produce measurable Calcitonin blood
levels. We believe that the components of the proprietary oral formulation also
can enable the delivery of other peptides and we have initiated studies to
investigate this possibility internally and in collaboration with others.

Strategy

Our business strategy is to develop proprietary products and processes with
applications in human health care to generate revenues from license fees,
royalties on third-party sales and direct sales of bulk or finished products.
Generally, we fund our internal research activities and rely on licensees, which
are likely to be established pharmaceutical companies, to provide development
funding. We also generally expect to rely on these licensees to take
responsibility for obtaining appropriate regulatory approvals, clinical testing,
and marketing of products derived from our research activities. However, we may,
in some cases, retain the responsibility for clinical testing and for obtaining
the required regulatory approvals for a particular product.

o Pfizer License Agreement. In July 1997, we entered into an agreement under
which we granted to the Parke-Davis division of Warner-Lambert Company (which
merged with Pfizer in June 2000), a worldwide license to use our oral Calcitonin
technology. Upon signing the agreement, we received $6.0 million in payments
from Warner-Lambert, consisting of a $3.0 million licensing fee and a $3.0
million equity investment by Warner-Lambert. Under the terms of the license
agreement, we are eligible to receive up to $48.5 million in milestone payments
during the course of the development program if milestones are achieved. Through
December 31, 2000, we have recognized an aggregate of $16.5 million in revenue
due to the achievement of specified milestones, including $2.0 million in 2000.
If a product is successfully commercialized, we will also receive revenue from
the sale of raw material to Pfizer and royalties on product sales by Pfizer and
its affiliates.

o China Joint Venture. In June 2000, we entered into a joint venture with
Shijiazhuang Pharmaceutical Group ("SPG"), a pharmaceutical company in the
People's Republic of China. The joint venture will manufacture and distribute
injectable and nasal Calcitonin products in China (and possibly other selected
Asian markets) for the treatment of osteoporosis. We own 45% of the joint
venture and will receive 45% of the joint venture profits. In the first phase of
the collaboration, SPG will contribute its existing injectable Calcitonin
license to the joint venture, which will allow the joint venture to sell our
product in China. The joint venture will need to file a New Drug Application in
China for its injectable and nasal products. In addition, brief local clinical
trials may be required. If the product is successful, the joint venture may
establish a facility in China to fill injectable and nasal Calcitonin products
using bulk Calcitonin produced at our Boonton, New Jersey plant. Eventually the
joint venture may manufacture the bulk Calcitonin in China at a new facility
that would be constructed by the joint venture. This would require local
financing by the joint venture. The joint venture has not yet begun operations
as of December 31, 2000.

o Other License or Distribution Arrangements. In addition to the joint
venture with SPG, we have entered into distribution agreements for the
injectable formulation of Calcitonin in the United Kingdom, Ireland and Israel.
We continue to seek other licensing or distribution agreements with
pharmaceutical companies for both the injectable and nasal forms of Calcitonin.
However, there is no assurance that any additional revenue generating agreements
will be signed.

Competition

Our primary business activity has been biotechnology research and
development. Biotechnology research is highly competitive, particularly in the
field of human health care. We compete with specialized biotechnology companies,
major pharmaceutical and chemical companies, universities and other non-profit

research organizations, many of which can devote considerably greater financial
resources to research activities.

In 1999, we began manufacturing cGMP Calcitonin for use in finished
pharmaceutical products. In the development, manufacture and sale of amidated
peptide hormone products, we and our licensees compete with contract
laboratories and major pharmaceutical companies. Many of our competitors can
devote considerably greater financial resources to these activities. Major
competitors in the field of osteoporosis include Novartis, American Home
Products, Merck, Eli Lilly, and Procter and Gamble. We believe that the unique
safety and efficacy characteristics of Calcitonin, combined with our patented
hormone manufacturing process and our patented oral delivery technology, will
enable it to compete with products marketed by these and other companies.

We believe that success in competing with others in the biotechnology
industry will be based primarily upon scientific expertise and technological
superiority. We also believe that success will be based on the ability to
identify and to pursue scientifically feasible and commercially viable
opportunities and to obtain proprietary protection for research achievements.
Success will further depend on the availability of adequate funding and the
success in developing, testing, protecting, producing and marketing products and
obtaining their timely regulatory approval. There is no assurance that others
will not develop superior processes or products that would render our processes
or products noncompetitive or obsolete.

Product Manufacture

We have been producing salmon Calcitonin since 1992. We constructed a cGMP
facility for the production of pharmaceutical-grade Calcitonin at leased
premises located in Boonton, New Jersey. The facility began producing salmon
Calcitonin under cGMP guidelines in 1996. The facility also produces our
proprietary amidating enzyme for use in producing Calcitonin. The current
production level of the facility is between one and two kilograms of bulk
Calcitonin per year.

The facility can be reconfigured to increase Calcitonin production capacity.
However, if an oral Calcitonin product is successfully commercialized, we expect
that we will incur additional expenditures to expand or upgrade our
manufacturing operations to satisfy all of our supply obligations under our
license agreement with Pfizer. Although the facility initially is devoted
exclusively to Calcitonin production, it also is suitable for producing other
peptide hormone products.

We are following conventional procedures to secure the approval of the
facility by regulatory agencies to allow us to manufacture Calcitonin for human
use. The facility was inspected by European health authorities in connection
with the filing of our injectable Calcitonin dossier and found to be in
compliance with cGMP guidelines. However, there is no assurance that our
operations will remain in compliance or that approval by other agencies will be
obtained. The facility will require approval by the FDA in order to manufacture
Calcitonin or other peptides for commercial sale in the United States.

Government Regulation

Our laboratory research, development and production activities and those of
our licensees and collaborators are subject to significant regulation by
numerous federal, state, local and foreign governmental authorities. The
commercial sale of a pharmaceutical product in the United States requires the
successful completion of various animal and human studies and approval of the
product by the FDA. Foreign sales require similar studies and approval by
regulatory agencies.

The regulatory approval process for a pharmaceutical product requires
substantial resources and can take many years. There is no assurance that
additional regulatory approvals will be obtained for the production facility or
for any of our products or that these approvals will be obtained in a timely
manner. The inability to obtain, or delays in obtaining, these approvals would
adversely affect our ability to continue to fund our programs, to produce
marketable products, or to receive revenue from milestone payments, product
sales or royalties. We also cannot predict the extent of any adverse
governmental regulation that may arise from future legislative and
administrative action.

Our production facility may be audited by the FDA or other regulatory
agencies to ensure that it is operating in compliance with cGMP guidelines.
These guidelines require that production operations be conducted in strict
compliance with our own written protocols for reagent qualification, process
execution, data recording, instrument calibration and quality monitoring. These
agencies are empowered to suspend production operations and/or product sales if,
in their opinion, significant or repeated deviations from these protocols have
occurred. A suspension could have a material adverse impact on our future
operations.

Regulatory Approval of Our Injectable Calcitonin Product

In January 1999, we received approval from the European Committee for
Proprietary Medicinal Products to market our injectable Calcitonin product in
all 15 member states of the European Union as a treatment for Paget's disease
and for hypercalcemia associated with malignancy. We began to market this
product in Europe for these indications in 1999. We have filed a supplementary
submission, called a Type II Variation, to expand the approved indications to
include the treatment of osteoporosis. However, there is no assurance that the
Type II Variation will be approved.

The approved European dossier can be readily cited by regulatory authorities
in many non-European Union countries, which we believe could significantly
reduce the registration requirements for injectable Calcitonin in such
non-European Union countries, and thereby could speed up product launch. We have
been notified by Switzerland that it intends to approve our injectable
Calcitonin product for the treatment of osteoporosis, Paget's disease and
hypercalcemia. In addition, we believe that the clinical trials conducted to
support the European filing of the injectable Calcitonin product can be used to
support the filing of a New Drug Application with the FDA for use of our
injectable Calcitonin product to treat osteoporosis and other indications. We
believe that our abbreviated clinical program, which has been accepted by the
FDA, will be sufficient to satisfy approval requirements in the United States
and other countries. Accordingly, we expect that the review process for our
injectable Calcitonin product in the United States and other countries may be
shorter than that typically associated with a new drug submission for numerous
reasons:

o The active ingredient is structurally identical to and biologically
indistinguishable from the active ingredient in products already
approved by many regulatory agencies.

o The formulation is essentially similar to the formulations used in
already approved products.

o The clinical trial program that was accepted by the FDA is relatively
brief and involved small numbers of subjects. As a result, the amount of
information that must be reviewed is far less than would have been
compiled for the lengthier trials required for a typical new drug
submission.

Development of our Oral Calcitonin Product

In December 1995 and January 1996, we successfully tested a proprietary
Calcitonin oral formulation in two separate pilot human studies in the United
Kingdom. These studies indicated that the majority of those who received oral
Calcitonin showed levels of the hormone in blood samples taken during the trial
that were greater than the minimum levels generally regarded as being required
for maximum therapeutic benefit. We believe that these were the first studies to
demonstrate that significant blood levels of Calcitonin could be observed in
humans following oral administration of the hormone. In April 1996, we
successfully conducted a third pilot human study in the United Kingdom which
used lower Calcitonin dosages than in the prior two clinical trials. The results
of this trial indicated that every test subject showed levels of the hormone in
their blood samples that exceeded the minimum levels generally regarded as
required for maximum therapeutic benefit. During 1999, with Warner-Lambert, we
successfully concluded two pilot human studies using an oral Calcitonin
formulation manufactured by Warner-Lambert. Both studies showed significant
measurable blood levels of Calcitonin. In December 1999, Warner-Lambert filed an
Investigational New Drug application with the FDA, and a Phase I/II study began
in April 2000. Patient dosing has been completed and results are being analyzed.
However, there is no assurance that the results of the prior human studies will
be repeated in this clinical trial.

We have filed patent applications for our oral formulation in the United
States and in numerous foreign countries. In 1999, we received a U.S. patent for
our fundamental technology covering the oral delivery of Calcitonin for the
treatment of osteoporosis. In 2000, we received a U.S. patent extending this
protection to the oral delivery of other peptides.

Under the terms of the license agreement with Pfizer, Pfizer has
responsibility for conducting the clinical trials and for obtaining regulatory
approval of our oral Calcitonin product from the FDA and other regulatory
agencies. There is no assurance that a safe and effective oral delivery system
will be developed, that Pfizer will be successful in obtaining regulatory
approval of an oral Calcitonin product, or that we and Pfizer will succeed in
developing, producing or marketing an oral Calcitonin product.

Development of a Nasal Calcitonin Product

A major pharmaceutical company received FDA approval in 1995 for the
marketing of a nasal spray delivery system for Calcitonin, which has
substantially enlarged the U.S. market for Calcitonin. During 1999, we completed
preliminary human studies for our proprietary nasal Calcitonin formulation. A
patent application for the product was filed in February 2000. In January 2000

we filed an Investigational New Drug Application with the FDA to begin clinical
testing our nasal formulation as a treatment for osteoporosis. In February 2000,
we began U.S. clinical studies. A clinical study demonstrating equivalent bio-
availability between our formulation and that of an existing nasal Calcitonin
product was successfully completed in December 2000. A second clinical study is
underway and expected to conclude in early 2001. We are negotiating to license
our nasal Calcitonin formulation in the U.S. for the treatment of osteoporosis.
However, there is no assurance that a license agreement will be completed, that
governmental approval of such product will be obtained, or that the product will
be successfully commercialized.

Collaborative Research Programs

We are currently engaged in two collaborative research programs:

o Rutgers University College of Pharmacy continues to study oral drug
delivery technology for Calcitonin and other peptides.

o In collaboration with Yale University, we are investigating novel
applications for various amidated peptide hormones, including Calcitonin
gene-related peptide. In 1996, we reported that the peptide accelerated
bone growth and prevented bone loss in an animal model system. However,
there is no assurance that the peptide will have the same effect in
humans, or that we would be able to develop, manufacture or market this
product.

Patents and Proprietary Technology

We have filed a number of applications for U.S. patents relating to our
proprietary peptide manufacturing and drug delivery technologies. To date, the
following six U.S. patents have issued:

o Immunization By Immunogenic Implant, a method for producing antibodies
for developing diagnostic medical tasks

o two patents related to the Alpha-Amidation Enzyme and its use in
manufacturing peptides

o a patent covering an improvement in our manufacturing technology

o two patents covering our oral delivery technology

Other applications are pending. We also have made filings in selected
foreign countries, and numerous foreign patents have issued. However, there is
no assurance that any of our pending applications will issue as patents or that
our issued patents will provide us with significant competitive advantages.
Furthermore, there is no assurance that competitors will not independently
develop or obtain similar or superior technologies.

Although we believe our patents and patent applications are valid, the
invalidation of one or more of our key patents could have a significant adverse
effect upon our business. There generally are greater difficulties in detecting
and proving infringement with process patents than with product patents. In
addition, a process patent's value is diminished if the product that can be
produced using the process has been patented by others. Under these
circumstances, we would require the cooperation of, and likely be required to
share royalties with, the patent holder or its sublicensees in order to
commercialize the product.

In some cases, we rely on trade secrets to protect our inventions. Our
policy to include confidentiality provisions in all research contracts, joint
development agreements and consulting relationships that provide access to our
trade secrets and other know-how. However, there is no assurance that these
secrecy obligations will not be breached to our detriment. To the extent
licensees, consultants or other third parties apply technological information
independently developed by them or by others to our projects, disputes may arise
as to the proprietary rights to information which may not be resolved in our
favor.

Employees

As of January 19, 2001 we had 64 full-time employees. Twenty were engaged
in research, development and regulatory activities, 34 were engaged in
production activities and 10 were engaged in general and administrative
functions. Ten of our employees hold Ph.D. degrees. Our employees are experts in
molecular biology, including DNA cloning, synthesis, sequencing and expression;
protein chemistry, including purification, amino acid analysis, synthesis and
sequencing of proteins; immunology, including tissue culture, monoclonal and
polyclonal antibody production and immunoassay development; chemical
engineering; pharmaceutical production; quality assurance; and quality control.
None of our employees is covered by a collective bargaining agreement. Warren P.

Levy, President, Ronald S. Levy, Executive Vice President, Jay Levy, Treasurer,
all executive officers and directors have signed employment agreements with us.

Research and Development

We have established a multi-disciplinary research team to adapt proprietary
amidation, biological production and oral delivery technologies to the
development of proprietary products and processes. Approximately 83% of our
employees are directly engaged in activities relating to production of,
regulatory compliance for, and the research and development of pharmaceutical
products. We spent $9.4 million on research activities in 1997, $9.0 million in
1998, and $9.4 million in 1999.

Properties

We own a one-story office and laboratory facility consisting of
approximately 12,500 square feet. The facility is located on a 2.2 acre site in
Fairfield, New Jersey.

Our 32,000 square foot cGMP production facility, of which 18,000 square feet
are currently being used for the production of pharmaceutical-grade Calcitonin
and can be used for the production of other peptide hormones, was constructed in
a building located in Boonton, New Jersey. We lease the facility under a
ten-year agreement which began in February 1994. We have two 10-year renewal
options and an option to purchase the facility.

Litigation

In July 2000, the Tail Wind Fund, Ltd., the holder of $2,000,000 in
principal amount of 5% convertible debentures issued by Unigene to Tailwind in a
private placement completed in June 1998, filed with the American Arbitration
Association a demand for arbitration against Unigene. In its demand, Tailwind
claimed that it was owed, as of June 30, 2000, approximately $3,400,000,
consisting of principal, interest and penalties, resulting from Unigene's
default under various provisions of the debentures and related agreements. These
alleged defaults included Unigene's failure to redeem the debentures after
becoming obligated to do so, the failure to pay interest when due, and the
failure to pay liquidated damages arising from the delisting of the Unigene
common stock from the Nasdaq National Market. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital Resources
and Liquidity." In July 2000, Unigene submitted to the American Arbitration
Association a statement in which it denies the amount of Tailwind's claim and
makes certain counterclaims. A hearing on the matter before an arbitrator
appointed by the American Arbitration Association is expected to occur in early
2001. The outcome of the proceeding is uncertain. An extremely unfavorable
ruling could have a material adverse effect on Unigene.

