As filed with the Securities and Exchange Commission on December 26, 2001

Registration No. 333-

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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)

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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)

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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)
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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

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Title of Securities Amount to be Proposed Maximum Proposed Maximum Amount of
To be Registered Registered (1) Offering Price Aggregate Registration
Per Share Offering Price Fee
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Common Stock, par value 10,000,000 $.49 (2) $4,900,000 (2) $1,225 (2)
$.01 per share
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(1) This Registration Statement registers the offer and sale of 10,000,000
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 December 20, 2001

Pursuant to Rule 429 under the Securities Act of 1933, as amended, the
prospectus included herein constitutes a combined prospectus that also relates
to the registrant's registration statement on Form S-1 (File No. 333-60642).

The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant has filed a
further amendment that specifically states that the registration statement shall
thereafter become effective in accordance with section 8(a) of the securities
act of 1933.

SUBJECT TO COMPLETION, DATED 2002.

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 we are not
soliciting offers to buy these securities in any state where the offer
or sale is not permitted.

PROSPECTUS

Unigene Laboratories, Inc.

11,785,396 Shares of Common Stock

This prospectus relates to the sale of up to 11,785,396 shares of our common
stock by Fusion Capital Fund II, LLC. Fusion is sometimes referred to in this
prospectus as the selling stockholder. The prices at which Fusion may sell the
shares will be determined by the prevailing market price for the shares or in
negotiated transactions. We will not receive proceeds from the sale of our
shares by Fusion.

Our common stock is quoted on the Over-the-Counter Bulletin Board under the
symbol "UGNE." On December 20 , 2001, the last reported sale price for our
common stock as reported on the Over-The-Counter Bulletin Board was $.48 per
share.

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Investing in the common stock involves certain risks. See "Risk
Factors" beginning on page 4 for a discussion of these risks.
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The selling stockholder is an "underwriter" within the meaning of
the Securities Act of 1933, as amended.
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Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.

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The date of this Prospectus is ________.

TABLE OF CONTENTS

Page

PROSPECTUS SUMMARY......................................... 3
RISK FACTORS............................................... 4
FORWARD-LOOKING STATEMENTS................................. 9
USE OF PROCEEDS............................................ 9
PRICE RANGE OF COMMON STOCK................................ 10
DIVIDEND POLICY............................................ 10
SELECTED FINANCIAL DATA.................................... 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............. 14
BUSINESS................................................... 22
MANAGEMENT................................................. 28
PRINCIPAL STOCKHOLDERS..................................... 32
THE FUSION TRANSACTION..................................... 33
SELLING STOCKHOLDER........................................ 36
PLAN OF DISTRIBUTION....................................... 37
LEGAL MATTERS.............................................. 38
EXPERTS.................................................... 38
ADDITIONAL INFORMATION..................................... 38
INDEX TO FINANCIAL STATEMENTS.............................. F-1

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

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, a genetic bone disorder, and hypercalcemia, a disorder
associated with high calcium blood levels, in the 15 member states of
the European Union. This product was approved in 2001 in Switzerland for
the treatment of osteoporosis and other indications. Sales to date of
this product have been minimal.

o Nasal Calcitonin. In 2000 and 2001, we successfully completed human
studies demonstrating similar blood levels between our formulation and
that of an existing nasal Calcitonin product and also showed significant
bone marker activity. We expect to file a New Drug Application with the
U.S. Food and Drug Administration (FDA) in early 2002. We are seeking to
license our nasal Calcitonin product 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 FDA for the
conduct of human trials in the United States of our oral Calcitonin
product as a treatment for osteoporosis. Pfizer began a Phase I/II human
study in April 2000 and patient dosing for this study was completed in
December 2000. Pfizer analyzed the results of the study and informed us
in March 2001 that the study did not achieve Pfizer's desired results.
Pfizer terminated the license agreement citing this conclusion. We
believe that this study, in which an FDA approved product also did not
work and which produced results contrary to many published studies, was
not capable of determining the performance of our oral Calcitonin
product. We believe that if patients in the study had also received
calcium supplements, in addition to the Calcitonin, the results would
have been more favorable. Therefore, we intend to continue the
development of our oral Calcitonin product as a treatment of
osteoporosis, and have begun discussions with potential licensees in the
U.S. and other countries. In addition, due to the termination of the
Pfizer agreement, we no longer have restrictions on selling bulk
Calcitonin.

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, human
testing, and marketing of products derived from our research activities.
However, we may, in some cases, retain the responsibility for human testing and
for obtaining the required regulatory approvals for a particular product.

Corporate Information

Unigene is incorporated under the laws of the State of Delaware. 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

On May 9, 2001, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC under which Fusion has committed to purchase on each
trading day during the term of the agreement $43,750 of our common stock up to
an aggregate of $21,000,000. Fusion, the selling stockholder, is offering for
sale up to 11,785,396 shares of Unigene common stock that Fusion has agreed to
purchase from Unigene. As of November 30, 2001, there were 50,316,544 shares of
Unigene common stock outstanding, including the 2,000,000 shares that Unigene
has issued to Fusion as compensation for its purchase commitment, but not
including the 1,000,000 shares that are issuable upon the exercise of the
warrant. The number of shares offered by this prospectus represent 20% of the
total number of shares of common stock outstanding as of November 30, 2001.

The number of shares ultimately offered for sale by Fusion 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. We
make various statements in this section which constitute "forward-looking
statements" under Section 27A of the Securities Act of 1933. See
"Forward-Looking Statements."

We have significant historical losses and expect to continue to incur losses in
the future.

We have incurred annual operating losses since our inception. As a result,
at September 30, 2001, we had an accumulated deficit of approximately
$85,000,000. Our gross revenues for the nine months ended September 30, 2001 and
the years ended December 31, 2000, 1999 and 1998 were $629,000, $3,287,000,
$9,589,000 and $5,050,000, respectively. However, our revenues have not been
sufficient to sustain our operations. These revenues consisted principally of
milestone payments and other fees received in connection with our terminated
license agreement with Pfizer. As of September 30, 2001, we have no significant
revenue generating license agreements. As a result, during the same periods, we
have incurred losses from operations of $8,146,000, $11,385,000 $1,997,000 and
$6,060,000, respectively. Our net losses for the nine months ended September 30,
2001 and the years ended December 31, 2000, 1999 and 1998 were $9,666,000,
$12,469,000 $1,577,000 and $6,881,000, respectively. Our injectable Calcitonin
product has been approved for commercial sale in a number of European countries,
but we do not anticipate that these sales will produce significant revenues. We
believe that the profitability of Unigene will require the successful
commercialization of our nasal or oral calcitonin products or another oral
peptide product in the United States and abroad. Unigene might never be
profitable.

We will require additional financing to sustain our operations.

At September 30, 2001, we had a working capital deficiency of
approximately $20,800,000. The independent auditors' report for the year ended
December 31, 2000, includes an explanatory paragraph stating that our recurring
losses from operations 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 $4,864,000 in 1998, an operating cash flow
deficit of $1,400,000 in 1999 and for the year ended December 31, 2000, an
operating cash flow deficit of $3,382,000. For the nine months ended September
30, 2001, we had an operating cash flow deficit of $5,563,000. We do not have
sufficient financial

resources to fund our operations at the current level. Therefore, we need
additional funds to continue our operations. Our agreement with Fusion has
provided us with some cash to fund our operations, but it alone has not been
sufficient to satisfy all of our working capital needs. From May 18, 2001
through November 30, 2001 we have raised a total of $1,380,800 through the sale
of 3,879,604 shares of our common stock to Fusion, before cash expenses of
approximately $257,000. The extent to which we intend to rely on Fusion as a
source of financing will depend on a number of factors, including the prevailing
market price of our common stock and the extent to which we are able to secure
working capital from other sources, such as through the entry into licensing
agreements or the sale of calcitonin, both of which we are actively exploring.
If we are unable to enter into a significant revenue generating license or
financing arrangement in the near term, we will need to significantly curtail
our operations. We also could consider a sale or merger of the company. Should
the funding we require to sustain our working capital needs be unavailable or
prohibitively expensive, the consequences would be a material adverse effect on
our business, operating results, financial condition and prospects.