In July 2000, Reseau de Voyage Sterling, Inc. filed suit against Unigene in
the Supreme Court of the State of New York. The plaintiff, which purchased from
a third party a warrant to purchase one million shares of Unigene common stock,
alleges that Unigene breached a verbal agreement with the plaintiff to extend
the term of the warrant beyond its expiration date. Unigene has moved to have
the case transferred to federal court. The plaintiff is seeking damages of $2
million. We believe that this suit is completely without merit, and we intend to
vigorously contest the claim.

Management

Executive Officers and Directors

The following table sets forth information regarding Unigene's executive
officers and directors:

Name Age Position
- ---------------------- ---- -------------------------------------------------
Warren P. Levy (1) 48 President, Chief Executive Officer, and Director
Ronald S. Levy (1) 52 Executive Vice President, Secretary, and Director
Jay Levy (1) 77 Chairman of the Board and Treasurer
James P. Gilligan 48 Vice President of Product Development
Robert F. Hendrickson 67 Director
Allen Bloom 57 Director

- ---------------------
(1) Dr. Warren P. Levy and Dr. Ronald S. Levy are brothers and are the
sons of Mr. Jay Levy.

Each executive officer's term of office continues until the first meeting of
the Board of Directors following the annual meeting of stockholders and until
the election and qualification of his successor. All officers serve at the
discretion of the Board of Directors.

Warren P. Levy. Dr. Warren P. Levy, a founder of Unigene, has served as
President and Chief Executive Officer, and as a director, since our formation in
November 1980. Dr. Levy holds a Ph.D. in biochemistry and molecular biology from
Northwestern University and a bachelor's degree in chemistry from the
Massachusetts Institute of Technology.

Ronald S. Levy. Dr. Ronald S. Levy, a founder of Unigene, has served as a
director since our formation in November 1980, as Executive Vice President since
April 1999, and as Secretary since May 1986. Dr. Levy served as Vice President
from November 1980 through March 1999. Dr. Levy holds a Ph.D. in bioinorganic
chemistry from Pennsylvania State University and a bachelor's degree in
chemistry from Rutgers University.

Jay Levy. Mr. Jay Levy, a founder of Unigene, has served as the Chairman of
the Board of Directors and as Treasurer since our formation in November 1980. He
served as Secretary from 1980 to May 1986. Mr. Levy is a part-time employee of
Unigene and devotes approximately 15% of his time to Unigene. From 1985 through
February 1991, he served as the principal financial advisor to Estate of Nathan
Cummings and its principal beneficiary, The Nathan Cummings Foundation, Inc., a
large charitable foundation. From 1968 through 1985, he performed similar
services for the late Nathan Cummings, a noted industrialist and philanthropist.

James P. Gilligan. Dr. James P. Gilligan has been employed by Unigene since
1981 and has served as Vice President of Product Development since April 1999.
From February 1995 to March 1999, he served as Director of Product Development.
Dr. Gilligan holds a Ph.D. in pharmacology from the University of Connecticut
and a Masters of International Business from Seton Hall University.

Robert F. Hendrickson. Mr. Robert F. Hendrickson was Senior Vice President,
Manufacturing and Technology, for Merck & Co., Inc., an international
pharmaceutical company, from 1985 to 1990. Since 1990, Mr. Hendrickson has been
a management consultant with a number of biotechnology and pharmaceutical
companies among his clients. He is currently a director of Envirogen, Inc. an
environmental biotechnology company, and of Cytogen, Inc. and The Liposome Co,
Inc., each of which is a biotechnology company.

Dr. Allen Bloom. Dr. Allen Bloom, a patent attorney, has been a partner in
Dechert Price & Rhoads, a law firm, for the past six years where he established
and heads the patent practice group which focuses on biotechnology,
pharmaceuticals and medical devices. Prior to that time, he was Vice President,
General Counsel and Secretary of The Liposome Company, Inc., a biotechnology
company, for nine years. His responsibilities there included patent, regulatory
and licensing activities. Dr. Bloom holds a Ph.D. in organic chemistry from Iowa
State University.

Committees of the Board of Directors

Several important functions of the Board of Directors may be performed by
committees. These committees are made up of members of the Board of Directors.
Unigene's by-laws authorize the formation of these committees and grant the
Board the authority to prescribe the functions of each committee and the
standards for membership of each committee. The Board has the following four
standing committees. The Board does not have a standing nominating committee.

Audit Committee. The responsibilities of the Audit Committee include
annually recommending a firm of independent public accountants to the Board to
act as our auditors, reviewing the scope of the annual audit with the auditors
in advance, and reviewing the results of the audit and the adequacy of our
accounting, financial and operating controls. The Audit Committee also reviews
our accounting and reporting principles, policies and practices; and approves
fees paid to the auditors for audit and non-audit services. The current members
of the Audit Committee are Messrs. Jay Levy, Bloom and Hendrickson.

Compensation Committee. The responsibilities of the Compensation Committee
include reviewing and approving the compensation, including salaries and
bonuses, of our officers. The Compensation Committee also oversees the
administration of our 401(k) plan and reviews and approves general benefits and
compensation strategies. The current members of the Compensation Committee are
Messrs. Jay Levy, Bloom and Hendrickson.

Stock Option Committee (2000 Stock Option Plan). The Stock Option Committee
for the 2000 Stock Option Plan, subject to the limitations of the plan, selects
the employees to be granted options, fixes the number of shares to be covered by
each option grant, and determines the exercise price and other terms and

conditions of each option. The current members of this Stock Option Committee
are Messrs. Bloom and Hendrickson.

Stock Option Committee (Directors Stock Option Plan). The Stock Option
Committee for the Directors Stock Option Plan, subject to the limitations of the
plan, interprets the plan and makes all determinations necessary for the plan's
administration. The current members of this Stock Option Committee are Messrs.
Jay Levy, Warren Levy and Ronald Levy.

Director Compensation

Directors who are not employees receive an annual retainer of $8,000 as well
as a fee of $1,000 for each Board meeting attended. Mr. Hendrickson and Dr.
Bloom were the only directors who received such fees in 1999. Board members do
not earn additional compensation for service on a committee.

Under the Director Stock Option Plan, each person elected to the Board who
is not an employee receives, on the date of his initial election, an initial
option to purchase 21,000 shares of Unigene common stock. On May 1st of each
year, each non-employee director receives an additional option to purchase
10,000 shares of Unigene common stock if he has served as a non-employee
director for at least six months prior to the grant date. Each option has a
ten-year term and the exercise price is equal to the market price of Unigene
common stock on the date of the grant. Each initial option vests in equal
installments of 1/3 over a period of three years, commencing on the date of the
grant, and each additional option vests in its entirety on the first anniversary
of the grant. If the director's service as a non-employee director terminates
prior to the expiration of the option term, the options will remain exercisable
for a 90-day period following termination of service, except if a non-employee
director resigns due to disability, the options will remain exercisable for 180
days following termination, and if a non-employee director dies while serving as
a director, or within 90 days following termination of service (180 days in the
case of disability), the options will remain exercisable for 180 days following
the person's death. After such period, the options will terminate and cease to
be exercisable.

Employment Agreements

Unigene entered into an employment agreement, effective January 1, 2000,
with Dr. Warren P. Levy for an initial term of two years. Under the agreement,
Dr. Levy will serve as President and Chief Executive Officer at an annual salary
of $160,000 for the first year of the agreement. Salary increases beyond this
are at the discretion of the Compensation Committee.

Unigene entered into an employment agreement, effective January 1, 2000,
with Dr. Ronald S. Levy for an initial term of two years. Under the agreement,
Dr. Levy will serve as Executive Vice President at an annual salary of $155,000
for the first year of the agreement. Salary increases beyond this first year are
at the discretion of the Compensation Committee.

Each agreement provides that, after the first two-year term, the agreement
will be renewed on a year-to-year basis unless either party notifies the other
of the desire not to renew the agreement. This notice must be given no later
than three months prior to the scheduled termination date. Each agreement also
provides that, if we terminate the employment of the executive without cause or
the executive resigns for good reason, which the executive has a right to do
upon a change of control of Unigene or a significant reduction of the
executive's responsibilities without his consent, Unigene will make a lump-sum
severance payment to the executive equal to the salary that he would have earned
for the remaining term of this agreement, if the remaining term (either the
initial term or as extended) is more than one year; or if the remaining term of
the agreement (either the initial term or as extended) is one year or less, a
lump-sum payment equal to the executive's then-current annual salary.

Compensation Committee Interlocks and Insider Participation

Executive compensation for 1999 was determined by the Board of Directors.
Three of the five Board members, Warren P. Levy, Ronald S. Levy and Jay Levy,
are executive officers. Jay Levy is the father of Warren and Ronald Levy.

During 1995, Warren P. Levy, Ronald S. Levy, Jay Levy, and another family
member loaned a total of $1,905,000 to Unigene. $1,850,000 of this total was
secured by secondary liens on the Fairfield plant and equipment and the Boonton
manufacturing equipment. The notes bear interest at the Merrill Lynch Margin
Loan Rate plus .25% (9.875% at December 31, 2000). A total of $440,000 in
principal repayments was made during 1996. In 1997, an aggregate of $200,000 in
principal amount was converted into 57,200 shares of Unigene common stock. In
1998, an aggregate of $225,000 in principal amount of these loans was converted
into 163,635 shares of Unigene common stock. In each case, the conversion price
was slightly higher than the then market price of the Unigene common stock at
the time of conversion. Warren Levy and Ronald Levy each loaned to Unigene an
additional $50,000 during 1999. During 2000, Jay Levy,

Warren Levy, Ronald Levy and another family member loaned Unigene an additional
$1,733,323, leaving an outstanding balance of $2,873,323 at December 31, 2000.

During 1999, Jay Levy loaned Unigene $1,500,000 evidenced by demand notes
bearing interest at 6% per year. During the third quarter of 1999, Jay Levy
loaned Unigene an additional $370,000 evidenced by term notes maturing January
2002 and bearing interest at 6% per year, and the $1,500,000 of demand notes
were converted into 6% term notes maturing January 2002. Unigene has granted Jay
Levy a security interest in all of its equipment and a mortgage on its real
property to secure payment of the term notes, which are senior to all notes
payable to Warren Levy and Ronald Levy. The terms of the notes require Unigene
to make installment payments beginning in October 1999, and ending in January
2002, in an aggregate amount of $72,426 per month. No installment payments have
been made to date. Jay Levy has agreed temporarily to postpone current payments.
No interest has been paid to date on any of the loans. As of December 31, 2000,
accrued interest totaled approximately $922,000.

Executive Compensation

The following table shows, for the years 1997, 1998 and 1999, the
compensation paid to the Chief Executive Officer and to each other executive
officer whose salary and bonus, for their services in all capacities in 1999
exceeded $100,000:

Summary Compensation Table

Long-Term
Compensation
----------------

Awards Payouts
Annual Compensation ---------- ---------
------------------- Other Restricted
Annual Stock Options/ LTIP All Other
Name and Position Year Salary($) Bonus($) Compensation($)(2) Awards($) SARs(#) Payouts($) Compensation($)(1)
- ------------------------------------------------------------------------------------------------------------ ------------------

Warren P. Levy 1999 $146,211 $ 0 $ 0 $ 0 0 $ 0 $13,866
President, Chief 1998 146,231 0 0 0 0 0 13,830
Executive Officer 1997 145,549 0 0 0 0 0 13,810

Dr. Ronald S. Levy 1999 141,563 0 0 0 0 0 16,862
Executive Vice 1998 141,618 0 0 0 0 0 16,792
President 1997 140,895 0 0 0 0 0 16,756

Dr. James P. Gilligan 1999 139,216 0 7,235 0 135,000 0 0
Vice President

1 Represents premium we paid on executive split-dollar life insurance.
2 Represents reimbursement for unused vacation days.

Stock Option Grants During the Year Ended December 31, 1999

The following table shows information about stock option grants to each of
the executive officers named in the Summary Compensation Table during the year
ended December 31, 1999:

Number of Shares Percent of Total Grant Date
Underlying Option Shares Exercise Expiration resent
Name Options Granted Granted to Employees (1) Price per Share (2) Date Value (3)
---- --------------- ------------------------ ------------------- ---- ---------

Dr. Warren P. Levy 0 0 - - -
Dr. Ronald S. Levy 0 0 - - -
Dr. James P. Gilligan 20,000 2.2% $0.9375 3/31/09 $15,530
115,000(4) 12.8% $0.63 11/5/09 $60,007

1 Options exercisable for an aggregate of 900,000 shares of Unigene common
stock were granted in 1999, consisting of options to purchase 418,000
shares granted under the 1994 Employee Stock Option Plan and options to
purchase 482,000 shares granted under the 2000 Stock Option Plan.

2 Equal to the fair market value of Unigene common stock on the date of
grant.

3 The fair value of the stock options granted in 1999 is estimated at
grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yield of 0%; expected
volatility of 74%; a risk-free interest rate of 6.4%; and expected life
of six years.

4 Includes 76,000 options granted under the 2000 Stock Option Plan.

Aggregated Option Exercises and Year-End Option Values

The following table shows information about any option exercises during the
year ended December 31, 1999, and the number and value of unexercised options
held as of December 31, 1999, by each of the executive officers named in the
Summary Compensation Table:

Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Exercises during --------------------------- -----------------------------
Shares Underlying the Fiscal Year December 31, 1999 December 31, 1999(1)
----------------- --------------- ----------------- --------------------
Number of
Name Shares Acquired Value Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------- --------------- -------------- ----------- ------------- ----------- -------------

Dr. Warren P. Levy 0 0 0 0 0 0
Dr. Ronald S. Levy 0 0 0 0 0 0
Dr. James P. Gilligan 0 0 265,750 124,250 0 0

1 Based upon a closing price of $0.57 on December 31, 1999.

Principal Stockholders

The following table shows information as of December 31, 2000, concerning
the beneficial ownership of Unigene common stock by each of Unigene's directors,
each executive officer of Unigene listed in the Summary Compensation Table, and
all directors and executive officers of Unigene as a group.

The ownership percentages listed on the table are based on 44,425,929 shares
of Unigene common stock outstanding as of December 31, 2000. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission. A person generally is deemed to be the beneficial owner of
shares over which he has either voting or investment power. Shares underlying
options that are currently exercisable, or that will become exercisable within
60 days, are deemed to be beneficially owned by the person holding the options,
and are deemed to be outstanding for the purpose of computing the beneficial
ownership percentage of that person, but are not considered to be outstanding
for the purpose of computing the ownership percentage of any other person.

Except as otherwise noted, the persons and the group identified in the table
have sole voting and sole investment power with respect to all the shares of
Unigene common stock shown as beneficially owned by them. Except as otherwise
indicated, the address of each beneficial owner listed below is c/o Unigene
Laboratories, Inc., 110 Little Falls Road, Fairfield, New Jersey 07004.

Amount and Nature of
Name of Beneficial Owner Beneficial Ownership Percent of Class
- ---------------------------- --------------------- ----------------
Warren P. Levy 1,980,545 (1) 4.5%
Ronald S. Levy 1,995,545 (1) 4.5%
Jay Levy 578,095 (2) 1.3%
James P. Gilligan 345,660 (3) 0.8%
Robert F. Hendrickson 55,000 (4) 0.1%
Allen Bloom 31,000 (5) 0.1%
Officers and Directors
as a Group (6 persons) 4,785,845 (1,6) 10.7%

1 Includes 200,000 shares of Unigene common stock held in a family trust
over which Warren P. Levy and Ronald S. Levy, in their capacity as
trustees, share voting and dispositive power.