Even if we are able to access $21,000,000 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, our
issuance of shares of common stock to Fusion under the common stock purchase
agreement will result in dilution to existing stockholders. We only have the
right to receive $43,750 per trading day under the common stock purchase
agreement unless our stock price equals or exceeds $4.00 per share, in which
event the daily purchase amount may be increased. However, our sales of common
stock to Fusion have been below that level due to the share price and trading
volume of our common stock. In addition, the agreement may be terminated by
Fusion at any time due to events of default under the agreement. See "The
Fusion Transaction-Events of Default." We believe that satisfying our
long-term capital requirements will require the successful commercialization of
one of our peptide products. At this time, we cannot predict with certainty that
any of our products will be commercially successful.

We may not be successful in our efforts to develop a Calcitonin or other peptide
product that will produce revenues that are sufficient to sustain our
operations.

We have obtained regulatory approval in the European Union and in
Switzerland for the sale of our injectable Calcitonin product, 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 U.S. Food and Drug
Administration must approve the commercial manufacture and sale of
pharmaceutical products in the U.S. Similar regulatory approvals are required
for the sale of pharmaceutical products outside of the United States. We must
conduct further human testing on our products before they can be approved for
commercial sale. We must show in these human trials that our products are safe
and effective. All clinical trials for our nasal calcitonin product have been
completed. If any of our products are approved for commercial sale, we will need
to manufacture the product in commercial quantities at a reasonable cost in
order for it to be a successful product that will generate profits. 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 products.

We believe that expanded consumer acceptance of Calcitonin
pharmaceutical products depends on the development of more desirable
formulations. We have successfully completed human trials to evaluate a nasal
Calcitonin product. An NDA for our nasal calcitonin product is expected to be
filed in early 2002. Pfizer completed a human trial for our oral Calcitonin
product, but after analyzing the results it terminated our license agreement
citing scientific and technical reasons. We disagree with Pfizer's conclusions
and are seeking other licensees to continue the development of our oral
Calcitonin product. We may not be successful in licensing our Calcitonin
products or any of our other peptide products. In addition, we may not be able
to demonstrate the safety or effectiveness of our products in human trials and,
accordingly, they may not receive the U.S. Food and Drug Administration and
foreign governmental approvals that are necessary to market these products.
Other companies may develop other products to compete with or surpass any nasal
or oral product 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
Calcitonin and other peptides. This facility has been approved by European
regulatory authorities for the manufacture of Calcitonin for human 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 may require us to make additional expenditures to
expand or upgrade our manufacturing operations. 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 and market 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. With the recent termination of our Pfizer
collaboration, we currently have no licenses for any of our products in the U.S.

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 has not yet
commenced operations 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, we have not received material revenues from these
distribution agreements.

We intend to pursue additional opportunities to license, or enter into
distribution arrangements for, our oral, nasal and injectable Calcitonin
products as well as other possible peptide products. Due to the termination of
the Pfizer agreement, we no longer have restrictions on selling bulk Calcitonin.
However, we may not be successful in any of these efforts.

Because we are a biopharmaceutical company, 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.

The FDA or other regulatory agencies may audit our production facility
at any time to ensure compliance with current Good Manufacturing Practice
guidelines, referred to as cGMP. These guidelines require that we conduct our
production operation in strict compliance with our established rules for
manufacturing and quality controls. Any of these agencies can suspend production
operations and product sales if they find significant or repeated changes from
these guidelines. A suspension by any of these agencies could have a material
adverse effect on our operations.

Our competitors include large pharmaceutical companies with superior resources.

Unigene is engaged in a rapidly changing and highly competitive field.
To date, Unigene has concentrated its efforts primarily on one product --
Calcitonin -- for treating osteoporosis and other indications. During 2001, we
began developing other peptide products, including parathyroid hormone for
osteoporosis. 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. Our main competitor in the field of oral delivery
of peptides is Emisphere Technologies. 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 depends upon our ability to protect our intellectual property
rights.

We filed applications for U.S. patents relating to proprietary peptide
manufacturing technology and oral formulations 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. We face the
risk that any of our pending applications will not issue as patents. Our
business also is subject to the 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, other parties with confidentiality
obligations could breach their agreements causing us harm. If a secrecy
obligation were to be breached, we may not have the financial resources
necessary for a legal challenge. 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 ownership 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
a part of human testing, manufacturing and sale 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 $3,400,000, 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. In June 2001, the
arbitration was postponed to allow Tail Wind and Unigene to engage in settlement
discussions. The outcome of these negotiations is uncertain. An extremely
unfavorable settlement or arbitration ruling could have a material adverse
effect on Unigene.

The market price of our common stock may be highly unstable.

The market price of our common stock has been and we expect it to
continue to be highly unstable. Factors, including our announcement of
technological improvements or announcements by other companies, regulatory
matters, research and development activities, new or existing products or
procedures, signing or termination of licensing agreements, concerns about our
financial condition, operating results, litigation, resolution of the
arbitration with Tail Wind involving our outstanding 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 sales by Fusion under this prospectus
and by the exercise and subsequent sale of Unigene common stock by the holders
of outstanding and future warrants and options could have an adverse effect on
the price of our stock.

We do not anticipate paying cash dividends on our common stock.

We have never paid any cash dividends on our common stock 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.

Our common stock is classified as a "penny stock" under SEC rules which may make
it more difficult for our stockholders to resell our common stock.

Our common stock is traded on the OTC Bulletin Board. As a result, the
holders of our 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 our common stock could adversely affect the market liquidity of
the shares, which in turn may affect the ability of holders of our common stock
to resell the stock.

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

The price at which Fusion is obligated to purchase shares of our common
stock under the common stock purchase agreement will fluctuate based on the
market price of our common stock. See "The Fusion 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 2,000,000 commitment shares or the 1,000,000 shares of common stock
issuable upon the exercise of the warrant that we issued to Fusion as part of
its commitment fee 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 May 2003. Fusion may sell none, some or all of the shares of common
stock purchased from Unigene at any time. We have been advised by Fusion that
the shares registered in this offering will be sold over a period of up to 24
months from May 2001. Depending upon market liquidity at the time, the resale by
Fusion of shares registered in this offering at any given time could cause the
trading price of our common stock to decline. The sale by Fusion of a
substantial number of shares purchased from us, or the anticipation of such
sales, could make it more difficult for us to sell equity or equity related
securities in the future at a time and at a price that we might otherwise wish
to effect sales.

If Fusion purchased the remaining balance of $19,475,800 purchasable under
the common stock purchase agreement on the date of this prospectus, at a price
equal to $.55, the closing sale price of our common stock on December 7, 2001,
Fusion would be able to purchase an additional 35,410,545 shares of our common
stock. These shares, along with the 2,000,000 shares and the 1,000,000 shares of
common stock issuable upon the exercise of the warrant which was issued to
Fusion as a commitment fee, would represent 44% of our outstanding common stock
as of the date of this prospectus. The issuance of these shares 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 Fusion
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 at
any time, the financial condition of Unigene at the time may require Unigene to
waive its right to suspend purchases even if there is a decline in the market
price. If the closing sale price of our common stock is at least $4.00 for five
(5) consecutive trading days, we

have the right to increase the daily purchase amount above $43,750, provided the
closing sale price of our common stock 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 cause
sales or short sales in anticipation of a decline of the market price.

Forward-Looking Statements

Various statements that we make 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 animal and human
testing, the risk of product liability and liability for human 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 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, subject to the conditions of the
agreement.

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, 1999 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 $1.875 $0.375
Second Quarter $0.65 $0.33
Third Quarter $0.44 $0.19
Fourth Quarter (through December 7) $0.66 $0.33

On December 7, 2001, the last reported sale price of the Unigene common stock on
the OTC Bulletin Board was $.55. As of December 7, 2001, there were 489 holders
of record of the Unigene common stock.