2 Includes 55,000 shares of Unigene common stock that Mr. Levy has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

3 Includes 326,000 shares of Unigene common stock that Dr. Gilligan has
the right to acquire upon the exercise of stock options that are
exercisable either immediately or within 60 days.

4 Includes 40,000 shares of Unigene common stock that Mr. Hendrickson has
the right to acquire upon the exercise of stock options that are
exercisable either immediately or within 60 days.

5 Includes 30,000 shares of Unigene common stock that Dr. Bloom has the
right to acquire upon the exercise of stock options that are exercisable
either immediately or within 60 days.

6 Includes an aggregate of 451,000 shares of Unigene common stock that
such persons have the right to acquire upon the exercise of stock
options that are exercisable either immediately or within 60 days.

The Financing Transaction

GENERAL

On December 18, 2000, Unigene entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC, under which Fusion has agreed to
purchase up to $21,000,000 in shares of Unigene common stock at the rate of
$875,000 per month. The common stock is to be purchased over a twenty four month
period, subject to a 6 month extension or earlier termination at our discretion.
The selling price of the shares will be equal to the lesser of (1) $15.00 or (2)
a price based upon the future market price of the common stock without any fixed
discount to the market price.

In addition to the shares we have agreed to issue to Fusion as compensation
for its commitment, the Board of Directors has authorized the issuance and sale
to Fusion of up to 6,000,000 shares of Unigene common stock in connection with
the financing transaction. The issuance and sale to Fusion of any additional
shares may require that Unigene first obtain the approval of its stockholders of
an amendment to Unigene's Certificate of Incorporation increasing the number of
shares of Unigene common stock that the Company is authorized to issue.

Purchase of shares under the common stock purchase agreement

Under the common stock purchase agreement, Fusion will purchase shares of
our common stock by purchasing from time to time a specified dollar amount of
our common stock. Subject to our mandatory purchases and the termination rights
described below, during each 30-day period during the term of the agreement,
Fusion will purchase $875,000 of our common stock. This amount may be decreased
by us at any time that the price of our common stock is less than $15 per share.
If our stock price equals or exceeds $4.00 per share, we have the right to
require Fusion to purchase, over a period of 60 days, up to the full remaining
portion of the $21 million commitment.

The selling price per share is equal to the lesser of:

- the lowest sale price of our common stock on the day of submission of
a purchase notice by Fusion; or

- the average of any five closing sale prices of our common stock,
selected by Fusion, during the 15 trading days prior to the date of
submission of a purchase notice by Fusion; or

- $15.00

The selling price will be adjusted for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction
occurring during the fifteen (15) trading days in which the closing sale price
is used to compute the selling price. Notwithstanding the foregoing, Fusion may
not purchase shares of common stock under the common stock purchase agreement if
Fusion or its affiliates would beneficially own more than 9.99% of our then
aggregate outstanding common stock immediately after the proposed purchase. If
the 9.99% limitation is ever reached this shall not effect

or limit Fusion's obligation to fund the required monthly purchase amount of
$875,000 or Fusion's mandatory purchase obligation under the common stock
purchase agreement.

We have authorized the issuance and sale of up to 6,000,000 shares of our
common stock to Fusion under the common stock purchase agreement. Based upon the
number of shares we have authorized, our selling price will need to average at
least $3.50 per share for us to receive the maximum proceeds of $21 million
under the common stock purchase agreement. Assuming a selling price of $1.85 per
share (the closing sale price of the common stock on January 19, 2001) and the
purchase by Fusion of the full amount of shares purchasable under the common
stock purchase agreement, proceeds to us would only be $11,100,000 unless we
choose to issue more than 6,000,000 shares.

The following table sets forth the number of shares of Unigene common stock
that could be sold to Fusion under the terms of the common stock purchase
agreement at varying purchase prices, assuming Unigene does not exercise its
right under the common stock purchase agreement to suspend purchases by Fusion:

Percentage of
Outstanding
Assumed Purchase Price Number Of Shares Shares (1)
- ------------------------------------- ----------------------- -----------------
$1.00 21,000,000 31.4
- ------------------------------------- ----------------------- -----------------
$1.85, the closing market price on
January 19, 2001. 11,351,351 19.9
- ------------------------------------- ----------------------- -----------------
$2.00 10,500,000 18.7
- ------------------------------------- ----------------------- -----------------
$3.00 7,000,000 13.3
- ------------------------------------- ----------------------- -----------------
$4.00 5,250,000 10.3
- ------------------------------------- ----------------------- -----------------
$5.00 4,200,000 8.4
- ------------------------------------- ----------------------- -----------------
$10.00 2,100,000 4.4
- ------------------------------------- ----------------------- -----------------
$15.00, the maximum purchase price 1,400,000 3.0
- ------------------------------------- ----------------------- -----------------

(1) Based on 45,756,938 shares of Unigene common stock outstanding as of
the date of this prospectus, and assuming the issuance of the commitment shares.

Our right to prevent purchases

At any time or from time to time, so long as the closing sale price of our
common stock has been below $15.00 for the most recent three trading days, we
shall have the unconditional right to prevent any purchases effective upon

three trading days prior notice. To the extent we need to use the cash proceeds
of the sales of common stock under the common stock purchase agreement for
working capital or other business purposes, we do not intend to restrict
purchases under the common stock purchase agreement.

Our mandatory purchase rights

If the closing sale price of our common stock on each of the five trading
days immediately prior to the first trading day of any 30-day period is at least
$4.00, we have the right to require purchase by Fusion of part or all of the
remaining balance of the $21 million (in such amounts as determined by
us),during such time or times as Fusion shall determine during the next two
30-day periods, provided the closing sale price of our common stock during the
two 30-day periods remains at least $4.00.

Our termination rights

If at any time the closing sale price of our common stock for each of any
ten consecutive trading days is below $15.00, we may, at any time within the
next three trading days, give notice to Fusion exercising our right to terminate
the common stock purchase agreement. Such notice shall be effective three
trading days after Fusion receives such notice. We may not exercise our
termination rights in anticipation of, or in connection with, a change of
control or other major transaction unless the change of control or other major
transaction has been publicly disclosed for at least 60 trading days.

Consequences of a major transaction within 60 trading days after a Unigene
termination

If within 60 trading days after Unigene terminates the common stock
purchase agreement, Unigene publicly discloses that a major transaction has been
consummated, or may be consummated, Fusion will be entitled to a payment in an
amount equal to the number of shares of Unigene common stock that Fusion was
entitled to purchase under the common stock purchase agreement on the date of
termination (calculated as of the date of termination), multiplied by the
amount, if any, by which (1) the average of the closing sale prices for the
Unigene common stock for the ten trading days immediately following either: (A)
the public disclosure of the major transaction or (B) the consummation of the
major transaction, as selected by Fusion, exceeds (2) the selling price of the
Unigene common stock (calculated in accordance with the common stock purchase
agreement) as of the date of termination. Fusion may elect to receive this
payment either in cash or in shares of Unigene common stock.

Indemnification of Fusion

Unigene has agreed to indemnify and hold harmless Fusion and its
affiliates, shareholders, officers, directors, employees and direct or indirect
investors and their agents or other representatives from and against any and all
liabilities and related expenses, including reasonable attorneys' fees and
disbursements incurred by any of them as a result of, or arising out of, or
relating to, any breach of a Unigene representation or warranty made in the
transaction documents or related instruments; any

breach of any covenant, agreement or obligation of Unigene in the transaction
documents or related instruments; or any cause of action, suit or claim brought
or made against any of them arising out of or resulting from the execution,
delivery, performance or enforcement of the transaction documents or any related
instruments.

Unigene's indemnification obligations do not extend to any liability or
expenses that directly and primarily result from the gross negligence or willful
misconduct of the person indemnified. To the extent that Unigene's
indemnification obligations are unenforceable for any reason, Unigene has agreed
to make the maximum contribution to the payment and satisfaction of any
liability and expense that is permissible under applicable law.

Effect of performance of the common stock purchase agreement on Unigene and our
stockholders

All shares registered in this offering will be freely tradable, however,
Fusion has agreed not to sell the shares issued as a commitment fee until the
earlier of termination or maturity of, or default under, the agreement. It is
anticipated that shares registered in this offering will be sold over a period
of up to 24 months from the date of this prospectus. The sale of a significant
amount of shares registered in this offering at any given time could cause the
trading price of our common stock to decline and to be highly volatile. Fusion
may ultimately purchase all of the shares of common stock issuable under the
common stock purchase agreement, and it may sell all of the shares of common
stock it acquires upon purchase. Therefore, the purchases under the common stock
purchase agreement may result in substantial dilution to the interests of other
holders of our common stock. However, we have the right to block purchases of
the common stock purchase agreement and to require termination of the common
stock purchase agreement if the closing sale price of our common stock is below
$15.00 per share for a period of ten consecutive trading days.

No short-selling or hedging by Fusion

Fusion has agreed that neither it nor any of its affiliates will engage in
any direct or indirect short-selling or hedging of our common stock during any
time prior to the termination of the common stock purchase agreement.

Events of default

Fusion may terminate the common stock purchase agreement without any liability
or payment to Unigene, and would not be required to purchase any additional
shares of common stock, upon the occurrence of any of the following events of
default:

- if for any reason the shares offered by this prospectus cannot be sold
pursuant to this prospectus for a period of 10 consecutive trading
days or for more than an aggregate of 30 trading days in any 365-day
period;

- the suspension from trading or failure of our common stock to be
listed on the OTC Bulletin Board for a period of 10 consecutive
trading days or for

more than an aggregate of 30 trading days in any 365-day period;

- the failure of Unigene or the Unigene common stock to meet the
maintenance requirements for listing on the Nasdaq SmallCap Market for
a period of 10 consecutive trading days or for more than an aggregate
of 30 trading days in any 365-day period;

- notice from us or our transfer agent that either of us intends not to
comply with a proper request for purchase under the common stock
purchase agreement; our failure to confirm Fusion's purchase notice;
or the failure of the transfer agent to issue shares of our common
stock upon delivery of a purchase notice;

- any breach of the representations or warranties or covenants contained
in the common stock purchase agreement or any related agreements which
has or which reasonably could be expected to have a material adverse
affect on Unigene;

- a default of any payment obligation of Unigene or any acceleration
prior to maturity in excess of $1.0 million; or

- commencement of insolvency or bankruptcy proceedings by or against
Unigene.

Commitment shares issued to Fusion

Under the terms of the common stock purchase agreement, Fusion will receive
1,331,009 shares of our common stock as a commitment fee. Unless an event of
default occurs, these shares must be held by Fusion until the earlier of the
maturity of the common stock agreement or the date the common stock purchase
agreement has been terminated.

No variable priced financings

Until the termination of the common stock purchase agreement, we have
agreed not to issue, or enter into any agreement with respect to the issuance
of, any variable priced equity or variable priced equity-like securities unless
associated with a pharmaceutical licensing transaction or we have obtained
Fusion's prior written consent.

Holdings of Fusion upon termination of the offering

Because Fusion may sell all, some or none of the common stock offered by
this prospectus, no estimate can be given as to the amount of common stock that
will be held by Fusion upon early termination of the offering.

SELLING STOCKHOLDER

The selling stockholder is Fusion Fund II, LLC. Under the common stock
purchase agreement, Fusion agreed to purchase up to $21 million of our common
stock. The purchase price of our common stock is based upon the future market
price of our common stock.

We have authorized the issuance and sale of 6,000,000 shares of our common
stock to Fusion under the common stock purchase agreement. We have the right
under certain conditions to suspend and/or

terminate the common stock purchase agreement without any payment or liability
to Fusion. We have also agreed to issue 1,331,009 shares of common stock to
Fusion as a commitment fee under the common stock purchase agreement. Unless an
event of default occurs, these shares must be held by Fusion until the earlier
of the maturity date or the date the common stock purchase agreement has been
terminated. This prospectus relates to the offer and sale from time to time by
Fusion of these shares. The common stock purchase agreement is described in
detail under the heading "The Financing Transaction."

Because the number of shares of Unigene common stock that will be purchased
by Fusion under the common stock purchase agreement will depend on the purchase
price of the purchase shares, which will be determined at the time of the
purchase, and because the number of shares purchased may be reduced to the
extent that Unigene elects to suspend Fusion purchases, the aggregate number of
purchase shares that will be offered for sale by Fusion is not determinable at
this time. If the number of purchased shares offered for sale by this prospectus
is insufficient to cover all of the purchased shares and the commitment shares,
Unigene has agreed with Fusion to file a registration statement with the SEC
registering the additional shares. All of these shares are deemed to be
beneficially owned by Steven G. Martin and Joshua B. Scheinfeld, the principals
of Fusion. Messrs. Martin and Scheinfeld have shared voting and dispositive
power of the shares being offered pursuant to this prospectus.

Except for the financing transaction, Fusion has had no position, office or
other material relationship with Unigene or affiliates within the past three
years. Under the terms of the common stock purchase agreement, Fusion has agreed
that it will not purchase shares of Unigene common stock under the common stock
purchase agreement if, after giving effect to the purchase, Fusion, together
with its affiliates, would beneficially own in excess of 4.99% of the
outstanding shares of Unigene common stock. If the 4.99% limitation is reached,
Unigene, at its option, has the right to increase the limitation to 9.99%. If
the 9.99% limitation is reached, Fusion will remain obligated to comply with its
purchase obligations under the common stock purchase agreement, but otherwise
would be prohibited from increasing its percentage ownership.

PLAN OF DISTRIBUTION

The common stock offered by this prospectus is being offered by the selling
stockholder, Fusion Capital Fund II, LLC. The common stock may be sold or
distributed from time to time by the selling stockholder, or by donees or
transferees of, or other successors in interests to, the selling stockholder,
directly to one or more purchasers or through brokers, dealers or underwriters
who may act solely as agents or may acquire such common stock as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, at negotiated prices, or at fixed prices, which may be
changed. The sale of the common stock offered by this prospectus may be effected
in one or more of the following methods:

- ordinary brokers' transactions;

- transactions involving cross or block trades;

- purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this prospectus;

- "at the market" to or through market makers or into an existing market
for the common stock;

- in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;

- in privately negotiated transactions; or

- any combination of the foregoing.

In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed brokers
or dealers. Under state securities laws, the shares may not be sold unless they
have been registered or qualified for sale in such state or an exemption from
such registration or qualification requirement is available and complied with.

Brokers, dealers, underwriters or agents participating in the distribution
of the shares as agents may receive compensation in the form of commissions,
discounts or concessions from the selling stockholder and/or purchasers of the
common stock for whom such broker-dealers may act as agent, or to whom they may
sell as principal, or both. The compensation paid to a particular broker-dealer
may be less than or in excess of customary commissions.

The selling stockholder is an "underwriter" within the meaning of the
Securities Act of 1933 with respect to this transaction. Any broker-dealers who
act in connection with the sale of the shares hereunder may be deemed to be
"underwriters" within the meaning of the Securities Act, and any commissions
they receive and proceeds of any sale of the shares may be deemed to be
underwriting discounts and commissions under the Securities Act.

Neither we nor the selling stockholder can presently estimate the amount of
compensation that any broker, dealer, underwriter or agent will receive. We know
of no existing arrangements between the selling stockholder, any other
stockholder, broker, dealer, underwriter or agent relating to the sale or
distribution of the shares. At a time a particular offer of shares is made, a
prospectus supplement, if required, will be distributed that will set forth the
names of any agents, underwriters or dealers and any compensation from the
selling stockholder and any other required information.

We will pay all of the expenses incident to the registration, offering and
sale of the shares to the public other than commissions or discounts of
underwriters, broker-dealers or agents. Unigene has also agreed to indemnify the
selling stockholder and related persons against specified liabilities, including
liabilities under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Unigene, we
have been advised that in the opinion of the SEC such

indemnification is against public policy as expressed in the Securities Act and
is therefore, unenforceable.

FUSION AND ITS AFFILIATES HAVE AGREED NOT TO ENGAGE IN ANY DIRECT OR INDIRECT
SHORT SELLING OR HEDGING OF OUR COMMON STOCK DURING THE TERM OF THE COMMON STOCK
PURCHASE AGREEMENT.

The selling stockholder and any other person participating in such
distribution will be subject to applicable provisions of the exchange act and
the rules and regulations thereunder, including, without limitation, Regulation
M of the exchange act, which may limit the timing of purchases and sales of any
of the shares of common stock by the selling stockholder and any other
participating person. Regulation M may also restrict the ability of any person
engaged in the distribution of the common stock to engage in market-making
activities with respect to the shares of common stock. All of the foregoing may
affect the marketability of the shares of common stock and the ability of any
person or entity to engage in market-making activities with respect to the
shares of common stock.

Unigene has entered into a Registration Rights Agreement with Fusion under
which it has agreed to maintain the effectiveness under the Securities Act of
1933 of the registration statement to which this prospectus relates. This
offering will terminate on the earlier of (1) the date on which the shares are
eligible for resale without restrictions pursuant to Rule 144(k) under the
Securities Act or (2) the date on which all shares offered by this prospectus
have been sold by the selling stockholder.

Legal Matters

The validity of the Unigene common stock offered by this prospectus will be
passed upon for Unigene by Covington & Burling, Washington, D.C.

Experts

Unigene's audited financial statements as of December 31, 1999 and 1998, and
for each of the years in the three-year period ended December 31, 1999, are
included herein and in the registration statement in reliance upon the report of
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of KPMG LLP as experts in accounting and auditing. The
report of KPMG LLP covering these financial statements contains an explanatory
paragraph that states that the Company's recurring losses from operations and
working capital deficiency raise substantial doubt about the entity's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of that uncertainty.

Additional Information

Unigene has filed a Registration Statement on Form S-1 with the Securities
and Exchange Commission. This prospectus, which forms a part of the Registration
Statement, does not contain all of the information included in the Registration
Statement. Some information is omitted from this prospectus in accordance with
the rules of the Securities and Exchange Commission and you should refer to the
Registration Statement and its exhibits for additional information. Unigene also
files annual and quarterly reports, proxy statements and other information with
the SEC. You may review a copy of the Registration Statement and any other
documents filed with the Securities and Exchange Commission at its public
reference room located at 450 Fifth Street, Washington, D.C. 20549, and at the
SEC's regional offices in Chicago, Illinois and New York, New York. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the operation of the public reference rooms. Unigene's SEC filings and the
Registration Statement can also be reviewed by accessing the SEC's Internet site
at http://www.sec.gov.

You should rely only on the information contained in this prospectus.
Unigene has not authorized anyone to provide you with any information that is
different from that contained in this prospectus. The information contained in
this prospectus is accurate as of the date of this prospectus. You should not
assume that there has been no changes in the affairs of Unigene since the date
of this prospectus or that the information in this prospectus is correct as of
any time after the date of this prospectus, regardless of the time that this
prospectus is delivered or any sale of the common stock offered by this
prospectus is made. This prospectus is not an offer to sell or a solicitation of
an offer to buy the shares covered by this prospectus in any jurisdiction where
the offer or solicitation is unlawful. In this prospectus, "Unigene," "we," "us"
and "our" refer to Unigene Laboratories, Inc.

Unigene Laboratories, Inc.
INDEX TO FINANCIAL STATEMENTS

Page
----
Fiscal Years Ended December 31, 1997, 1998 and 1999

Independent Auditors' Report......................................................................... F-2
Balance Sheets-- December 31, 1998 and December 31, 1999............................................. F-3
Statements of Operations--Years Ended December 31, 1997, 1998 and 1999............................... F-4
Statements of Stockholders' Equity--Years Ended December 31, 1997, 1998 and 1999..................... F-5
Statements of Cash Flows--Years Ended December 31, 1997, 1998 and 1999............................... F-7
Notes to Financial Statements--Years Ended December 31, 1997, 1998 and 1999.......................... F-8

Three Months and Nine Months Ended September 30, 1999 and 2000
Condensed Balance Sheets-- December 31, 1999 and September 30, 2000 (Unaudited)...................... F-18
Condensed Statements of Operations (Unaudited)--
Three Months and Nine Months Ended September 30, 1999 and 2000....................................... F-19
Condensed Statements of Cash Flows (Unaudited)-- Nine Months Ended September 30, 1999 and 2000....... F-19
Notes to Condensed Financial Statements.............................................................. F-20

F-1

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
Unigene Laboratories, Inc.:

We have audited the financial statements of Unigene Laboratories, Inc. as listed
in the accompanying index. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Unigene Laboratories, Inc. as
of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 to the
financial statements, the Company has suffered recurring losses from operations
and has a working capital deficiency which raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 16. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/S/ KPMG LLP
- ------------

Short Hills, New Jersey
March 17, 2000

F-2

UNIGENE LABORATORIES, INC.
BALANCE SHEETS
December 31, 1998 and 1999

1998 1999
---- ----

ASSETS

Current assets:
Cash and cash equivalents $ 402,664 $ 682,629
Contract receivables 316,058 3,526,229
Prepaid expenses 319,322 210,195
Inventory (Note 6) 570,347 867,566
-------------- ---------------
Total current assets 1,608,391 5,286,619

Property, plant and equipment - net of
accumulated depreciation and
amortization (Note 4) 8,085,250 6,740,354

Patents and other intangibles, net 1,206,018 1,264,268
Other assets 664,434 486,612
-------------- --------------
$ 11,564,093 $ 13,777,853
============== ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
Accounts payable $ 982,752 $ 1,258,334
Accrued expenses (Note 7) 1,329,199 2,217,413
Notes payable - stockholders (Note 3) 1,040,000 1,140,000
Current portion - long-term notes payable - stockholders -- 960,606
5% convertible debentures (Note 5) -- 2,400,000
Current portion - capital lease obligations (Note 8) 61,464 69,708
-------------- ---------------
Total current liabilities 3,413,415 8,046,061

Notes payable - stockholders, excluding
current portion (Note 3) -- 909,394
5% convertible debentures (Note 5) 3,802,807 --
Capital lease obligations, excluding current portion (Note 8) 127,783 93,415

Commitments and contingencies

Stockholders' equity (Note 10):
Common Stock - par value $.01 per share,
authorized 60,000,000 shares,
issued 43,088,184 shares in 1999 and
39,384,822 shares in 1998 393,848 430,882
Additional paid-in capital 65,158,403 67,207,604
Accumulated deficit (61,331,132) (62,908,472)
Less: Treasury stock, at cost, 7,290 shares (1,031) (1,031)
-------------- ---------------
Total stockholders' equity 4,220,088 4,728,983
-------------- ---------------
$ 11,564,093 $ 13,777,853
============== ==============

See accompanying notes to financial statements.

F-3

UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1998 and 1999

1997 1998 1999
---- ---- ----

Licensing and other revenue $ 3,003,299 $ 5,049,844 $ 9,589,413
------------ ------------ ------------
Operating expenses:
Research and development 9,416,315 9,041,618 9,374,528
Settlement of contractual right (Note 15) 1,669,063 -- --
General and administrative 2,015,730 2,067,958 2,211,778
------------ ------------ ------------
13,101,108 11,109,576 11,586,306
------------ ------------ ------------

Operating Loss (10,097,809) (6,059,732) (1,996,893)

Other income (expense):
Interest income 203,999 107,502 37,545
Interest expense (234,304) (784,972) (1,171,260)
------------ ------------ ------------
Loss before income taxes and
extraordinary item (10,128,114) (6,737,202) (3,130,608)

Income tax benefit (Note 12) -- -- 1,553,268
------------ ------------ ------------

Loss before extraordinary item (10,128,114) (6,737,202) (1,577,340)

Extraordinary item - loss
on early extinguishment of debt (Note 5) -- (143,810) --
------------ ------------ ------------

Net loss $(10,128,114) $ (6,881,012) $ (1,577,340)
============ ============ ============
Earnings per share:
Basic:
Loss before extraordinary item $ (.27) $ (.17) $ (.04)
Extraordinary item -- (.01) --
------------ ------------ ------------

Net loss $ (.27) $ (.18) $ (.04)
============ ============ ============
Diluted:
Loss before extraordinary item $ (.27) $ (.17) $ (.04)
Extraordinary item -- (.01) --
------------ ------------ ------------

Net loss $ (.27) $ (.18) $ (.04)
============ ============ ============

Weighted average number of shares outstanding 37,397,150 38,701,253 40,718,519
============ ============ ============

See accompanying notes to financial statements.

F-4

UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1998 and 1999

Common Stock
------------------------ Additional
Number of Par Paid-in Accumulated Treasury
Shares Value Capital Deficit Stock Total
------ ----- ------- ------- ----- -----

Balance,
January 1, 1997 35,352,824 $353,528 $55,829,641 $(44,322,006) $ (1,031) $11,860,132

Sale of stock 695,066 6,951 2,941,648 - - 2,948,599

Settlement of
contractual right 490,000 4,900 1,664,163 - - 1,669,063

Exercise of warrants 712,759 7,127 1,133,020 - - 1,140,147

Conversion of 9.5%
Debentures and
accrued interest 697,058 6,971 769,235 - - 776,206

Exercise of
stock options 282,350 2,823 433,229 - - 436,052

Conversion of 10%
Debentures and
accrued interest 220,465 2,205 398,225 - - 400,430

Conversion of
notes payable -
stockholders 57,200 572 199,428 - - 200,000

Issuance of warrants
and stock as
compensation 10,000 100 130,850 - - 130,950

Net loss - - - (10,128,114) - (10,128,114)
---------- -------- ----------- ------------ ------------ -----------
(continued)

F-5

UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Years Ended December 31, 1997, 1998 and 1999

Common Stock
--------------------------- Additional
Number of Par Paid-in Accumulated Treasury
Shares Value Capital Deficit Stock Total
--------- -------- ------------ ------------ -------- ----------

Balance,
December 31, 1997 38,517,722 $385,177 $63,499,439 $(54,450,120) $(1,031) $9,433,465

Conversion of 9.5%
Debentures 448,834 4,489 495,705 -- -- 500,194

Conversion of notes
payable - stockholders 163,635 1,636 220,091 -- -- 221,727

Conversion of 10%
Debentures and
accrued interest 214,131 2,141 202,234 -- -- 204,375

Value of 5% Debentures
allocated to beneficial
conversion feature and
related warrants -- -- 686,796 -- -- 686,796

Exercise of stock options 40,500 405 47,564 -- -- 47,969

Issuance of warrants
as compensation -- -- 6,574 -- -- 6,574

Net loss -- -- -- (6,881,012) -- (6,881,012)
----------- -------- ----------- ------------ ------- ----------

Balance,
December 31, 1998 39,384,822 393,848 65,158,403 (61,331,132) (1,031) 4,220,088

Conversion of 5%
Debentures into
Common Stock
and Warrants 3,528,125 35,281 1,859,994 -- -- 1,895,275

Issuance of Common
Stock as payment of
interest on 5%
Debentures 175,237 1,753 189,207 -- -- 190,960

Net loss -- -- -- (1,577,340) -- (1,577,340)
----------- -------- ----------- ------------ ------- ----------

Balance,
December 31, 1999 43,088,184 $430,882 $67,207,604 $(62,908,472) $(1,031) $4,728,983
=========== ======== =========== ============ ======= ==========

See accompanying notes to financial statements.

F-6

UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998 and 1999

Years Ended December 31,
---------------------------------------------
1997 1998 1999
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................... $(10,128,114) $(6,881,012) $(1,577,340)
Adjustments to reconcile net loss to net cash used by operating activities:
Non-cash settlement of contractual right .................................. 1,669,063 -- --
Non-cash compensation ..................................................... 130,950 6,574 --
Depreciation and amortization ............................................. 1,530,469 1,552,734 1,558,663
Amortization of beneficial conversion feature on 5% Debentures ............ -- 489,603 197,193
20% premium on 5% Debentures .............................................. -- -- 400,000
Payment of interest through the issuance of Common Stock .................. 40,931 44,060 190,960
Write-off of other assets ................................................. -- 48,500 64,528
Increase in contract receivable ........................................... -- (316,058) (3,210,171)

(Increase) decrease in prepaid expenses and other current assets .......... 148,844 (55,424) (188,092)
Increase (decrease) in accounts payable and accrued expenses .............. 330,036 247,237 1,163,795
------------ ----------- -----------
Net cash used for operating activities ........................................ (6,277,821) (4,863,786) (1,400,464)
------------ ----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of leasehold and building improvements ........................... (18,298) (8,384) (4,010)
Purchase of furniture and equipment ........................................... (430,068) (76,486) (134,127)
Increase in patents and other assets .......................................... (163,670) (264,959) (88,695)
------------ ----------- -----------

Net cash used in investing activities ......................................... (612,036) (349,829) (226,832)
------------ ----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of stock .................................................. 2,948,599 -- --
Proceeds from issuance of debt ................................................ -- 4,000,000 1,970,000
Repayment of debt and capital lease obligations ............................... -- (304,138) (62,739)
Exercise of stock options and warrants ........................................ 1,576,199 47,969 --
Debt issuance and other costs ................................................. -- (253,879) --
------------ ----------- -----------

Net cash provided by financing activities ..................................... 4,524,798 3,489,952 1,907,261
------------ ----------- -----------

Net increase (decrease) in cash and cash equivalents .......................... (2,365,059) (1,723,663) 279,965
Cash and cash equivalents at beginning of period .............................. 4,491,386 2,126,327 402,664
------------ ----------- -----------

Cash and cash equivalents at end of period .................................... $ 2,126,327 $ 402,664 $ 682,629
============ =========== ===========

SUPPLEMENTAL CASH FLOW INFORMATION
Non-cash investing and financing activities:
Acquisition of equipment through capital leases ............................... -- $ 221,900 $ 36,617
Conversion of convertible debentures and accrued
interest into Common Stock ................................................. $ 1,176,636 $ 707,069 $ 2,190,960
Conversion of notes payable - stockholders
into Common Stock .......................................................... $ 200,000 $ 225,000 --
Value of beneficial conversion feature and related
warrants on issuance of 5% Debentures ...................................... -- $ 686,796 --
============ =========== ===========
Cash paid for interest ........................................................ $ 74,000 $ 119,000 $ 24,700
============ =========== ===========

See accompanying notes to financial statements.

F-7

UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 and 1999

1. Description of Business

Unigene Laboratories, Inc. (the "Company"), a biopharmaceutical company, was
incorporated in the State of Delaware in 1980. The Company's single business
segment focuses on research, production and delivery of therapeutic peptide
hormones. The Company has concentrated most of its efforts to date on one
product - Calcitonin, for the treatment of osteoporosis and other indications.
The Company's initial products will be injectable, nasal and oral formulations
of Calcitonin. The Company's Calcitonin products require clinical trials and
approvals from regulatory agencies as well as acceptance in the marketplace. The
Company's injectable Calcitonin product has been approved for marketing in all
15-member states of the European Union for the treatment of Paget's disease and
hypercalcemia associated with malignancy. Through December 31, 1999, sales of
injectable Calcitonin have not been significant. Although the Company believes
its patents and patent applications are valid, the invalidation of its patents
or the failure of certain of its pending patent applications to issue as patents
could have a material adverse effect upon its business. The Company competes
with specialized biotechnology companies, major pharmaceutical and chemical
companies and universities and research institutions. Many of these competitors
have substantially greater resources than does the Company. During 1997, 1998
and 1999, almost all of the Company's revenue was generated from one customer,
Warner-Lambert Company (see Note 14).

2. Summary of Significant Accounting Policies & Practices

Segment Information -The Company is managed and operated as one business.
The entire business is managed by a single management team that reports to the
chief executive officer. The Company does not operate separate lines of business
or separate business entities with respect to any of its product candidates.
Accordingly, the Company does not prepare discrete financial information with
respect to separate product areas or by location and does not have separately
reportable segments as defined by Statement of Financial Accounting Standards
(SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related
Information."