Dividend Policy

We have never paid a cash dividend on our 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, 2000 and 1999, and for
the years ended December 31, 2000, 1999 and 1998, 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 accountants. The audit report
of KPMG LLP covering the December 31, 2000 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, 1998, 1997 and 1996, and
for the years ended December 31, 1997 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,
2001 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
September 30 Year Ended December 31,
-------------------- --------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(unaudited)

Revenue:
Licensing & other revenue $ 629 $ 2,961 $ 3,287 $ 9,589 $ 5,050 $ 3,003 $ 308

Costs and expenses:
Research & development expenses 6,857 7,836 11,484 9,375 9,042 9,416 8,298
General and administrative 1,919 2,418 3,187 2,212 2,068 2,016 2,115
Loss before extraordinary item
and cumulative effect of
accounting change (9,666) (8,111) (11,469) (1,577) (6,737) (10,128) (10,597)
Extraordinary item -- -- -- -- (144) -- --
Cumulative effect of accounting change -- (1,000) (1,000) -- -- -- --

Net loss (9,666) (9,111) (12,469) (1,577) (6,881) (10,128) (10,597)

Basic and diluted loss per share:
Loss before
extraordinary item and cumulative
effect of accounting change (.21) (.19) (.26) (.04) (.17) (.27) (.38)
Extraordinary item -- -- -- -- (.01) -- --
Cumulative effect of accounting change -- (.02) (.02) -- -- -- --
Net loss (.21) (.21) (.28) (.04) (.18) (.27) (.38)
Weighted average number of shares
outstanding 46,542 43,869 44,008 40,719 38,701 37,397 27,943

BALANCE SHEET DATA
(In thousands)

Cash and cash equivalents $ 76 $ 49 $ 17 $ 683 $ 403 $ 2,126 $ 4,491
Working capital (deficiency) (20,816) (9,670) (13,267) (2,759) (1,805) 310 2,954
Total assets 7,599 11,452 9,047 13,778 11,564 13,692 17,169
Long-term debt 523 823 546 1,003 3,931 1,608 2,788
Total liabilities 21,793 13,339 14,540 9,049 7,344 4,258 5,309
Total stockholders' equity
(deficit) (14,195) (1,887) (5,493) 4,729 4,220 9,433 11,860

SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

2001
----
2000 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter
- ---- ----------- ----------- ----------- ----------- ----------- ----------- -----------

Revenue $ 1,201,250 $ 200,776 $ 1,559,164 $ 325,771 $ 273,775 $ 88,042 $ 267,654

Operating loss ($1,396,831) ($3,748,686) ($2,146,838) ($4,092,528) $(2,636,210) $(2,806,962) $(2,702,972)

Loss before cumulative
effect of accounting
change ($1,639,288) ($4,016,917) ($2,454,532) ($3,358,668) $(3,125,111) $(3,308,729) $(3,231,666)

Net loss ($2,639,288) ($4,016,917) ($2,454,532) ($3,358,668) $(3,125,111) $(3,308,729) ($3,231,666)

Loss per share, before
cumulative effect
of accounting change ($ 0.04) ($ 0.09) ($ 0.06) ($ 0.07) ($ 0.07) ($ 0.07) ($ 0.07)

Net loss per share,
basic and diluted ($ 0.06) ($ 0.09) ($ 0.06) ($ 0.07) ($ 0.07) ($ 0.07) ($ 0.07)

1999 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ---- ----------- ----------- ----------- -----------

Revenue $2,500,172 $ 26,670 $7,000,733 $ 61,838

Operating income (loss) $ (349,707) $(2,825,543) $3,787,338 $(2,608,981)

Net income (loss) $ (563,755) $(2,977,610) $3,692,594 $(1,728,569)

Net income (loss)
per share, basic
and diluted $ (.01) $ (.07) $ .09 $ (.05)

The quarterly financial data for the first three quarters of 2000 reported above
differ from the data for those periods previously reported by us on Form 10-Q as
described below:

First Quarter Second Quarter Third Quarter
------------- -------------- -------------
Previously As Previously As Previously As
Reported Adjusted Reported Adjusted Reported Adjusted
-------- -------- -------- -------- -------- --------

Revenue $ 1,001,250 $ 1,201,250 $ 776 $ 200,776 $ 1,359,164 $ 1,559,164

Operating loss $(1,596,831) $(1,396,831) $(3,948,686) $(3,748,686) $(2,346,838) $(2,146,838)

Net loss $(1,839,288) $(2,639,288) $(4,216,917) $(4,016,917) $(2,654,532) $(2,454,532)

Net loss per share,
basic and
diluted $ (.04) $ (.06) $ (.10) $ (.09) $ (.06) $ (.06)

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). Prior to the implementation of SAB 101, non-refundable license fees
received upon execution of license agreements were recognized as revenue
immediately. 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. We were required to 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 calculated as of January 1, 2000.

We adopted SAB 101 in 2000, changing our revenue recognition policy for up-front
licensing fees that require services to be performed in the future from
immediate revenue recognition to deferral of revenue with the up-front fee
recognized over the life of the agreement. In 1997, we recognized $3,000,000 in
revenue from an up-front licensing fee from Pfizer. With the adoption of SAB
101, we are now recognizing this revenue over a 45 month period, equivalent to
the term of our oral Calcitonin agreement with Pfizer which was terminated in
March 2001. We therefore recognized a non-cash cumulative effect adjustment of
$1,000,000 as of January 1, 2000 representing a revenue deferral over the
remaining 15 months of the agreement. We restated the accompanying 2000
financial statements for the cumulative effect adjustment and recognized
$200,000 of revenue in each of the quarters through March 31, 2001 as a result
of this deferral.

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

You should read the following discussion together 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 ended September 30, 2001 and 2000

Revenue for the third quarter of 2001 decreased 83% to $268,000 from $1,559,000
in the third quarter of 2000. Revenue for the third quarter of 2001 consisted
primarily of calcitonin sales. Revenue for the third quarter of 2000 consisted
primarily of a $1,000,000 milestone from Pfizer, analytical testing services
provided to Pfizer, as well as the amortization of deferred revenue in the
amount of $200,000. Revenue for the first nine months of 2001 decreased 79% to
$629,000 from $2,961,000 in the first nine months of 2000. Revenue for the first
nine months of 2001 consisted primarily of $339,000 in calcitonin sales,
$200,000 from the amortization of deferred revenue from Pfizer and analytical
testing services provided to Pfizer. Revenue for the first nine months of 2000
consisted primarily of revenue from Pfizer, including $600,000 from the
amortization of deferred revenue and $2,000,000 resulting from the achievement
of milestones in the development of an oral Calcitonin product as well as from
analytical testing services provided to Pfizer. In March 2001, Pfizer terminated
its license agreement with Unigene.

Research and development, Unigene's largest expense, decreased 21% to $2,289,000
from $2,905,000 for the three months ended September 30, 2001, as compared to
the same period in 2000. The decrease was primarily attributable to decreased
development expenses related to Unigene's nasal calcitonin product, as well as
decreased production expenditures. Research and development costs decreased 12%
to $6,857,000 from $7,836,000 for the nine months ended September 30, 2001, as
compared to the same period in 2000. The decrease was primarily attributable to
reduced expenditures for the development of Unigene's nasal calcitonin product,
consulting fees and European regulatory filing fees.

General and administrative expenses decreased 15% to $682,000 from $801,000 for
the three months ended September 30, 2001, and decreased 21% to $1,919,000 from
$2,418,000 for the nine months ended September 30, 2001, as compared to the same
periods in 2000. The decreases for the three month and nine month periods ended
September 30, 2001 were primarily attributable to the recognition of a non-cash
expense in 2000 of $220,000 due to the issuance of a warrant to a consultant,
partially offset by increased legal fees in 2001. The decrease for the nine
month period ended September 30, 2001 was also affected by the recognition of a
$350,000 expense in June 2000 to terminate Unigene's former joint venture in
China.

Interest income decreased $3,000 or 71% for the three months ended September 30,
2001, and decreased $34,000 or 83% for the nine months ended September 30, 2001,
as compared to the same periods in 2000, due to reduced funds available for
investment in 2001.

Interest expense increased $218,000 or 70% for the three months ended September
30, 2001 to $530,000 from $312,000 and increased $666,000 or 78% for the nine
months ended September 30, 2001 to $1,526,000 from $860,000 from the
corresponding periods in 2000. Interest expense increased in 2001 due to
increased officers' loans and higher interest rates on a portion of these loans.
Officers' loans to Unigene increased $5,035,000 during the first nine months of
2001. In addition, due to the fact that Unigene did not make principal and
interest payments on officers' loans when due, the interest rate on $1,100,000
of these new loans and on $2,873,323 of prior loans increased an additional 5%
per year and applied to both past due principal and interest. This additional
interest was approximately $382,000 for the first nine months of 2001. Interest
expense for both periods also was affected by higher interest rates on the 5%
convertible debentures. The annual interest rate on the $2,000,000 in
outstanding principal amount of the 5% Debentures increased in 2000 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 penalty for the removal of Unigene's common stock from trading
on the Nasdaq Stock Market.

Effective January 1, 2000, Unigene adopted Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101) as described in Note A
to our September 30, 2001 unaudited condensed financial statements. As a result
of the adoption of SAB 101, Unigene recognized a non-cash cumulative effect
adjustment of $1,000,000 in the first quarter of 2000.