Property, Plant and Equipment - Property, plant and equipment are carried at
cost. Equipment under capital leases are stated at the present value of the
minimum lease payments. Depreciation is computed using the straight-line method.
Amortization of equipment under capital leases and leasehold improvements is
computed over the shorter of the lease term or estimated useful life of the
asset. Additions and improvements are capitalized, while repairs and maintenance
are charged to expense as incurred.

Research and Development - Research and development expenses include the
costs associated with internal research and development by the Company and
research and development conducted for the Company by outside advisors,
sponsored university-based research partners and clinical study partners. All
research and development costs discussed above are expensed as incurred.
Expenses reimbursed under research and development contracts, which are not
refundable, are recorded as a reduction to research and development expense in
the statement of operations.

Revenue Recognition - Research and development contract revenues are
recognized based upon the successful completion of various benchmarks as set
forth in the individual agreements. Non-refundable license fees received upon
execution of license agreements are recognized as revenue. Revenue from the sale
of product is recognized upon shipment to the customer.

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
No. 101"). SAB No. 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements and specifically addresses revenue recognition in the biotechnology
industry for non-refundable technology access fees and other non-refundable
fees. SAB No. 101 is effective for fiscal years beginning after December 15,
1999. The Company is evaluating SAB No. 101 and the effect it may have on the
financial statements and its current revenue recognition policy.

Patents and Other Intangibles - Patent costs are deferred pending the
outcome of patent applications. Successful patent costs are amortized using the
straight-line method over the lives of the patents. Unsuccessful patent costs
are expensed when determined worthless. As of December 31, 1999, four of the
Company's patents had issued in the U.S. and numerous have issued in various
foreign countries. Various other applications are still pending. Other
intangibles are recorded at cost and are amortized over their estimated useful
lives. Accumulated amortization on patents and other intangibles is $104,625 and
$143,638 at December 31, 1998 and 1999, respectively.

F-8

Stock Option Plan - The Company accounts for stock options issued to
employees and directors in accordance with the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations. As such, compensation expense is
recorded on fixed stock option grants only if the current market price of the
underlying stock exceeded the exercise price; compensation expense on variable
stock option grants is estimated until the measurement date. As permitted by
SFAS No. 123, "Accounting for Stock-Based Compensation", the Company provides
pro forma net income and pro forma earnings per share disclosures for employee
and director stock option grants as if the fair-value-based method defined in
SFAS No. 123 had been applied. The Company accounts for stock options and
warrants issued to consultants on a fair value basis in accordance with SFAS No.
123.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of -
The Company accounts for the impairment of long-lived assets in accordance with
the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to the future undiscounted net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.

Net Loss per Share - The Company computes and presents earnings per share
("EPS") in accordance with the provisions of SFAS No. 128, "Earnings Per Share".
It requires presentation of both basic and diluted EPS for net income on the
face of the statement of operations. Basic EPS is computed using the weighted
average number of common shares outstanding during the period being reported on.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue Common Stock were exercised or converted into Common
Stock at the beginning of the period being reported on and the effect was
dilutive. The Company's net loss and weighted average shares outstanding used
for computing diluted loss per share were the same as that used for computing
basic loss per share for each of the years ended December 31, 1997, 1998 and
1999 because the Company's convertible debentures, stock options and warrants
were not included in the calculation since the inclusion of such shares
(approximately 4,330,000 potential shares of Common Stock at December 31, 1999)
would be antidilutive.

Cash Equivalents - The Company considers all highly liquid securities
purchased with an original maturity of three months or less to be cash
equivalents.

Inventory - Inventories are stated at the lower of cost (using the first-in,
first-out method) or market.

Fair Value of Financial Instruments - The fair value of a financial
instrument represents the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a forced sale or
liquidation. Significant differences can arise between the fair value and
carrying amounts of financial instruments that are recognized at historical cost
amounts. The estimated fair values of all of the Company's financial instruments
approximate their carrying amounts in the balance sheet with the exception of
debt. The fair value of the Company's various debt instruments were derived by
evaluating the nature and terms of each instrument and considering the
prevailing economic and market conditions at the balance sheet date. The
carrying amount of debt, including current portions and capital lease
obligations, is $5,032,000 and $5,573,000 at December 31, 1998 and 1999,
respectively; and the fair value is estimated to be $5,229,000 and $4,906,000 at
December 31, 1998 and 1999, respectively.

Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities 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 those estimates.

Reclassifications - Certain prior years' amounts have been reclassified to
conform to their 1999 presentation.

3. Related Party Transactions

Notes payable - stockholders. During 1995, members of the Levy family loaned
to the Company $1,905,000. The notes evidencing these loans were issued to
Warren P. Levy, Ronald S. Levy and Jay Levy, (collectively, the "Levys") each an
officer and director of the Company, who at the time owned an aggregate of 10%
of the Company's outstanding Common Stock, and to another member of their
family. These notes bear interest at the Merrill Lynch Margin Loan Rate plus
.25% (8.875% at December 31, 1999) and $1,850,000 of the aggregate principal
amount is collateralized by security interests in the Company's Fairfield, New

F-9

Jersey plant and equipment and Boonton, New Jersey equipment. Notes for
$1,255,000 were originally payable on demand, but in any event not later than
February 10, 1997. Another note for $650,000 was originally due on February 10,
1997. During 1996, a total of $440,000 in principal amount of the notes payable
- - stockholders were repaid. On May 2, 1997, an aggregate of $200,000 in
principal amount of these loans was converted into 57,200 shares of Common Stock
at a conversion price of $3.4965 per share. The closing price of the Common
Stock on May 1, 1997, as reported by the Nasdaq Stock Market, was $3.21875 per
share. On August 6, 1998, an aggregate of $225,000 in principal amount of these
loans was converted into 163,635 shares of Common Stock at a conversion price of
$1.375 per share. The closing price of the Common Stock on August 5, 1998, as
reported by the Nasdaq Stock Market, was $1.31 per share. Warren Levy and Ronald
Levy each loaned to the Company an additional $50,000 during 1999. The balance
of these loans, $1,140,000, has been classified as short-term as of December 31,
1999 as they are payable on demand.

During 1999, Jay Levy loaned the Company $1,500,000 evidenced by demand
notes bearing interest at 6% per year. During the third quarter of 1999, Jay
Levy loaned the Company an additional $370,000 evidenced by term notes maturing
January 2002 and bearing interest at 6% per year, and the $1,500,000 of demand
notes were converted into 6% term notes maturing January 2002. The Company has
granted Jay Levy a security interest in all of its equipment and a mortgage on
its real property to secure payment of the term notes, which are senior to all
notes payable to Warren Levy and Ronald Levy. The Company is required to make
installment payments on the term notes commencing in October 1999 and ending in
January 2002 in an aggregate amount of $72,426 per month. No installment
payments were made during 1999 as Jay Levy has agreed not to demand such 1999
payments and has agreed that he will not, prior to January 1, 2001, declare all
or any portion of the principal or the accrued interest on the notes immediately
due and payable by reason of the failure of the Company to make, when due, any
scheduled payment of principal or interest on any of the notes as permitted by
the loan agreements.

From time to time, the Levys also provide working capital loans to the
Company. At December 31, 1998 and 1999, no working capital loans were
outstanding.

4. Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31,
1998 and 1999:

Estimated
Depreciable
1998 1999 Lives
---- ---- -----

Building and improvements ....... $ 1,373,975 $ 1,377,075 25 years
Leasehold improvements .......... 8,479,312 8,480,222 Lease Term
Manufacturing equipment ......... 3,766,934 3,842,038 10 years
Laboratory equipment ............ 2,657,817 2,704,820 5 years
Other equipment ................. 466,523 466,523 10 years
Office equipment and furniture .. 315,186 327,206 5 years
Equipment under capital leases .. 221,900 258,517 Lease Term
----------- -----------
17,281,647 17,456,401
Less accumulated depreciation and
amortization ............... 9,317,564 10,837,214
----------- -----------
7,964,083 6,619,187
Land ............................ 121,167 121,167
----------- -----------
$ 8,085,250 $6,740,354
=========== ==========

Depreciation and amortization expense on property, plant and equipment was
$1,506,000, $1,520,000, and $1,520,000 in 1997, 1998 and 1999, respectively.

5. Convertible Debentures

In March 1996, the Company issued $3,300,000 of 9.5% Senior Secured
Convertible Debentures in exchange for a secured loan of an equal amount. All of
these debentures had been converted into approximately 2,924,000 shares of
Common Stock as of November 15, 1998, the due date of the debentures.

F-10

In March 1996, the Company completed a private placement of $9.08 million
aggregate principal amount of 10% Convertible Debentures. The Company received
net proceeds of approximately $8.1 million as a result of this placement. These
debentures were to mature March 4, 1999, but as of December 31, 1998, all
outstanding 10% Debentures have been converted or redeemed in full. Through
December 31, 1998, $8,808,515 of principal amount of these debentures, plus
approximately $355,000 of accrued interest, had been converted into
approximately 4,838,000 shares of Common Stock. Due to restrictions on the total
number of shares which could be issued upon conversion of the 10% Debentures, in
October 1998 the Company redeemed in cash an additional $271,485 of principal,
and in connection therewith paid to the holder $68,899 of accrued interest and
$143,810 in redemption premiums, for an aggregate payment of $484,194. The cost
of the redemption premium of $143,810 was recorded as an extraordinary loss in
1998.

In 1996, the placement agent, in connection with the issuance of the 10%
Debentures, received a five-year warrant to purchase 454,000 shares of Common
Stock at an exercise price of $2.10 per share as partial compensation for
services rendered. Through December 31, 1999, an aggregate of 322,000 of these
warrants has been exercised and 132,000 remain unexercised.

In June 1998, the Company completed a private placement of $4.0 million of
5% Convertible Debentures (the "5% Debentures"). The Company received net
proceeds of approximately $3.75 million as a result of this placement. The 5%
Debentures mature December 31, 2001, however, due to the events described below
this debt is classified as a current liability on the Company's December 31,
1999 balance sheet. Interest on the 5% Debentures is payable in cash or, at the
option of the Company, in Common Stock subject to the limitations described
below. Beginning January 1, 1999, the 5% Debentures are convertible into (i)
Common Stock at a conversion price (the "Conversion Price") equal to the lower
of (a) $1.59 (the "Cap Price") and (b) the average of the four lowest closing
bid prices of the Common Stock during the 18 trading days prior to the date of
conversion (the "Market Price") and (ii) warrants, expiring five years from the
date of issuance, to purchase a number of shares of Common Stock equal to 4% of
the number of shares issuable upon conversion at an exercise price equal to 125%
of the Conversion Price. Up to 15% of the original principal amount of the 5%
Debentures may be converted per month on a non-cumulative basis; provided,
however, that if the Market Price is greater than or equal to 120% of the Cap
Price on the last conversion date in any month, then up to 20% of the original
principal amount may be converted in such month. If a Debenture holder submits a
Debenture for conversion and the Market Price is less than or equal to $1.1156,
the Company may redeem the Debenture for (i) an amount equal to the principal
amount thereof plus a premium of 12% per year from the date of issuance and (ii)
warrants, expiring five years from the date of issuance, to purchase a number of
shares of Common Stock equal to 25% of the number of shares that would have been
issuable upon conversion of the Debenture at an exercise price equal to 135% of
the Conversion Price at the time of redemption. Under the terms of the 5%
Debentures, the Company is not permitted to issue more than an aggregate of
3,852,500 shares of Common Stock upon collectively the conversion of 5%
Debentures, upon the exercise of the Warrants issued upon conversion or
redemption of the 5% Debentures and as payment of interest on the 5% Debentures
(the "Share Limit"). After the Share Limit is reached, the Company is obligated
(i) to redeem all 5% Debentures tendered for conversion at a price equal to 120%
of the principal amount, plus accrued interest, and (ii) as to any Warrants
exercised, to pay to the holder, in lieu of the issuance of shares, an amount in
cash equal to the difference between the market price of the Common Stock and
the exercise price of the Warrant multiplied by the number of shares issuable
upon the exercise of the Warrant. The Companys' cash obligation with respect to
the Warrants will depend on the number of Warrants issued and the market price
of the Common Stock at time the Warrants are exercised. If the Company fails to
redeem the 5% Debentures tendered for conversion after the Share Limit is
exceeded (including payment of the accrued interest thereon) within three
business days after receipt of the conversion notice, the interest rate on the
5% Debentures will permanently increase (i) to 7% per annum commencing on the
first day of the 30-day period following the conversion notice, (ii) to 9% per
annum commencing on the first day of each of the second and third such 30-day
periods and (iii) an additional 1% per annum on the first day of each
consecutive 30-day period thereafter until the 5% Debentures have been redeemed,
provided that in no event can the rate of interest exceed the lesser of 20% per
annum and the highest rate permitted by applicable law. In addition, if the
Company's common stock is delisted from the Nasdaq National Market the Company
is required to pay 2% per month of the aggregate outstanding principal amount of
the 5% Debentures for any month or portion thereof and if such delisting period
lasts for four months, then, at the option of the holder, the Company is
obligated to redeem the 5% Debentures at a redemption price equal to 120% of the
outstanding principal balance.

During 1999, $2,000,000 in principal amount of the 5% Debentures was
converted into 3,528,125 shares of Common Stock. Warrants exercisable at prices
ranging from $.46 to $1.52 for 141,123 shares of Common Stock were issued upon
these conversions. As of December 31, 1999, all of these warrants are
exercisable, but none had been exercised. In addition, 175,237 shares of Common
Stock were issued as payment of interest on the 5% Debentures.

Accordingly, as of December 31, 1999, an aggregate of 3,703,362 shares of
Common Stock has been issued in connection with the 5% Debentures. During
December 1999, the Company was unable to convert $200,000 of the 5% Debentures
tendered for conversion as such conversion would have exceeded the Share Limit.
As a result, the Company is obligated to redeem the remaining $2,000,000 of
outstanding 5% Debentures in cash at a price equal to 120% of the principal
amount, plus accrued and unpaid interest. During the fourth quarter of 1999, the
Company accrued the aforementioned 20% premium and charged interest expense for
$400,000. In addition, because the $200,000 of 5% Debentures tendered for

F-11

conversion were not redeemed within three business days, the interest rate on
all outstanding debentures as of December 31, 1999 has increased to 7%. The
Company has also failed to make the semi-annual interest payment that was due on
January 5, 2000. Under the terms of the 5% Debentures, the interest rate as a
consequence has increased to 20% per annum beginning in January 2000.

Due to the delisting of its Common Stock from the Nasdaq National Market in
October 1999, the Company is required to make payments to the holder of the 5%
Convertible Debentures, in an amount equal to 2% per month of the aggregate
principal amount of these debentures for any month or portion thereof. However,
no such payments have been made as of December 31, 1999. The Company has accrued
$137,000 as of December 31, 1999 due to this penalty as part of accrued
interest.

The Company in 1998 estimated the value of the beneficial conversion feature
and related warrants at the issuance of the 5% Debentures to be approximately
$687,000. Such amount was credited to additional paid-in capital and was
amortized to interest expense over the earliest conversion periods using the
effective interest method (approximately $490,000 and $197,000 for the years
ended December 31, 1998 and 1999, respectively).

6. Inventory - Inventory consists of the following:

Dec. 31, 1998 Dec. 31, 1999
------------- -------------

Finished goods $319,775 $596,359
Raw material 250,572 271,207
-------------------- -------------------
Total $570,347 $867,566
======== ========

7. Accrued expenses - Accrued expenses consist of the following:

Dec. 31, 1998 Dec. 31, 1999
------------- -------------

Interest $594,611 $888,486
Clinical trials/contract research 278,745 763,352
Vacation pay 180,292 187,710
Consultants 48,000 164,500
Other 227,551 213,365
Total -------------------- -------------------
$1,329,199 $2,217,413
========== ==========

8. Obligations Under Capital Leases

The Company entered into various lease arrangements during 1998 and 1999
which qualify as capital leases.

The future years' minimum lease payments under the capital leases, together
with the present value of the net minimum lease payments, as of December 31,
1999 are as follows:

2000 $ 89,700
2001 73,644
2002 32,031
2003 12,639
----------------
Total minimum lease payments 208,014
Less amount representing interest 44,891
----------------
Present value of net minimum lease payments 163,123
Less current portion 69,708
----------------
Obligations under capital leases, excluding
current portion $ 93,415
===========

The discount rates on these leases vary from 12% to 18%.

F-12

9. Obligations Under Operating Leases

The Company is obligated under a 10-year net-lease, which began in February
1994, for its manufacturing facility located in Boonton, New Jersey. The Company
has two 10-year renewal options as well as an option to purchase the facility.
In addition, the Company leases laboratory equipment under various operating
leases expiring in 2001 through 2002. Total future minimum rentals under these
noncancelable operating leases as of December 31, 1999 are as follows:

2000 $218,110
2001 207,819
2002 197,529
2003 185,322
2004 15,444
--------
$824,224
========

Total rent expense was approximately $185,000, $209,000 and $243,000 for
1997, 1998 and 1999, respectively.

10. Stockholders' Equity

In October 1996, the Company completed a private placement of 4,218,804
Units at a price of $1.75 per Unit. Each Unit consisted of (i) one share of
Common Stock, (ii) one quarter of a Class C Warrant, (each whole Class C Warrant
was exercisable to purchase one share of Common Stock) and (iii) one quarter of
a Class D Warrant (each whole Class D Warrant was exercisable to purchase one
share of Common Stock). The Class C Warrants and the Class D Warrants each had
an exercise price of $3.00 and expired unexercised on October 11, 1999. The fee
paid to the placement agent in the transaction consisted of an additional
296,935 Units in lieu of cash compensation. The net proceeds to the Company were
approximately $7.0 million.

In October 1994, the Company entered into an agreement with a consultant
whose compensation for its services included the issuance of warrants,
exercisable at $3.00 per share, for the purchase of 1,000,000 shares of Common
Stock. These warrants expired unexercised in October 1998. During 1996, another
consultant's compensation included warrants to purchase a total of 400,000
shares of Common Stock at exercise prices ranging from $1.63 to $3.50 per share.
These warrants expire in April 2001.

In connection with the services rendered by various consultants during 1997,
the Company issued an aggregate of 75,000 stock purchase warrants, expiring from
1999 to 2002, exercisable at prices ranging from $2.25 to $3.41 per share, and
10,000 shares of Common Stock. Compensation expense recognized in 1997 as a
result of these transactions was approximately $131,000. During 1998, the
Company issued warrants to purchase 5,000 shares of Common Stock, expiring in
2003, to a consultant. These warrants are exercisable at $2.38, resulting in
1998 compensation expense of approximately $7,000.

During 1997, an aggregate of 713,000 shares of Common Stock were issued due
to the exercise of warrants with net proceeds to the Company of approximately
$1,140,000. The exercise prices of these warrants ranged from $1.38 to $3.00 per
share. During 1997, an aggregate of $1,181,000 in principal amount of
convertible debentures, plus $41,000 of accrued interest, was converted into
approximately 918,000 shares of Common Stock. During 1998, an aggregate of
$681,000 in principal amount of convertible debentures, plus $44,000 of accrued
interest, was converted into approximately 663,000 shares of Common Stock.
During 1999, an aggregate of $2,000,000 in principal amount of convertible
debentures, plus $191,000 of accrued interest, was converted into approximately
3,703,000 shares of Common Stock. See Note 5.

As of December 31, 1999, there are warrants outstanding, all of which are
currently exercisable, to purchase an aggregate of 1,802,000 shares of Common
Stock at exercise prices ranging from $.46 to $3.50 per share, with a weighted
average exercise price of $1.77.

11. Stock Option Plans

Under the Unigene Laboratories, Inc. 1984 Non-Qualified Stock Option Plan
for Selected Employees (the "1984 Plan"), each option granted expires no later
than the tenth anniversary of the date of its grant. The 1984 Plan terminated in
November 1994; however, 30,000 options previously granted continue to be
outstanding and exercisable under that plan as of December 31, 1999.

F-13

During 1994, the Company's stockholders approved the adoption of the 1994
Employee Stock Option Plan (the "1994 Plan"). All employees of the Company are
eligible to participate in the 1994 Plan, including executive officers and
directors who are employees of the Company. The 1994 Plan is administered by the
employee Stock Option Committee of the Board of Directors, which selects the
employees to be granted options, fixes the number of shares to be covered by the
options granted and determines the exercise price and other terms and conditions
of each option. Originally, a maximum of 1,500,000 shares of Common Stock was
reserved for issuance under the 1994 Plan. In June 1997, the stockholders of the
Company approved an amendment to the 1994 Plan increasing the total number of
shares authorized for issuance by 750,000 shares to 2,250,000 shares. Options
granted under the 1994 Plan have a maximum term of ten years. The purchase price
of the shares issuable upon the exercise of each option cannot be less than the
fair market value of the Common Stock on the date that the option is granted.
The 1994 Plan will terminate on June 16, 2004, unless earlier terminated.

At the Company's 1999 Annual Meeting, the stockholders approved the adoption
of a 1999 Directors Stock Option Plan (the "1999 Plan") to replace the 1994
Plan. Under the 1999 Plan, each person elected to the Board after June 23, 1999
who is not an employee will receive, on the date of his initial election, an
option to purchase 21,000 shares of Common Stock. In addition, on May 1st of
each year, commencing May 1, 1999, each non-employee director will receive an
option to purchase 10,000 shares of Common Stock if he or she has served as a
non-employee director for at least six months prior to the May 1st grant. Each
option granted under the 1999 Plan will have a ten-year term and the exercise
price of each option will be equal to the fair value of the Company's Common
Stock on the date of the grant. A total of 350,000 shares of Common Stock are
reserved for issuance under the 1999 Plan.

The following summarizes activity for options granted to directors and
employees under the 1984, 1994 and 1999 Plans:

Options Weighted Weighted
Exercisable Average Average
at End of Grant-date Exercise
Options Year Fair Value Price
------- ----------- ---------- -----

Outstanding January 1, 1997 1,574,315
Granted 64,000 $2.31 $3.15
Cancelled (39,500) - 2.28
Exercised (282,350) - 1.61
---------
Outstanding December 31, 1997 1,316,465 1,023,090
=========
Granted 610,750 $1.50 $1.99
Cancelled (91,600) - 2.85
Exercised (40,500) - 1.18
--------- ----
Outstanding December 31, 1998 1,795,115 1,382,615
=========
Granted 438,000 $0.55 $0.70
Cancelled (187,250) - 2.17
Exercised - - -
--------- ========= =========
Outstanding December 31, 1999 2,045,865 1,639,615
========= =========

The table above excludes options to purchase 482,000 shares of Common Stock
with a weighted average exercise price of $0.63 per share which have been
allocated to employees during 1999 in anticipation of the adoption of a new
employee stock option plan to replace the 1994 Plan. Such excess options will be
granted if and when the stockholders approve the new employee stock option plan
at the next annual stockholders' meeting. At the date the new plan is approved,
the Company will recognize compensation expense for the excess of the fair value
of the Company's Common Stock at the date the plan is approved over the exercise
price of the options granted.

F-14

A summary of options outstanding and exercisable, excluding the 1999 excess
options described above, as of December 31, 1999, follows:

Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------------------
Weighted Ave.
Range of Remaining Life Weighted Ave. Weighted Ave.
Exercise Price Number Outstanding (years) Exercise Price Number Exercisable Exercise Price
-------------- ------------------ ------- -------------- ------------------ --------------

.50-.98 407,500 9.9 $ .68 215,000 $ .65
1.00-1.97 948,365 7.0 1.78 781,865 1.77
2.16-3.31 690,000 6.6 2.80 642,750 2.81
--------- ---------
2,045,865 1.90 1,639,615 2.03
========= ========= ====

As of December 31, 1999, options to purchase 107,925 shares and 330,000
shares of Common Stock were available for grant under the 1994 and 1999 Plans.

The Company accounts for options granted to employees and directors under
APB Opinion No. 25. Had compensation cost for options granted to employees and
directors been determined consistent with SFAS No. 123, the Company's pro forma
net loss and pro forma net loss per share would have been as follows as of
December 31:

1997 1998 1999
---- ---- ----

Net loss:
As reported $ (10,128,114) (6,881,012) (1,577,340)
Pro forma (10,214,114) (7,796,012) (2,182,340)
=============== ========== ==========
Basic and diluted net loss per share:
As reported $ (0.27) (0.18) (0.04)
Pro forma (0.27) (0.20) (0.05)
=============== ========== ==========

The fair value of the stock options granted in 1997, 1998 and 1999 is
estimated at grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yields of 0%; expected
volatility of 59% in 1997, 63% in 1998 and 74% in 1999; a risk-free interest
rate of 5.25% in 1997, 4.8% in 1998 and 6.4% in 1999; and expected lives of 6
years.

During 1995, the Company granted to a consultant options to purchase 10,000
shares of the Company's Common Stock, expiring in October 2000, immediately
exercisable at $1.44 per share, none of which have been exercised.

12. Income Taxes

As of December 31, 1999, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the amount of
approximately $58,200,000, expiring from 2000 through 2019, which are available
to reduce future earnings which would otherwise be subject to federal income
taxes. In addition, the Company has investment tax credits and research and
development credits in the amounts of $19,000 and $2,300,000, respectively,
which are available to reduce the amount of future federal income taxes. These
credits expire from 2000 through 2019. The Company has New Jersey operating loss
carryforwards in the approximately amount of $24,950,000, expiring from 2003
through 2005, which are available to reduce future earnings which would
otherwise be subject to State income tax.

The Company follows SFAS No. 109, "Accounting for Income Taxes." Given the
Company's past history of incurring operating losses, management believes that
it is more likely than not that any deferred tax assets that are recognizable
under SFAS No. 109 will not be recoverable. As of December 31, 1998 and 1999,
under SFAS No. 109, the Company had deferred tax assets of approximately
$26,300,000 and $26,000,000, respectively, subject to valuation allowances of
$26,300,000 and $26,000,000, respectively. The deferred tax assets are generated
primarily as a result of the Company's net operating losses and tax credits. The
Company's ability to use such net operating losses may be limited by change in
control provisions under Internal Revenue Code Section 382.

F-15

In the fourth quarter of 1999, the Company realized a $1,553,000 tax benefit
arising from the Company's state net operating loss carryforwards (NOLs) that
had previously been subject to a full valuation allowance. The Company realized
these deferred tax assets through the sale of a portion of its state tax NOLs
under a New Jersey Economic Development Authority (the "NJEDA") program, which
allows certain New Jersey taxpayers to sell their benefits to third parties. The
Company has an additional $24,950,000 in NOLs that have been approved for sale
although annual applications must be made to the NJEDA. In addition, the
proceeds are subject to the continued funding of the program by the State of New
Jersey as well as limitations based on the level of participation by other
companies. As a result, future tax benefits will be recognized in the financial
statements as specific sales are approved.

13. Employee Benefit Plan

The Company maintains a deferred compensation plan covering all full-time
employees. The plan allows participants to defer a portion of their compensation
on a pre-tax basis pursuant to Section 401(k) of the Internal Revenue Code of
1986, as amended, up to an annual maximum for each employee set by the Internal
Revenue Service. The Company's discretionary matching contribution expense for
1997, 1998 and 1999 was approximately $42,000, $43,000 and $44,000,
respectively.

14. Research and Licensing Revenue

In July 1997, the Company entered into an agreement under which it granted
to the Parke-Davis division of Warner-Lambert Company a worldwide license to use
the Company's oral calcitonin technology. During 1997 the Company received $3.0
million for an equity investment and $3.0 million for a licensing fee. Several
milestones were achieved during 1998, resulting in milestone revenue of $5.0
million. In February and August 1999, two pilot human studies for the Company's
oral Calcitonin formulation were successfully concluded, resulting in milestone
revenue totaling $5.0 million. In September 1999, the Company and Warner-Lambert
identified an oral Calcitonin formulation to be used in the upcoming Phase I/II
clinical study entitling the Company to milestone revenue of $4.5 million. The
September 1999 milestone revenue is payable in installments of $500,000 due
every 90 days beginning in September 1999, with the unpaid balance payable upon
initiation of the Phase I/II study, which the Company expects to occur in the
first half of 2000. At December 31, 1999, contract receivables on the balance
sheet include $3.5 million due under this milestone. Under the terms of the
license agreement, the Company is eligible to receive up to an additional $34.0
million in milestone revenue during the course of the development program.
Early-stage milestones primarily relate to the product's performance
characteristics, while the latter-stage milestones are primarily related to
regulatory activities and approvals. If the product is successfully
commercialized, the Company also would receive revenue from royalties on product
sales by Warner-Lambert and its affiliate and from the sale of raw material to
Warner-Lambert. An additional milestone was achieved in February 2000, resulting
in a payment to the Company of $1.0 million.

15. Settlement of Contractual Right

In February 1997, the Company issued an aggregate of 490,000 shares of
Common Stock to the holders of the Company's 9.5% Senior Secured Convertible
Debentures in consideration for the cancellation of an obligation of the Company
to pay to the holders a fee equal to 2% of the sum of the market value as of
December 31, 1998 of all of the Company's outstanding shares of Common Stock
plus the principal amount of all outstanding debt of the Company, less its cash
on deposit, up to a maximum fee of $3,000,000. The expense associated with this
transaction was valued at $1,669,000, based on a closing price of the Common
Stock of $3.40625 on February 7, 1997.

16. Liquidity

The Company has incurred annual operating losses since its inception and, as
a result, at December 31, 1999 has an accumulated deficit of approximately
$62,908,000 and has a working capital deficiency of approximately $2,759,000.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. However, the financial statements have been prepared on a going
concern basis and as such do not include any adjustments that might result from
the outcome of this uncertainty. The Company's cash requirements are
approximately $10.0 million to $11.0 million per year to operate its research
and peptide manufacturing facilities and develop its three Calcitonin products.
In addition, the Company has principal and interest obligations over the next
several years under its outstanding notes payable to stockholders and 5%
Debentures. The Company's cash requirements related to the 5% Debentures include
the redemption premium, delisting penalties and the increased interest rate
described in Note 5.

After receipt of $1.5 million from Warner-Lambert in February and March
2000, management believes that the Company has sufficient financial resources to
sustain its operations at the current level into the second quarter of 2000. The
Company will require additional funds to ensure continued operations beyond that
time. The Company expects to receive additional amounts receivable from

F-16

Warner-Lambert during 2000 as a result of the milestone completed in September
1999. The Company also expects to achieve additional milestones under the
Warner-Lambert agreement during 2000, which will result in further payments.
However, there can be no assurance as to when or if the Company will achieve
such milestones.

In addition to the Warner-Lambert agreement, management is actively seeking
other licensing and/or supply agreements with pharmaceutical companies for
injectable and nasal forms of Calcitonin. These agreements could provide
short-term funds to the Company in upfront payments as well as milestone
payments. The Company is eligible to sell state tax benefits, to yield
approximately $2.5 million, under a NJEDA program, which allows certain New
Jersey taxpayers to sell their state tax benefits to third-parties. However, the
proceeds will be received over the next few years and the size and timing of
such proceeds are subject to the continued funding of the program by the State
of New Jersey as well as limitations based on the level of participation by
other companies. The Company must apply to the NJEDA each year to be eligible to
receive approval for the sale of its benefits. There can be no assurance that
any of these transactions will be completed or, if completed, that the terms and
timing of such transactions would provide sufficient funds to sustain operations
at the current level. In the absence of or the delay in achieving the
Warner-Lambert milestones or in signing other agreements, obtaining adequate
funds from other sources, which might include a debt or equity financing, would
be necessary to sustain the Company's operations. However, there is no assurance
as to the terms on which such additional funds would be available or that in
such circumstances sufficient funds could be obtained. In addition, the
delisting of the Company's Common Stock by the Nasdaq National Market also may
have an adverse affect on the Company's ability to raise equity-based capital.