Due to the elimination of revenue from Pfizer, as well as an increase in
interest expense, partially offset by decreased operating expenses, net loss
increased $777,000 or 32% to $3,232,000 from $2,455,000 for the three months
ended September 30, 2001 from the corresponding period in 2000.

Due to the reduction in revenue from Pfizer, as well as an increase in interest
expense, partially offset by the cumulative effect adjustment applicable to
2000, as well as a decrease in operating expenses, net loss increased $555,000
or 6% to $9,666,000 from $9,111,000 for the nine months ended September 30, 2001
from the corresponding period in 2000.

Years ended December 31, 2000, 1999 and 1998

Revenue. Revenue decreased 66% to $3,287,000 for the year ended December
31, 2000 as compared to $9,589,000 for the year ended December 31, 1999. 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. In all three years, revenue
consists primarily of milestone revenue from Pfizer resulting from the
achievement of milestones in the development of an oral Calcitonin product for
treating osteoporosis. Yearly revenue was affected by the timing of the
completion of the various milestones. In addition, revenue for the year ended
December 31, 2000 included $800,000 from the amortization of deferred revenue
related to the initial licensing fee paid by Pfizer in 1997 and $345,000 for
analytical testing services provided to Pfizer. In March 2001, Pfizer terminated
its license agreement with the Company.

Research and Development Expenses. Research and development, the Company's
largest expense, increased 22% in 2000 to $11,484,000 from $9,375,000 in 1999
and increased 4% in 1999 from $9,042,000 in 1998. The 2000 increase was
primarily attributable to the Company's clinical trials for its nasal Calcitonin
product and an increase in expenditures related to an increase in Calcitonin
production and the write-off of inventory in the fourth quarter as a result of
Pfizer's termination of our agreement, partially offset by a reduction in
consulting fees related to the Pfizer collaboration. The 1999 increase was
primarily attributable to development expenses related to the Company's nasal
Calcitonin product, consulting and analytical testing expenses related to the
Company's Type II variation for its injectable Calcitonin product, and
consulting fees related to the Company's collaboration with Pfizer partially
offset by a reduction in production supplies. Expenditures for the sponsorship
of collaborative research programs were $411,000, $250,000 and $280,000 in 2000,
1999 and 1998, respectively, which are included as research and development
expenses. A portion of these expenditures was reimbursed by Pfizer in 1999 and
1998.

General and Administrative Expenses. General and administrative expenses
increased 44% in 2000 to $3,187,000 from $2,212,000 in 1999 and increased 7% in
1999 from $2,068,000 in 1998. The 2000 increase was primarily due to the
recognition of non-cash expenses of $220,000 due to the issuance of warrants to
a consultant and stock option compensation of $399,000, in addition to the
recognition of a $350,000 expense to terminate the Company's former joint
venture in China. The 1999 increase was primarily due to increased personnel
costs and professional fees partially offset by reductions in public relations
and travel expenses.

Interest Income. Interest income increased $12,000 or 31% in 2000 from 1999,
after decreasing $70,000 or 65% in 1999 from 1998. The 2000 increase was due to
higher interest rates on investments. The 1999 decrease was due to lower
interest income resulting from reduced funds available for investment.

Interest Expense. Interest expense increased $27,000 or 2% in 2000 to
$1,199,000 from $1,171,000 in 1999 after increasing $386,000 or 49% in 1999 from
$785,000 in 1998. Interest expense increased in 2000 due to increased notes
payable to stockholders and to higher interest rates in 2000 on the 5%
convertible debentures, offset by a reduction in the amortization of the
beneficial conversion feature and related warrants on the 5% convertible
debentures as

compared to 1999. The annual interest rate on the $2,000,000 in outstanding
principal amount of the 5% Debentures increased in 2000 to 20% resulting from
the failure of the Company to make a semi-annual interest payment that was due
in January 2000. In addition, since October 1999, the Company 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
Company's Common Stock from trading on the Nasdaq Stock Market in October 1999.
The expenses incurred in connection with the 5% Debentures in 2000 were
partially offset by a 50% decrease in the principal balance outstanding as a
result of conversions to Common Stock during 1999. Included in 1999 interest
expense is $197,000 of the amortization of the value of the beneficial
conversion feature and related warrants of the Company's 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, redemption premium resulting from the
Company exceeding the Share Limit on the 5% Debentures, and the 2% delisting
penalty on the 5% Debentures, partially offset by a decrease in the balance
outstanding under the Company's 5% Debentures as a result of partial conversions
to Common Stock.

Income Tax Benefit. Income tax benefit in 2000 of $1,065,000 and in 1999
of $1,553,000 consisted of proceeds received for the sale of a portion of the
Company's state tax net operating loss carryforwards under a New Jersey Economic
Development Authority ("NJEDA") program, which allows certain 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.

Cumulative Effect of Accounting Change. In December 1999, the Securities
and Exchange Commission staff issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). Prior to the implementation of
SAB 101, non-refundable license fees received upon execution of license
agreements were recognized as revenue immediately. 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 was required to 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 calculated as of
January 1, 2000. The Company adopted SAB 101 in 2000, changing its revenue
recognition policy for up-front licensing fees that require services to be
performed in the future from immediate revenue recognition to deferral of
revenue with the up-front fee recognized over the life of the agreement. In
1997, the Company recognized $3,000,000 in revenue from an up-front licensing
fee from Pfizer. With the adoption of SAB 101, the Company is now recognizing
this revenue over a 45 month period, equivalent to the term of its oral
Calcitonin agreement with Pfizer which was terminated in March 2001. The Company
therefore recognized a non-cash cumulative effect adjustment of $1,000,000 as of
January 1, 2000 representing a revenue deferral over the remaining 15 months of
the agreement. The Company recognized $800,000 in revenue in 2000 and will
recognize $200,000 of revenue in 2001 as a result of this deferral.

Net Loss. During 2000, revenue decreased approximately $6,300,000
principally due to the timing of the achievement of various milestones in the
Pfizer agreement. In addition, operating expenses were higher as the Company
increased its product commercialization efforts including its nasal Calcitonin
clinical trials. Also, the Company recognized a cumulative charge from an
accounting change offset by a realized income tax benefit. Therefore, net loss
increased $10,892,000 for the year ended December 31, 2000 from the prior year.
During 1999, revenue increased $4,540,000 from 1998 due to the achievement of
various milestones in the Pfizer agreement. In addition, the Company received
$1,553,000 in 1999 from the partial sale of its state tax benefits. These were
partially offset by an increase in operating and interest expenses. As a result,
the Company's net loss decreased $5,304,000 or 77% for the year ended December
31, 1999, from the prior year.

Liquidity and Capital Resources

Unigene maintains its peptide production facility on leased premises in Boonton,
New Jersey. We began production under current Good Manufacturing Practice
guidelines at this facility 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 the first nine months of 2001,
Unigene invested approximately $15,000 in fixed assets and leasehold
improvements. Currently, Unigene has no material commitments outstanding for
capital expenditures relating to either the Boonton facility or the office and
laboratory facility in Fairfield, New Jersey.

At September 30, 2001, Unigene had cash and cash equivalents of $76,000, an
increase of $59,000 from December 31, 2000.

We do not have sufficient financial resources to continue to fund our operations
at the current level. Unigene has incurred annual operating losses since its
inception and, as a result, at September 30, 2001, had an accumulated deficit of
approximately $85,000,000 and a working capital deficiency of approximately
$20,800,000. The independent auditors' report covering Unigene's 2000 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 Nasdaq Stock Market delisted Unigene's common
stock. The delisting of our common stock may have an adverse effect on our
ability to raise capital.

Our 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 and receiving
royalties from the sale of its licensed products.

In July 1997, Unigene entered into an agreement under which it granted to
Warner-Lambert Company a worldwide license to use its oral Calcitonin
technology. In June 2000, Pfizer Inc. acquired Warner-Lambert. Through September
30, 2001, we had received a total of $22.9 million from Pfizer consisting of $3
million for an equity investment, $3 million for a licensing fee, $400,000 for
analytical testing services and recognized an aggregate of $16.5 million in
milestone revenue. Pfizer conducted a Phase I/II human study which was completed
in December 2000. Pfizer analyzed the results of the study and informed Unigene
in March 2001 that the study did not achieve Pfizer's desired results. Pfizer
terminated the license agreement citing this conclusion. We believe that this
study, in which an FDA approved product also did not work and which produced
results contrary to many published studies, was not capable of determining the
performance of our oral Calcitonin product. Unigene also believes that if
subjects in the study had also received calcium supplementation, in addition to
the Calcitonin, the results would have been more favorable. Therefore, Unigene
intends to continue the development of its oral Calcitonin product as a
treatment of osteoporosis, and has begun discussions with potential licensees in
the U.S. and other countries. In addition, due to the termination of the Pfizer
agreement, we no longer have restrictions on selling bulk Calcitonin. During the
first nine months of 2001, we sold a total of $339,000 of bulk calcitonin.
Unigene also has 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 Israel for its injectable
product. However, these distribution agreements have not produced significant
revenues. In June 2000, we entered into a joint venture agreement in China with
Shijiazhuang Pharmaceutical Group ("SPG") to manufacture and market our
injectable and nasal products. Unigene is actively seeking other licensing
and/or supply agreements with pharmaceutical companies for its injectable and
nasal Calcitonin products and for other pharmaceutical products that can be
manufactured and/or delivered using its patented technologies, and is also
exploring other opportunities including business combinations. However, we may
not be successful in our efforts to enter into any additional revenue generating
agreements.

Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during 2002 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by Unigene's share of joint venture profits. As of September 30, 2001,
Unigene had not made any contributions to the joint venture. We expect the joint
venture to begin operations in the first quarter of 2002. 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 $80,000 had been paid as of
September 30, 2001. We recognized the entire $350,000 obligation as an expense
in 2000.

In June 1998, Unigene completed a private placement of $4,000,000 in principal
amount of 5% convertible debentures from which Unigene realized net proceeds of
approximately $3,750,000. The 5% debentures were convertible into shares of
Unigene's common stock. The interest on the debentures, at our option, was
payable in shares of common

stock. Upon conversion, the holder of a 5% debenture
was entitled to receive warrants to purchase a number of shares of common stock
equal to 4% of the number of shares issued as a result of the conversion.
However, the number of shares of common stock that Unigene 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, was limited to
3,852,500 shares. After this share limit was reached, we became 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, Unigene 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, 2001, 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 September 30, 2001, Unigene issued a total of 3,703,362 shares of 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, Unigene 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, 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, January 5, 2001 and July 5, 2001 also have
not been made. As of November 30, 2001, the accrued and unpaid interest on the
5% debentures totaled approximately $833,000. In addition, due to the delisting
of Unigene's common stock from the Nasdaq National Market in October 1999, we
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 additional interest expense. As of November 30, 2001,
the accrued and unpaid amount of this penalty totaled approximately $1,057,000.

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 the first quarter of 2001, Jay Levy loaned Unigene
$1,600,000 and Warren Levy and Ronald Levy each made demand loans to Unigene of
$5,000. During the second quarter of 2001, Jay Levy made demand loans to Unigene
of $1,950,000. During the third quarter of 2001, Jay Levy made demand loans to
Unigene of $1,475,000. From October 1, 2001 through November 30, 2001, Jay Levy
made demand loans to Unigene of an additional $725,000. Due to the fact that
Unigene did not make principal and interest payments on certain loans when due,
interest on loans through March 4, 2001 increased an additional 5% per year and
is calculated on both past due principal and interest. This additional interest
was approximately $382,000, and total interest expense on all Levy loans was
approximately $793,000 for the first nine months of 2001. The Levys have waived
all default provisions including additional interest penalties due under these
loans through December 31, 2000. As of November 30, 2001, total accrued interest
on all Levy loans was approximately $1,909,000 and the outstanding loans by
these individuals to Unigene, classified as short-term debt, totaled $10,503,323
and consist of:

o Loans from Jay Levy in the aggregate principal amount of $3,465,000,
which are evidenced by demand notes bearing a floating interest rate
equal to the Merrill Lynch Margin Loan Rate plus 5.25% (11. 25% at
November 30, 2001) that are classified as short-term debt. These loans
were originally at the Merrill Lynch Margin Loan Rate plus .25%. These
loans are secured by a security interest in Unigene's equipment and real
property. Accrued interest on these loans at November 30, 2001 was
approximately $1,041,000.

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 11% per year. These loans were originally at 6%. 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. Accrued interest on these
loans at November 30, 2001 was approximately $377,000.

o Loans from Jay Levy in the aggregate principal amount of $4,650,000
which are evidenced by demand notes bearing a floating interest rate
equal to the Merrill Lynch Margin Loan Rate plus .25%, (6. 25% at
November 30, 2001) and are classified as short-term debt and which are
secured by a security interest in certain of our patents. Accrued
interest on these loans at November 30, 2001 was approximately $137,000.

o Loans from Warren Levy in the aggregate principal amount of $260,000
which are evidenced by demand notes bearing a floating interest rate
equal to the Merrill Lynch Margin Loan Rate plus 5.25% (11. 25% at
November 30, 2001) that are classified as short-term debt. These loans
were originally at the Merrill Lynch Margin Loan Rate plus .25%. An
additional loan in the amount of $5,000 bears interest at the Merrill
Lynch Loan Rate plus .25% (6. 25% at November 30, 2001) and is
classified as short-term debt. These loans are secured by a secondary
security interest in Unigene's equipment and real property. Accrued
interest on these loans at November 30, 2001 was approximately $178,000.

o Loans from Ronald Levy in the aggregate principal amount of $248,323
which are evidenced by demand notes bearing a floating interest rate
equal to the Merrill Lynch Margin Loan Rate plus 5.25% (11. 25% at
November 30, 2001) that are classified as short-term debt. These loans
were originally at the Merrill Lynch Margin Loan Rate plus .25%. An
additional loan in the amount of $5,000 bears interest at the Merrill
Lynch Margin Loan Rate plus .25% (6. 25% at November 30, 2001) and is
classified as short-term debt. These loans are secured by a secondary
security interest in Unigene's equipment and real property. Accrued
interest on these loans at November 30, 2001 was approximately $176,000.

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 the Levys, as well as obligations relating to its
current and former joint ventures in China.

We are actively seeking licensing and/or supply agreements with pharmaceutical
companies for oral, nasal and injectable forms of Calcitonin as well as for
other oral peptides. However, we may not be successful in licensing any of our
products.

Under the agreement with Fusion Capital, Unigene has the contractual right to
sell to Fusion, subject to certain conditions, at the then current market price,
on each trading day during the term of the agreement $43,750 of its common stock
up to an aggregate of $21,000,000. See Notes B and F to our September 30, 2001
unaudited condensed financial statements. The Board of Directors has authorized
the sale to Fusion of up to 6,000,000 shares of Unigene common stock. From May
18, 2001, through November 30, 2001, Unigene has received approximately
$1,381,000 through the sale of 3,879,604 shares to Fusion, before cash expenses
of approximately $257,000. Our sales of common stock to Fusion have been below
the maximum level due to the share price and trading volume of our common stock.
As a result, we are still borrowing from the Levys to supplement the funding of
our operations. Depending on the price at which shares are sold, Fusion could
provide Unigene with sufficient funding to sustain its operations for up to two
years, beginning in the second quarter of 2001. The ability of Unigene to
realize these funds will depend on its continuing compliance with the Fusion
agreeement.

The extent to which we intend to utilize Fusion as a source of financing will
depend on a number of factors, including the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources, such as through the entry into licensing agreements or the sale
of calcitonin, both of which we are actively exploring. If we are unable to
enter into a significant revenue generating license or other arrangement in the
near term, we would need either to secure another source of funding in order to
satisfy our working capital needs or significantly curtail our operations. We
also could consider a sale or merger of the company. Should the funding we
require to sustain our working capital needs be unavailable or prohibitively
expensive when we require it, the consequence would be a material adverse effect
on our business, operating results, financial condition and prospects. Unigene
believes that satisfying its capital requirements over the long term will
require the successful commercialization of its oral or nasal Calcitonin
products or another peptide product in the United States and abroad.

However, it is uncertain whether or not any of its products will be approved or
will be commercially successful. In addition, the commercialization of its oral
Calcitonin product may require Unigene to incur additional capital expenditures
to expand or upgrade its manufacturing operations. Unigene cannot determine
either the cost or the timing of such capital expenditures at this time.