While the Company believes that the Warner-Lambert licensing transaction
will satisfy the Company's liquidity requirements over the near-term, satisfying
the Company's long-term liquidity requirements will require the successful
commercialization of the product licensed to Warner-Lambert and/or one of its
other Calcitonin products. In addition, the commercialization of its Calcitonin
products will require the Company to incur additional capital expenditures,
including expenditures to expand or upgrade the Company's manufacturing
operations to satisfy all of its Calcitonin supply obligations under the
Warner-Lambert license agreement. However, neither the cost or timing of such
capital expenditures are determinable at this time.

F-17

UNIGENE LABORATORIES, INC.
CONDENSED BALANCE SHEETS

December 31, 1999 September 30, 2000
(Unaudited)
----------------- -------------------

ASSETS
Current assets:
Cash and cash equivalents $ 682,629 $ 48,928
Contract receivables 3,526,229 1,312,782
Prepaid expenses 210,195 150,456
Inventory 867,566 1,333,766
----------------- -------------------
Total current assets 5,286,619 2,845,932

Property, plant and equipment - net of accumulated
depreciation and amortization 6,740,354 5,995,717
Patents and other intangibles, net 1,264,268 1,295,894
Investment in joint venture -- 900,000
Other assets 486,612 414,514
----------------- -------------------
$ 13,777,853 $ 11,452,057
================= ===================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 1,258,334 $ 2,473,497
Accrued expenses 2,217,413 3,490,867
Notes payable - stockholders 1,140,000 2,498,323
Current portion - long-term notes payable -
stockholders 960,606 1,583,881
5% convertible debentures 2,400,000 2,400,000
Current portion - capital lease obligations 69,708 69,708
----------------- -------------------
Total current liabilities 8,046,061 12,516,276

Notes payable - stockholders, excluding current portion 909,394 286,119
Joint venture obligation, excluding current portion -- 495,000
Capital lease obligations, excluding current portion 93,415 41,460
Commitments and contingencies
Stockholders' equity (deficit):
Common Stock - par value $.01 per share, authorized
60,000,000 shares, issued 44,044,009 shares in 2000
and 43,088,184 shares in 1999 430,882 444,046
Additional paid-in capital 67,207,604 69,699,693
Deferred stock option compensation -- (410,297)
Accumulated deficit (62,908,472) (71,619,209)
Less: Treasury stock, at cost, 7,290 shares (1,031) (1,031)
----------------- -------------------
Total stockholders' equity (deficit) 4,728,983 (1,886,798)
----------------- -------------------
$ 13,777,853 $ 11,452,057
================= ===================

See notes to condensed financial statements.

F-18

UNIGENE LABORATORIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
1999 2000 1999 2000
--------------------------------- -----------------------------------

Licensing and other revenue $ 7,000,733 $ 1,359,164 $ 9,527,575 $ 2,361,190
------------ ------------ ------------ ------------
Operating expenses:
Research and development 2,651,584 2,905,285 7,261,543 7,835,759
General and administrative 561,811 800,717 1,653,944 2,417,786
------------ ------------ ------------ ------------
3,213,395 3,706,002 8,915,487 10,253,545
------------ ------------ ------------ ------------
Operating income (loss) 3,787,338 (2,346,838) 612,088 (7,892,355)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 13,308 4,650 28,850 41,165
Interest expense (108,052) (312,344) (489,709) (859,547)
------------ ------------ ------------ ------------
(94,744) (307,694) (460,859) (818,382)
------------ ------------ ------------ ------------
Net income (loss) $ 3,692,594 $ (2,654,532) $ 151,229 $ (8,710,737)
============ ============ ============ ============
Net income (loss) per share, basic and diluted $ .09 $ (.06) $ -- $ (.20)
============ ============ ============ ============
Weighted average number of shares outstanding:
Basic: 41,169,120 44,279,250 40,284,824 43,868,779
============ ============ ============ ============
Diluted: 43,159,961 44,279,250 40,284,824 43,868,779
============ ============ ============ ============

See notes to condensed financial statements.

UNIGENE LABORATORIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended
September 30,
--------------------------------
1999 2000
--------------------------------

Net cash used for operating activities $(1,553,470) $(3,085,949)
----------- -----------

Investing activities:
Purchase of equipment and furniture (75,263) (245,259)
Increase in patents and other assets (19,753) (22,568)
Construction of leasehold and building improvements (4,010) (187,704)
----------- -----------
(99,026) (455,531)
----------- -----------
Financing activities:

Issuance of stockholder notes 1,970,000 1,358,323
Exercise of stock options and warrants -- 1,601,411
Repayment of capital lease obligations (51,789) (51,955)
----------- -----------
1,918,211 2,907,779
----------- -----------
Net increase (decrease) in cash and cash equivalents 265,715 (633,701)
Cash and cash equivalents at beginning of year 402,664 682,629
----------- -----------
Cash and cash equivalents at end of period $ 668,379 $ 48,928
=========== ===========

SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Investment in joint venture and related obligation -- $ 900,000
=========== ===========
Conversion of convertible debentures and accrued interest
into Common Stock $ 1,390,959 --
=========== ===========
Cash paid for interest $ 17,448 $ 22,000
=========== ===========

See notes to condensed financial statements.

F-19

UNIGENE
LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for the nine-month
period ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2000. For further
information, please refer to the Company's financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1999.

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and specifically addresses revenue recognition in the biotechnology industry for
non-refundable technology access fees and other non-refundable fees. The Company
must adopt SAB 101, as amended, in the fourth quarter of 2000 with an effective
date of January 1, 2000, and the recognition of a cumulative effect adjustment,
if any, calculated as of January 1, 2000. The Company is evaluating SAB 101 and
the effect it may have on the financial statements and its current revenue
recognition policy.

NOTE B - LIQUIDITY

The Company has incurred annual operating losses since its inception and, as
a result, at September 30, 2000 had an accumulated deficit of approximately
$71,619,000 and a working capital deficiency of approximately $9,670,000. The
independent auditors' report covering the Company's 1999 financial statements
includes an explanatory paragraph that states the above factors raise
substantial doubt about the Company's ability to continue as a going concern.
However, the financial statements have been prepared on a going concern basis
and as such do not include any adjustments that might result from the outcome of
this uncertainty.

The Company's cash requirements to operate its research and peptide
manufacturing facilities and develop its products are approximately $10 to 11
million per year. In addition to its obligations with respect to its outstanding
5% convertible debentures (the "5% Debentures"), the Company has principal and
interest obligations over the next several years under its outstanding notes
payable to stockholders which consists of $2,498,000 in demand notes and
$1,870,000 in term notes. The Company is also obligated to fund the joint
venture investment described in Note E.

While the Company believes that the execution of a license agreement for its
nasal Calcitonin product, along with additional milestone payments under the
license agreement with Pfizer (successor to Warner-Lambert) would satisfy the
Company's liquidity requirements over the near-term, satisfying the Company's
long-term liquidity requirements will require the successful commercialization
of the product licensed to Pfizer and/or one or more of its other products. In
addition, the commercialization of its oral Calcitonin product will require the
Company to incur additional capital expenditures to expand or upgrade the
Company's manufacturing operations to satisfy all of its Calcitonin supply
obligations under the Pfizer license agreement. However, neither the cost or
timing of such capital expenditures is determinable at this time.

Due to the receipt of $1 million from the sale in December 2000 of a portion
of our unused New Jersey net operating loss carryovers, the Company believes
that it has sufficient financial resources to sustain its operations at the
current level into the first quarter of 2001. The Company will require
additional funds to ensure continued operations beyond that time. Payment of the
obligations under the 5% Debentures also may require additional financing. For
near term additional funds, the Company expects to shortly sign one or more
licensing agreements including a nasal calcitonin licensing agreement currently
under negotiation which could provide up-front and other payments. In addition
to a possible nasal calcitonin license agreement, the Company is actively
seeking to enter into other licensing and/or supply agreements with
pharmaceutical companies for its Calcitonin products and other peptide products
that can be manufactured and/or delivered using its patented technologies. These
agreements

F-20

could provide funds to the Company in upfront and milestone payments. However,
there is no assurance as to when or if the Company might enter into any such
additional agreements. One potential source of financing is the transaction that
Unigene has entered into with Fusion. See "Recent Developments." However, sales
of Unigene common stock to Fusion cannot begin until a registration statement
registering the shares for resale by Fusion is declared effective by the SEC.
Unigene cannot predict with certainty if or when this will occur. The
transaction with Fusion could provide Unigene with sufficient funding to sustain
its operations for up to two years, beginning in the first quarter of 2001.

NOTE C - NOTES PAYABLE - STOCKHOLDERS

During February 2000 Jay Levy, the chairman of the board and an officer of
the Company, loaned the Company $300,000 evidenced by demand notes bearing
interest at the Merrill Lynch Margin Loan Rate plus .25%. The Company repaid
this loan in April 2000. During the third quarter of 2000, Jay Levy and another
family member loaned the Company an aggregate of $1,280,000 and Warren Levy and
Ronald Levy, officers and directors of the Company, loaned the Company an
aggregate of $78,323 evidenced by demand notes bearing interest at the Merrill
Lynch Margin Loan Rate plus .25%.

NOTE D - CONVERTIBLE DEBENTURES

In June 1998, the Company completed a private placement of $4 million in
principal amount of 5% Debentures from which it realized net proceeds of
approximately $3.75 million. The 5% Debentures were convertible into shares of
Common Stock and, in addition, provided that (i) the interest on the 5%
Debentures, at the option of the Company, was payable in shares of Common Stock
and (ii) upon conversion, the holder was entitled to receive warrants to
purchase a number of shares of Common Stock equal to 4% of the number of shares
issued pursuant to the conversion (the "Warrants"). However, the number of
shares of Common Stock that the Company was obligated to issue, in the
aggregate, upon conversion, when combined with the shares issued in payment of
interest and upon the exercise of the Warrants, is limited to 3,852,500 shares
(the "Share Limit"). After this Share Limit is reached, the Company is obligated
to redeem all 5% Debentures tendered for conversion at a redemption price equal
to 120% of the principal amount, plus accrued interest. In December 1999, the
Company was unable to convert $200,000 of the 5% Debentures tendered for
conversion because the conversion would have exceeded the Share Limit. As a
result, the Company accrued as of December 31, 1999 the 20% premium on the
outstanding $2,000,000 in principal amount of the 5% Debentures that had not
been converted in the amount of $400,000. As of September 30, 2000, all of the
$2,000,000 in principal amount of 5% Debentures have been tendered for
conversion and therefore are classified as a current liability.

Through September 30, 2000, the Company has issued a total of 3,703,362
shares of Common Stock upon conversion of $2 million in principal amount of the
5% Debentures or in payment of interest thereon, and issued an additional
103,032 shares of Common Stock upon the cashless exercise of all of the 141,123
Warrants issued upon conversion of the 5% Debentures.

On January 5, 2000, the Company failed to make the required semi-annual
interest payment on the outstanding 5% Debentures. As a result, the interest
rate on the outstanding 5% Debentures has increased to 20% per year. The
semi-annual interest payment due July 5, 2000 was also not made by the Company.
As of September 30, 2000, the accrued and unpaid interest on the 5% Debentures
totaled approximately $366,000.

In addition, due to the delisting of the Common Stock from the Nasdaq
National Market in October 1999, the Company became obligated under a separate
agreement to pay the holder of the 5% Debentures an amount equal to 2% of the
outstanding principal amount of the debentures per month. The Company has not
made any of these payments to date, but has accrued the amounts as interest
expense. As of September 30, 2000, the accrued and unpaid amount totaled
approximately $497,000.

F-21

The holder of the 5% Debentures has commenced an arbitration proceeding in
which the holder claims that it is entitled, as of June 30, 2000, to payments in
respect of the 5% Debentures in the amount of approximately $3.4 million. The
parties have had settlement discussions in an effort to arrive at a mutually
satisfactory settlement. The outcome of this proceeding is uncertain.

NOTE E - JOINT VENTURE

In June 2000, the Company entered into a joint venture with the Shijiazhuang
Pharmaceutical Group ("SPG"), a pharmaceutical company in the People's Republic
of China. The joint venture will manufacture and distribute injectable and nasal
Calcitonin products for the treatment of osteoporosis in China and possibly
other selected Asian markets. The Company will own 45% of the joint venture and
will receive 45% of the joint venture profits. The Company will account for its
investment under the equity method. In the first phase of the collaboration, SPG
will contribute its existing injectable calcitonin license to the joint venture,
which will allow the joint venture to sell the Company's product under this
license. The joint venture would need to file a New Drug Application (NDA) in
China for its injectable and nasal products. In addition, brief local clinical
trials may be required. If the product is successful, the joint venture may
establish a facility to fill injectable and nasal Calcitonin products containing
bulk Calcitonin produced at the Company's Boonton, New Jersey plant and plans to
eventually manufacture the bulk drug in China in a new facility to be
constructed by the joint venture. This would require local financing by the
joint venture. As of September 30, 2000, the joint venture had not yet begun
operations.

Under the terms of the joint venture agreement, the Company is obligated to
contribute up to $405,000 in cash during the next 12 months and up to an
additional $495,000 in cash within two years thereafter. However, these amounts
may be reduced or offset by the Company's share of joint venture profits. No
amounts have been invested as of September 30, 2000.

In addition, the Company is obligated to pay to the Qingdao General
Pharmaceutical Company an aggregate of $350,000 in 14 monthly installment
payments of $25,000 in order to terminate its former joint venture in China, of
which $75,000 had been paid as of September 30, 2000. The entire $350,000
obligation was recognized as an expense in the second quarter of 2000.

NOTE F - INVENTORY

Inventories are stated at the lower of cost (using the first-in, first-out
method) or market and consist of the following:

September 30, 2000 December 31, 1999
------------------ -----------------

Finished goods......... $ 1,002,729 $ 596,359

Raw materials.......... 331,037 271,207
----------- --------------
Total............. $ 1,333,766 $ 867,566
=========== =============

NOTE G - STOCK OPTION PLAN

In November 1999, the Board of Directors approved, subject to stockholder
approval, the adoption of a new Stock Option Plan (the "New Plan") to replace
the 1994 Employee Stock Option Plan (the "1994 Plan"). All employees (including
directors who are employees), as well as certain consultants, are eligible to
receive option grants under the New Plan. Options granted under the New Plan
have a ten-year term and an exercise price equal to the market price of the
Common Stock on the date of the grant. A total of 4,000,000 shares of Common
Stock are reserved for issuance under the New Plan.

In November 1999, the Board granted under the New Plan, to employees of the
Company, stock options to purchase an aggregate of 482,000 shares (of which
14,650 shares were subsequently cancelled) of Common Stock at an exercise price
of $0.63 per share, the market price on the date of grant. Each of the grants
was made subject to stockholder approval of the New Plan. At the Company's June
6, 2000 Annual Meeting, the stockholders approved the New Plan. In accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", the measurement date for valuing the stock options for the purpose
of determining compensation expense was June 6, 2000, the date of stockholder
approval. The market price of the Common Stock on this date was $2.093 per
share. Therefore, an aggregate of $683,733 will be charged to compensation
expense over the vesting periods of the options, which vest in approximately 50%
increments on November 5, 2000 and November 5, 2001. The Company recognized
$68,359 and $205,077 as compensation expense in the second and third quarters of
2000, respectively, leaving a balance of $410,297 as deferred stock option
compensation.

F-22

Part II

Information Not Required in Prospectus

Item 13. Other Expenses of Issuance and Distribution*

The expenses payable by the Registrant in connection with the issuance and
distribution of the securities being registered (other than underwriting
discounts and commissions, if any) are set forth below. Each item listed is
estimated, except for the Securities and Exchange Commission registration fee .