As of December 31, 2000, Unigene had available for federal income tax reporting
purposes net operating loss carryforwards in the approximate amount of
$68,000,000, expiring from 2001 through 2020, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. For
the nine months ended September 30, 2001, we accumulated additional losses of
approximately $9,666,000. In addition, as of December 31, 2000, Unigene has
research and development credits in the approximate amount of $2,750,000, which
are available to reduce the amount of future federal income taxes. These credits
expire from 2001 through 2020. Unigene has New Jersey operating loss
carryforwards in the approximate amount of $23,300,000, expiring from 2004
through 2007, which are available to reduce future earnings, which would
otherwise be subject to state income tax. As of September 30, 2001 these New
Jersey loss carryforwards have been approved for future sale under 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, and there are 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. In
November 2001, the NJEDA approved a portion of our New Jersey tax benefits for
current sale. We have agreements in place to sell these tax benefits and expect
to realize a total of approximately $800,000 in December 2001 and January 2002.

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, 2000 and 1999, under SFAS No. 109, Unigene
had deferred tax assets of approximately $29,000,000 and $26,000,000,
respectively, subject to valuation allowances of $29,000,000 and $26,000,000,
respectively. The deferred tax assets are primarily a result of the Company's
net operating losses and tax credits. For the nine-month period ended September
30, 2001, Unigene's deferred tax assets and valuation allowances each increased
by approximately $3,000,000.

Other

Our common stock was 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.

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. Unigene does not employ specific strategies, such as the use of
derivative instruments or hedging, to manage its interest rate exposure.
Unigene's interest rate exposure on the 5% debentures has been affected by our
delisting from the Nasdaq National Market and failure to make the semi-annual
interest payment in January 2000. Beginning in the first quarter of 2001,
Unigene's interest rate exposure on its notes payable-stockholders has been
affected by its failure to make principal and interest payments when due.
Unigene's exposure to interest rate fluctuations over the near-term will
continue to be affected by these events.

The information below summarizes Unigene's market risks associated with debt
obligations as of September 30, 2001. 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% 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, 2001. Given
Unigene's financial condition described in "Liquidity and Capital Resources" it
is not practicable to estimate the fair value of our debt instruments at
September 30, 2001.

Year of Maturity
------------------------------------------------------------
Carrying
Amount 2001 2002 2003 2004 2005
-------- ------ ------ ------ ------ ------

Notes payable - stockholders $3,973,323 3,973,323 -- -- -- --

Variable interest rate (1) 11.875% -- -- -- --

Notes payable - stockholders $3,935,000 3,935,000 -- -- -- --

Variable interest rate 6.875% -- -- -- --

Notes payable - stockholders $1,870,000 1,870,000 -- -- -- --

Fixed interest rate (2) 11% -- -- -- --

5% debentures $2,400,000 2,400,000 -- -- -- --

Fixed interest rate (3) 20%

(1) Due to the fact that Unigene did not make principal and interest payments on
its notes payable to stockholders when due, the variable interest rate on
these notes has increased from the Merrill Lynch Margin Loan Rate plus .25%
to the Merrill Lynch Margin Loan Rate plus 5.25%.

(2) Due to the fact that Unigene did not make principal and interest payments on
its notes payable to stockholders when due, the fixed interest rate on these
notes has increased from 6% to 11%.

(3) 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% debentures has
increased from 7% at December 31, 1999, to 20% beginning January 5, 2000. In
addition, due to the delisting of our common stock from the Nasdaq National
Market in 1999, we became obligated to pay the holder of the 5% debentures
an amount equal to 2% of the outstanding principal amount of the debentures
per month.

Business

Overview

Unigene is a biopharmaceutical company engaged in the research,
production and delivery of small proteins, referred to as peptides, that have
demonstrated or may have potential medical use. We have a patented manufacturing
technology for producing many peptides cost-effectively. We also have patented
technology that has been shown to deliver orally medically useful amounts of
various peptides, into the bloodstream. Our primary focus has been on the
development of Calcitonin and other peptide products for the treatment of
osteoporosis and other indications. We have the facilities and the technology
for manufacturing Calcitonin in accordance with cGMP and have an injectable
Calcitonin product that is approved for sale in Switzerland for the treatment of
osteoporosis and in the European Union for two minor indications. We are also
engaged in the development of oral and nasal Calcitonin products. During 2001,
we began developing other peptide products, including parathyroid hormone for
osteoporosis.

Our Accomplishments

Among our major accomplishments are:

o Development of a Proprietary Peptide Production Process. One of our principal
scientific accomplishments is our success in developing a highly efficient
biotechnology-based peptide 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 peptides with
various medical applications. Many of these peptides cannot be produced at a
reasonable cost in sufficient quantities for human testing or commercial use by
currently available production processes. Using our proprietary process, we have
produced laboratory-scale quantities of various peptides. We have constructed
and are operating a manufacturing facility employing this process to produce
Calcitonin.

o Development of Proprietary Technology for Oral Delivery. We have also
developed and patented a formulation that has successfully delivered orally
Calcitonin into the bloodstream of human subjects. We and our collaborators have
shown in repeated human studies that this formulation regularly delivers
measurable quantities of the peptide into the human bloodstream. We believe that
this formulation may accelerate the regulatory approval process for an oral
Calcitonin product because it should be easier to establish its performance as
compared to a formulation that does not produce measurable Calcitonin blood
levels. We believe that the components of our patented oral product also can
enable the delivery of other peptides and we have initiated studies to
investigate this possibility internally and in collaboration with others. During
2001, we reported successful oral delivery in animal studies of various peptides
including parathyroid hormone for osteoporosis and insulin for diabetes.

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, human testing,
and marketing of products derived from our research activities. However, we may,
in some cases, retain the responsibility for human 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. Through December 31, 2000, we
recognized an aggregate of $16.5 million in revenue due to the achievement of
specified milestones, including $2.0 million in 2000. Pfizer began a Phase I/II
human study in April 2000 and patient dosing was completed in December 2000.
Pfizer analyzed the results of the study and informed us in March 2001 that the

study did not achieve Pfizer's desired results. Pfizer terminated the license
agreement citing this conclusion. We believe that this study, in which an FDA
approved product also did not work and which produced results contrary to many
published studies, was not capable of determining the performance of our oral
Calcitonin product. We believe that if patients in the study had also received
calcium supplements, in addition to the Calcitonin, the results would have been
more favorable. Therefore, we intend to continue the development of our oral
Calcitonin product as a treatment of osteoporosis, and have begun discussions
with potential licensees in the U.S. and other countries. In addition, due to
the termination of the Pfizer agreement, we no longer have restrictions on
selling bulk Calcitonin.

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, the joint venture may
be required to conduct brief local human trials. 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 September 30, 2001. We expect operations to commence in
the first quarter of 2002.

o Other License or Distribution Arrangements. In addition to the joint venture
with SPG, we have entered into distribution agreements for our injectable
Calcitonin product 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 Calcitonin products. However, we may not be
successful in our efforts to sign any additional revenue generating agreements.

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
pharmaceutical products. In the development, manufacture and sale of peptide
products, we 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. Our main competitor in the field of oral delivery of peptides is
Emisphere Technologies. We believe that the unique safety and effectiveness of
Calcitonin, combined with our patented peptide manufacturing process and our
patented oral formulation, 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.
Our success will further depend on our ability to obtain adequate funding and on
developing, testing, protecting, producing and marketing products and obtaining
their timely regulatory approval. We are always at risk that others may 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 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 modified to increase Calcitonin production capacity.
However, if we are successful in our efforts to commercialize an oral Calcitonin
product, we expect that we may incur additional expenditures to expand or
upgrade our manufacturing operations. Although the facility initially is devoted
exclusively to Calcitonin production, it also is suitable for producing other
peptide 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. European health authorities inspected the facility in connection with the
filing of our injectable Calcitonin dossier and found it to be in compliance
with cGMP guidelines. However, there is the risk that our operations might not
remain in compliance or that approval by other agencies will not be obtained.
The FDA must approve the facility in order to manufacture Calcitonin or other
peptides for sale in the United States.

Government Regulation

Our laboratory research, development and production activities and those
of our collaborators are subject to significant regulation by numerous federal,
state, local and foreign governmental authorities. FDA approval, following the
successful completion of various animal and human studies, is required for the
sale of a pharmaceutical product in the United States. 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 a risk that any
additional regulatory approvals required for our production facility or for any
of our products will not be obtained in a timely manner. Our 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.

The FDA or other regulatory agencies may audit our production facility
to ensure that it is operating in compliance with current Good Manufacturing
Practice guidelines, referred to as cGMP. These guidelines require that
production operations be conducted in strict compliance with our established
rules for manufacturing and quality controls. These agencies are empowered to
suspend production operations and/or product sales if, in their opinion,
significant or repeated changes from these guidelines have occurred. A
suspension by any of these agencies could have a material adverse impact on our
operations.

Regulatory Approval of Our Injectable Calcitonin Product

In January 1999, we received approval from the European Committee for
Proprietary Medicinal Products, referred to as the CPMP, 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. We began to market this
product in Europe for these indications in 1999. We have filed a supplementary
submission with the CPMP, called a Type II Variation, to expand the approved
indications to include the treatment of osteoporosis. However, it is uncertain
whether or when the Type II Variation will be approved by the CPMP. In 2001, we
received an approval in Switzerland for our injectable calcitonin product that
includes an osteoporosis indication.

Regulatory authorities in many non-European Union countries can cite the
approved European dossier, which we believe could significantly reduce the
registration requirements for injectable Calcitonin in those non-European Union
countries, and thereby could speed up product launch. In addition, we believe
that the human 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 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 human 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 human studies in the United Kingdom.
These studies indicated that the majority of those who received oral Calcitonin
showed levels of the peptide in blood samples taken during the trial that were
greater than the minimum levels generally regarded as being required for maximum
medical 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 peptide. 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 human trials. The results of this trial
indicated that every test subject showed levels of the peptide in their blood
samples that exceeded the minimum levels generally regarded as required for
maximum medical benefit. During 1999, with Warner-Lambert (now Pfizer), 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, a Phase I/II study began in
April 2000 and patient dosing for this study was completed in December 2000.
Pfizer analyzed the results of the study and informed us in March 2001 that the
study did not achieve Pfizer's desired results. Pfizer terminated the license
agreement citing this conclusion. We believe that this study, in which an FDA
approved product also did not work and which produced results contrary to many
published studies, was not capable of determining the performance of our oral
Calcitonin product. We believe that if patients in the study had also received
calcium supplements, in addition to the Calcitonin, the results would have been
more favorable. Therefore, we intend to continue the development of our oral
Calcitonin product as a treatment of osteoporosis, and have begun discussions
with potential licensees in the U.S. and other countries. In addition, due to
the termination of the Pfizer agreement, we no longer have restrictions on
selling bulk Calcitonin.

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 basic 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.

There are risks that we will not be successful in licensing this product,
that a safe and effective oral product will not be developed, that we will not
be successful in obtaining regulatory approval of an oral Calcitonin product,
and that we will not 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 Calcitonin product, which has substantially enlarged
the U.S. market for Calcitonin. During 1999, we completed preliminary human
studies for our proprietary nasal Calcitonin product. 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 human testing of our
nasal product as a treatment for osteoporosis. In February 2000, we began U.S.
human studies. In December 2000, we successfully completed a human study
demonstrating similar blood levels between our product and that of an existing
nasal Calcitonin product. We have successfully completed a second human study
which showed a rapid and persistent reduction in bone loss as measured by
several accepted blood markers. A substance in the bloodstream which measures
the rate of bone loss in the tested subjects decreased by an average of over 40%
in the first month of the study, and that reduction was maintained throughout
the three-month dosing period during which the measurements were taken. We are
seeking to license our nasal Calcitonin product in the U.S. and other countries
for the treatment of osteoporosis. However, we may not be successful in our
efforts to conclude a license agreement, to obtain governmental approval of our
nasal Calcitonin product, or to manufacture and sell the product.

Collaborative Research Programs

We are currently engaged in two collaborative research programs:

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

o We are in collaboration with Yale University, to investigate new
applications for various peptides, including Calcitonin gene-related
peptide. In 1996, we reported that this peptide accelerated bone growth and
prevented bone loss in an animal model system. However, this peptide may not
have the same effect in humans. We may not be successful in developing,
manufacturing or marketing any resulting product.

Patents and Proprietary Technology

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

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

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 oral delivery of peptides

Other applications are pending. We also have made filings in selected
foreign countries, and numerous foreign patents have issued. However, our
pending applications may not issue as patents and our issued patents may not
provide us with significant competitive advantages. Furthermore, our competitors
may independently develop or obtain similar or superior technologies.

Although we believe our patents and patent applications are valid, the
repeal of one or more of our key patents could have a significant adverse effect
upon our business. Detecting and proving infringement generally is more
difficult with process patents than with product patents. In addition, a process
patent's value is diminished if others have patented the product that can be
produced using the process. 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 make and sell the product.

In some cases, we rely on trade secrets to protect our inventions. Our
policy is 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 a risk that these secrecy
obligations could be breached causing us harm. 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
ownership rights to information, which may not be resolved in our favor.

Employees

As of November 30, 2001 we had 63 full-time employees. Twentyone were
engaged in research, development and regulatory activities, 30 were engaged in
production activities and 12 were engaged in general and administrative
functions. Eight 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

and Ronald S. Levy, Executive Vice President, both
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 81% 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 $11.5 million on research activities in 2000, $9.4 million in
1999, and $9.0 million in 1998.

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 Calcitonin and can be used for
the production of other peptides, 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 Tail Wind in
a private placement completed in June 1998, filed with the American Arbitration
Association a demand for arbitration against Unigene. In its demand, Tail Wind
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 Tail Wind's claim and
makes certain counterclaims. A hearing on the matter before an arbitrator
appointed by the American Arbitration Association was scheduled for June 2001.
In June 2001, the arbitration was postponed to allow Tail Wind and Unigene to
engage in settlement discussions. The outcome of these negotiations is
uncertain. An extremely unfavorable settlement or arbitration 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. Unigene removed this case to the
United States District Court for the Southern District 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.
The plaintiff is seeking damages of $2 million. We believe that this suit is
completely without merit, and we will continue 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) 49 President, Chief Executive Officer, and Director
Ronald S. Levy (1) 53 Executive Vice President, Secretary, and Director
Jay Levy (1) 78 Chairman of the Board and Treasurer
James P. Gilligan 49 Vice President of Product Development
J. Thomas August 74 Director
Bruce S. Morra 47 Director
Allen Bloom 58 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 the 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.

J. Thomas August. Dr. J. Thomas August is a Distinguished Service Professor
of the Departments of Oncology, Pharmacology and Molecular Sciences at the Johns
Hopkins University School of Medicine, where he has been employed since 1976. He
is also Director, Johns Hopkins Singapore Biomedical Centre. Dr. August has
served as Unigene's Director of Research since 1990. He serves on the Board of
Directors of Bioqual, Inc., Aarmedis, Inc. and the Foundation for Comparative
and Conservation Biology, and is also a consultant for various biotechnology and
medical companies. Dr. August received his medical degree from Stanford
University School of Medicine.

Bruce S. Morra. Dr. Bruce S. Morra has been the President, COO and CFO of
Biopore Corporation and Polygenetics, Inc., two related companies developing
technology for drug delivery and medical devices for biomedical and industrial
applications since 2000. From 1993 through 2000, he served as President and COO
of Flamel Technologies, Inc., a company developing, manufacturing and licensing
drug and agrochemical delivery technologies and products. He has also served as
President of ISP Filters and currently serves as a director for

Medisys Technologies. Dr. Morra holds a Ph.D. in polymer science and engineering
and an M.B.A. from the University of Massachusetts, Amherst and a B.S.E. in
chemical engineering from Princeton University.

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

The Board of Directors performs several important functions through
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. Bloom, August and Morra.

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. Bloom, August and Morra.

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, August and Morra.

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. Robert Hendrickson (who
did not stand for re-election in 2001) and Dr. Bloom were the only directors who
received such fees in 2000. 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. The Compensation Committee has
discretion to approve salary increases beyond this first year.

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. Either party must give this notice no
later than three months prior to the scheduled termination date. Each agreement
also provides that, if Unigene terminates 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

The Board of Directors determined executive compensation for 2000. 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.

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 the first quarter of 2001, Jay Levy loaned Unigene
$1,600,000 and Warren Levy and Ronald Levy each made demand loans to Unigene of
$5,000. During the second quarter of 2001, Jay Levy made demand loans to Unigene
of $1,950,000. During the third quarter of 2001, Jay Levy made demand loans to
Unigene of $1,475,000. From October 1, 2001 through November 30, 2001, Jay Levy
made demand loans to Unigene of an additional $725,000. Due to the fact that
Unigene did not make principal and interest payments on certain loans when due,
interest on loans through March 4, 2001 increased an additional 5% per year and
is calculated on both past due principal and interest. This additional interest
was approximately $382,000, and total interest expense on all Levy loans was
approximately $793,000 for the first nine months of 2001. The Levys have waived
all default provisions including additional interest penalties due under these
loans through December 31, 2000. As of November 30, 2001, total accrued interest
on all Levy loans was approximately $1,909,000 and the outstanding loans by
these individuals to Unigene, classified as short-term debt, totaled $10,503,323
and consist of:

and ending in January 2002 in an aggregate amount of $72,426 per month.
No installment payments have been made to date. Accrued interest on
these loans at November 30, 2001 was approximately $377,000.