Securities and Exchange Commission registration fee........ $ 3,061
Blue Sky fees and expenses................................. *
Accounting fees and expenses............................... 15,000
Legal fees and expenses.................................... 45,000
Registrar and transfer agent's fees and expenses........... 1,000
Printing and engraving expenses............................ 0
Miscellaneous.............................................. 0
------------
Total expenses............................................. $
============
* To be furnished by amendment

Item 14. Indemnification of Directors and Officers

Article VI of the Registrant's By-laws requires the Registrant to indemnify
each of its directors and officers to the extent permitted by the Delaware
General Corporation Law ("DGCL"). Section 145 of the DGCL provides that a
corporation may indemnify any person, including any officer or director, who was
or is a party, or who is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by such person, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. Section 145 also
provides that a corporation may indemnify any person, including any officer or
director, who was or is a party, or who is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation,
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of the action, if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made with respect to any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation, unless and only to the extent that a court of
competent jurisdiction shall determine that such indemnity is proper. To the
extent that a director or officer is successful on the merits or otherwise in
the defense of any action referred to above, the corporation is required under
Delaware law to indemnify that person against expenses (including attorneys'
fees) actually and reasonably incurred in connection therewith.

The Registrant's Certificate of Incorporation provides that no director
shall be liable to the Registrant or its stockholders for monetary damages for
breach of his fiduciary duty as a director. However, a director will be liable
for any breach of his duty of loyalty to the Registrant or its stockholders, for
acts or omissions not in good faith or involving intentional misconduct or
knowing violation of law, any transaction from which the director derived an
improper personal benefit, or payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law.

Item 15. Recent Sales of Unregistered Securities

Since September 30, 1997, Unigene has made the following sales of
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act"):

II-1

(1) During the quarter ended December 31, 1997, Unigene sold for cash
7,500 shares of Unigene common stock to a financial consultant upon the exercise
of an equal number of warrants, each exercisable to purchase one share of
Unigene common stock at an exercise price of $2.00 per share. The sale of such
shares was effected without registration in reliance on an exemption under
Section 4 (2) of the Securities Act.

(2) On June 29, 1998, Unigene sold for cash $4,000,000 in aggregate
principal amount of its 5% convertible debentures due December 31, 2001 (the "5%
Debentures") to The Tail Wind Fund, Ltd. The sale of the 5% Debentures was
effected without registration in reliance on an exemption under Section 4(2) of
the Securities Act. Interest on the 5% Debentures is payable in cash or, at the
option of Unigene, in Unigene common stock. Beginning January 1, 1999, the 5%
Debentures became convertible into (i) Unigene common stock at a conversion
price (the "Conversion Price") equal to the lower of (a) $ 1.59 (the "Cap
Price") and (b) the average of the four lowest closing bid prices of the Unigene
common stock during the 18 trading days prior to the date of conversion (the
"Market Price") and (ii) warrants, expiring five years from the date of
issuance, to purchase a number of shares of Unigene common stock equal to 4% of
the number of shares issuable upon conversion at an exercise price equal to 125%
of the Conversion Price.

(3) On August 6, 1998, Unigene issued 163,635 shares of Unigene common
stock upon the conversion of $225,000 in principal amount of loans made by
officers of Unigene. All of such shares were issued by Unigene without
registration in reliance on an exemption under Section 4 (2) of the Securities
Act.

(4) In the quarter ended September 30, 1998, Unigene issued 214,131
shares of Unigene common stock upon the conversion of $222,575 in principal
amount of and accrued interest on Unigene's 10% Convertible Debentures due March
4, 1999. All of such shares were issued by Unigene without registration in
reliance on an exemption under Section 3(a) (9) of the Securities Act.

(5) In the quarter ended December 31, 1998, Unigene issued 448,834
shares of Unigene common stock upon the conversion of $502,694 in principal
amount of Unigene's 9.5% Convertible Debentures. All of such shares were issued
by Unigene without registration in reliance on an exemption under Section 3(a)
(9) of the Securities Act.

(6) In January 1999, Unigene issued 79,384 shares of Unigene common
stock as payment of approximately $101,000 in accrued interest on the 5%
Debentures. All of such shares were issued by Unigene without registration in
reliance on an exemption under Section 4 (2) of the Securities Act.

(7) In January 1999, Unigene issued 164,102 shares of Unigene common
stock upon the conversion of $200,000 in principal amount of the 5% Debentures.
All of the shares were issued by Unigene without registration in reliance on an
exemption under Section 3(a)(9) of the Securities Act.

(8) During the quarter ended June 30, 1999, $1,000,000 in principal
amount of the 5% Debentures were converted into (a) 1,457,458 shares of Unigene
common stock and (b) warrants, expiring April through June 2004, to purchase an
aggregate of 58,298 shares of Unigene common stock at exercise prices ranging
from $.78 to $1.15 per share. All of such shares and warrants were issued by
Unigene without registration in reliance on an exemption under Section 3(a)(9)
of the Securities Act.

(9) In July 1999, Unigene issued 95,853 shares of Unigene common stock
as payment of approximately $90,000 in accrued interest on the 5% Debentures.
All of such shares were issued by Unigene without registration in reliance on an
exemption under Section 4 (2) of the Securities Act.

(10) During the quarter ended December 31, 1999, $800,000 of principal
amount of the 5% Debentures were converted into (a) 1,906,565 shares of Unigene
common stock and (b) warrants, expiring in 2004, to purchase an aggregate of
76,261 shares of Unigene common stock at exercise prices ranging from $.46 to
$.60 per share. All of such shares and warrants were issued by Unigene without
registration in reliance on an exemption under Section 3(a) (9) of the
Securities Act.

(11) In the quarter ended March 31, 2000, Unigene issued for cash
626,036 shares of Unigene common stock upon the exercise of an equal number of
warrants exercisable to purchase one share of Unigene common stock at exercise
prices ranging from $1.38 to $2.43 per share. An additional 103,032 shares of
Unigene common stock were issued upon the cashless exercise of a total of
141,123 warrants at exercise prices ranging from $.46 to $1.52 per share. All of
such shares were issued by Unigene without registration in reliance on an
exemption under Section 4 (2) of the Securities Act.

II-2

(12) In the quarter ended June 30, 2000, Unigene issued 56,007 shares
of Unigene common stock upon the cashless exercise of a total of 116,666
warrants at exercise prices ranging from $1.38 to $1.44 per share. All of such
shares were issued by Unigene without registration in reliance on an exemption
under Section 4 (2) of the Securities Act.

(13) In the quarter ended September 30, 2000, Unigene issued 99,860
shares of Unigene common stock upon the cashless exercise of a total of 205,834
warrants and options at exercise prices ranging from $1.38 to $1.44 per share.
In addition, Unigene issued for cash 224,500 shares of Unigene common stock upon
the exercise of warrants at exercise prices ranging from $1.38 to $1.50 per
share. All of the shares were issued by Unigene without registration in reliance
on an exemption under Section 4 (2) of the Securities Act.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits:

Exhibit
Number Description
------ ----------------------------------------------------------------------
3.1 Certificate of Incorporation of the Registrant and Amendments thereto
to July 1, 1986 (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement No. 33-6877 on Form S-1, filed
July 1, 1986).

3.1.1 Amendments to Certificate of Incorporation filed July 29, 1986 and
May 22, 1987 (incorporated by reference to Exhibit 3.1.1 to the
Registrant's Registration Statement No. 33-6877 on Form S-1, filed
July 1, 1986).

3.1.2 Amendment to Certificate of Incorporation filed August 22, 1997
(incorporated by reference to Exhibit 3.1.2 of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997).

3.2 By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993).

4.2 Specimen Certificate for Common Stock, par value $.01 per share
incorporated by reference to Exhibit 3.1.1 to the Registrant's
Registration Statement No. 33-6877 on Form S-1, filed July 1, 1986).

5.1 Opinion of Covington & Burling, as to the legality of certain of the
shares being registered. **

10.1 Lease agreement between the Registrant and Fulton Street Associates,
dated May 20, 1993 (incorporated by reference to Exhibit 10.1 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992 (File No. 0-16005)).

10.2 1994 Employee Stock Option Plan (incorporated by reference to the
Registrant's Definitive Proxy Statement dated April 28, 1994, which is
set forth as Appendix A to Exhibit 28 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993(File No.
0-16005)).

10.3 Directors Stock Option Plan (incorporated by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 (File No. 0-16005)).

10.4 Mortgage and Security Agreement between the Registrant and Jean Levy
dated February 10, 1995 (incorporated by reference to Exhibit 10.4 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).

10.5 Loan and Security Agreement between the Registrant and Jay Levy,
Warren P. Levy and Ronald S. Levy dated March 2, 1995 (incorporated by
reference to Exhibit 10.5 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).

II-3

10.6 Employment Agreement between the Registrant and Warren P. Levy, dated
January 1, 2000 (incorporated by reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1999).

10.7 Employment Agreement between the Registrant and Ronald S. Levy, dated
January 1, 2000 (incorporated by reference to Exhibit 10.7 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1999).

10.8 Employment Agreement between the Registrant and Jay Levy, dated
January 1, 2000 (incorporated by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1999).

10.9 Split Dollar Agreement dated September 30, 1992 between the Registrant
and Warren P. Levy (incorporated by reference to Exhibit 10.9 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992).

10.10 Split Dollar Agreement dated September 30, 1992 between the
Registrant and Ronald S. Levy (incorporated by reference to Exhibit
10.10 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).

10.11 Loan and Security Agreement between the Registrant and Dejufra, Inc.
dated March 15, 1995 (incorporated by reference to Exhibit 10.11 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).

10.12 Amendment to Loan Agreement and Security Agreement between the
Registrant and Jay Levy, Warren P. Levy and Ronald S. Levy dated March
20, 1995 (incorporated by reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1994).

10.13 Registration Rights Agreement between the Registrant and Swartz
Investments, LLC dated March 12, 1996 (incorporated by reference to
Exhibit 10.13 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).

10.14 Amendment to Loan and Security Agreement between the Registrant and
Jay Levy, Warren P. Levy and Ronald S. Levy dated June 29, 1995
(incorporated by reference to Exhibit 10.14 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995).

10.15 Promissory Note between the Registrant and Jay Levy, Warren P. Levy
and Ronald S. Levy dated June 29, 1995 (incorporated by reference to
Exhibit 10.15 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).

10.16 Letter Agreement dated as of February 7, 1997 among the Registrant,
Olympus Securities, Ltd. and Nelson Partners (incorporated by
reference to Exhibit 10.15 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997).

10.17 License Agreement, dated as of July 15, 1997, between the Registrant
and Warner-Lambert Company (incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K, dated July 15, 1997).

10.18 Stock Purchase Agreement, dated as of July 15, 1997, between the
Registrant and Warner-Lambert Company (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K, dated
July 15, 1997).

10.19 Purchase Agreement, dated June 29, 1998, between the Registrant and
The Tail Wind Fund, Ltd. (incorporated by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998).

10.20 Registration Rights Agreement, dated June 29, 1998, between the
Registrant and The Tail Wind Fund, Ltd. (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998).

10.21 Form of Promissory Note between the Registrant and Jay Levy
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).

II-4

10.22 Form of Promissory Note between the Registrant and Warren Levy and
Ronald Levy (incorporated by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1999).

10.23 Amendment to Loan Agreement and Security Agreement between the
Registrant and Jay Levy, Warren Levy and Ronald Levy dated June 25,
1999 (incorporated by reference to Exhibit 10.3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).

10.24 Amended and Restated Secured Note between the Registrant and Jay Levy
dated July 13, 1999 (incorporated by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).

10.25 Amended and Restated Security Agreement between the Registrant and
Jay Levy, Warren P. Levy and Ronald S. Levy dated July 13, 1999
(incorporated by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).

10.26 Subordination Agreement between the Registrant and Jay Levy, Warren
P. Levy and Ronald S. Levy dated July 13, 1999 (incorporated by
reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).

10.27 Mortgage and Security Agreement dated July 13, 1999, between the
Registrant and Jay Levy (incorporated by reference to Exhibit 10.4 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).

10.28 $70,000 Secured Note between the Registrant and Jay Levy dated July
30, 1999 (incorporated by reference to Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).

10.29 $200,000 Secured Note between the Registrant and Jay Levy dated
August 5, 1999 (incorporated by reference to Exhibit 10.6 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).

10.30 Modification of Mortgage and Security Agreement between the
Registrant and Jay Levy dated August 5, 1999 (incorporated by
reference to Exhibit 10.7 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999).

10.31 Amendment to Security Agreement and Subordination Agreement between
the Registrant and Jay Levy, Warren Levy and Ronald Levy dated August
5, 1999 (incorporated by reference to Exhibit 10.8 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1999).

10.32 Joint Venture Contract between Shijiazhuang Pharmaceutical Group
Company, Ltd., and Unigene Laboratories, Inc., dated June 15, 2000
(incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 2000,
with certain confidential information omitted and filed separately
with the Secretary of the Commission).

10.33 Articles of Association of Shijiazhuang-Unigene Pharmaceutical
Corporation Limited, dated June 15, 2000 (incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000, with certain confidential information
omitted and filed separately with the Secretary of the Commission).

10.34 2000 Stock Option Plan (incorporated by reference to Attachment A to
the Registrant's Schedule 14A, dated April 28, 2000, containing the
Registrant's Definitive Proxy Statement for its 2000 Annual Meeting of
Stockholders (File No. 0-16005)).

10.35 Common Stock Purchase Agreement, dated December 18, 2000, between the
Registrant and Fusion Capital Fund II, LLC.*

10.36 Registration Rights Agreement, dated December 18, 2000, between the
Registrant and Fusion Capital Fund II, LLC.*

23.1 Consent of KPMG LLP.*

23.2 Consent of Covington & Burling (included in opinion filed as Exhibit
5.1)**.

24.1 Powers of Attorney of Directors of Unigene Laboratories, Inc.
(included on signature page)

27 Financial Data Schedules*

- -----------------
II-5

----------------------------------

* Filed herewith
** To be furnished by amendment

(b) Financial Statement Schedules

No financial statement schedules are required.

Item 17. Undertakings

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected
in the form of prospectus filed with the Commission pursuant
to Rule 424(b), if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement;

(iii)To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement."

(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-6

Signatures

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Fairfield, New Jersey,
on this 19th day of January 2001.

UNIGENE LABORATORIES, INC.

By: /s/ Warren P. Levy
-----------------------
Warren P. Levy
President

Each person whose signature appears below hereby constitutes and appoints
Warren P. Levy and Ronald S. Levy, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or all amendments
(including, without limitation, post-effective amendments) to this Registration
Statement and any subsequent registration statement filed by the Registrant
pursuant to Rule 462(b) of the Securities Act of 1933, which relates to this
Registration Statement, and to file the same, with all exhibits thereto, and all
documents in connection herewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his or their substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on this 19th day of January 2001 by the
persons and in the capacities indicated below.

Signature Title
------------------------- --------------------------------

/s/ Warren P. Levy President and Chief Executive
------------------------- Officer (principal executive
Warren P. Levy officer) and Director

/s/ Jay Levy Treasurer (principal financial
------------------------- and accounting officer)
Jay Levy

/s/ Ronald S. Levy Director
-------------------------
Ronald S. Levy

/s/ Allen Bloom Director
-------------------------
Allen Bloom

/s/ Robert F. Hendrickson Director
-------------------------
Robert F. Hendrickson

II-7

EXHIBIT INDEX

Exhibit
Number Description
- ------ --------------------------------------------------------------
10.35 Common Stock Purchase Agreement, dated December 18, 2000,
between the Registrant and Fusion Capital Fund II, LLC.*

10.36 Registration Rights Agreement, dated December 18, 2000,
between the Registrant and Fusion Capital Fund II, LLC.*

23.1 Consent of KPMG LLP.
27 Financial Data Schedules.