Executive Compensation

The following table shows, for the years 1998, 1999 and 2000, 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 2000
exceeded $100,000:

Summary Compensation Table

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

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

Warren P. Levy 2000 $160,175 $ 0 $ 0 $ 0 0 $ 0 $ 13,902
President, Chief 1999 146,211 0 0 0 0 0 13,866
Executive Officer 1998 146,231 0 0 0 0 0 13,830

Dr. Ronald S. Levy 2000 155,260 0 0 0 0 0 16,864
Executive Vice 1999 141,563 0 0 0 0 0 16,862
President 1998 141,618 0 0 0 0 0 16,792

Dr. James P. Gilligan 2000 148,034 0 7,615 0 0 0 0
Vice President 1999 139,216 0 7,235 0 135,000 0 0

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

Aggregated Option Exercises and Year-End Option Values

The following table shows information about any option exercises during
the year ended December 31, 2000, and the number and value of unexercised
options held as of December 31, 2000, by each of the executive officers named in
the Summary Compensation Table:

Shares Underlying Value of Unexercised
Unexercised Options In-the-Money Options(1)
Exercises during ----------------------- -----------------------
the Fiscal Year
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 0 346,000 44,000 $77,595 $37,755

1 Based upon a closing price of $1.53 on December 31, 2000.

Principal Stockholders

The following table shows information as of November 30, 2001, 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 and each other person
known by Unigene to be the beneficial owner of more than 5% of Unigene's common
stock.

The ownership percentages listed on the table are based on 50,316,544 shares
of Unigene common stock outstanding as of November 30, 2001. 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
- ------------------------ -------------------- ----------------
Fusion Capital Fund II, LLC 3,365,853 (1) 6.6%
222 Merchandise Mart Plaza
Chicago, IL 60654

Warren P. Levy 1,980,545 (2) 3.9%
Ronald S. Levy 1,995,545 (2) 4.0%
Jay Levy 593,095 (3) 1.2%
James P. Gilligan 421,660 (4) *
J. Thomas August 12,552 *
Bruce S. Morra -- *
Allen Bloom 51,000 (5) *
Officers and Directors
as a Group (7 persons) 4,854,397 (2,6) 9.6%

* Less than one percent.

1 Includes 1,000,000 shares that Fusion has the right to acquire upon the
exercise of a warrant.

2 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.

3 Includes 70,000 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.

4 Includes 402,000 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.

5 Includes 50,000 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 522,000 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 FUSION TRANSACTION

General

On May 9, 2001, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC under which Fusion agreed to purchase on each
trading day during the term of the agreement, $43,750 of our common stock or an
aggregate of $21 million. The $21 million of common stock is to be purchased
over a 24 month period, commencing May 18, 2001, subject to a six month
extension or earlier termination at our discretion. The purchase price of the
shares of common stock will be equal to a price based upon the future market
price of the common stock without any fixed discount to the market price.

Purchase Of Shares Under The Common Stock Purchase Agreement

Under the common stock purchase agreement, on each trading day Fusion
is obligated to purchase a specified dollar amount of our common stock. Subject
to our right to suspend such purchases at any time, and our right to terminate
the agreement with Fusion at any time, each as described below, Fusion shall
purchase on each trading day during the term of the agreement $43,750 of our
common stock. This daily purchase amount may be decreased by us at any time. We
also have the right to increase the daily purchase amount at any time, provided
however, we may not increase the daily purchase amount above $43,750 unless our
stock price is above $4.00 per share for five consecutive trading days. The
purchase price per share is equal to the lesser of:

o the lowest sale price of our common stock on the purchase date; or

o the average of the five (5) lowest closing sale prices of our common
stock during the fifteen (15) consecutive trading days prior to the date
of a purchase by Fusion.

The purchase price will be adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the trading days in which the closing sale price is used to
compute the purchase price. Fusion may not purchase shares of our common stock
under the common stock purchase agreement if Fusion, together with its
affiliates, would beneficially own more than 9.9% of our common stock
outstanding at the time of the purchase by Fusion. However, even though Fusion
may not receive additional shares of our common stock in the event that the 9.9%
limitation is ever reached, Fusion is still obligated to pay to us $43,750 on
each trading day, unless the common stock purchase agreement is suspended, an
event of default occurs or the agreement is terminated. Under these
circumstances, Fusion would have the right to acquire additional shares in the
future should its ownership subsequently become less than the 9.9%. Fusion has
the right at any time to sell any shares purchased under the

common stock purchase agreement which would allow it to avoid the 9.9%
limitation. Therefore, we do not believe that Fusion will ever reach the 9.9%
limitation.

The following table sets forth the number of shares of our common stock that
would be sold to Fusion under the common stock purchase agreement at varying
purchase prices:

Assumed Percentage Outstanding Proceeds from the Sale of 11,785,396
Average Number of Shares to be After Giving Effect to the Shares to Fusion Under the Common
Purchase Price Issued if Full Purchase Issuance to Fusion (1) Stock Purchase Agreement
-------------- ----------------------- ---------------------- -------------------------

$0.40 48,689,500 49.2% $ 4,714,158
$0.55(2) 35,410,545 41.3% $ 6,481,968
$1.00 19,475,800 27.9% $11,785,396
$2.00 9,737,900 16.2% $23,570,792
$3.00 6,491,933 11.4% $35,356,188
$4.00 4,868,950 8.8% $47,141,584

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

(1) Based on 50,316,544 shares outstanding as of December 7, 2001. Includes
the issuance of 2,000,000 shares of common stock issued to Fusion as a
commitment fee and the number of shares issuable at the corresponding
assumed purchase price set forth in the adjacent column. Excludes
1,000,000 shares of common stock underlying warrants issued to Fusion
as a commitment fee.
(2) Closing sale price of our common stock on December 7, 2001.
(3) Based on a remaining available balance of $19,475,800 under the common
stock purchase agreement.

Minimum Purchase Price

Fusion shall not be obligated to purchase any shares of our common
stock in the event that the purchase price is less than $.25.

Our Right To Suspend Purchases

We have the unconditional right to suspend purchases at any time for
any reason effective upon one trading day's notice. Any suspension would remain
in effect until our revocation of the suspension. 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 Right To Increase and Decrease the Daily Purchase Amount

We have the unconditional right to decrease the daily amount to be
purchased by Fusion at any time for any reason effective upon one trading day's
notice. We also have the right to increase the daily purchase amount at any time
for any reason; provided however, we may not increase the daily purchase amount
above $43,750 unless our stock price has been above $4.00 per share for five
consecutive trading days. For any trading day that the sale price of our common
stock is below $4.00, the daily purchase amount shall not be greater than
$43,750.

Our Termination Rights

We have the unconditional right at any time for any reason to give
notice to Fusion terminating the common stock purchase agreement. Such notice
shall be effective one trading day after Fusion receives such notice.

Effect of Performance of the Common Stock Purchase Agreement on our Shareholders

All shares registered in this offering will be freely tradable. It is
anticipated that shares registered in this offering will be sold over a period
of up to approximately 17 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 some, none
or 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 at any time for any reason to: (1) reduce the daily purchase amount,
(2) suspend purchases of the common stock by Fusion and (3) terminate the common
stock purchase agreement.

No Short-Selling or Hedging by Fusion

Fusion has agreed that neither it nor any of its affiliates shall
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

Generally, Fusion may terminate the common stock purchase agreement
without any liability or payment to the Company upon the occurrence of any of
the following events of default:

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

o suspension by the OTC Bulletin Board of our common stock from
trading for a period of ten consecutive trading days or for more
than an aggregate of 30 trading days in any 365-day period;

o our failure to satisfy the requirements for continued listing on
the OTC Bulletin Board for a period of ten consecutive trading days
or for more than an aggregate of 30 trading days in any 365-day
period;

o the transfer agent`s failure for five trading days to issue to
Fusion shares of our common stock which Fusion is entitled to under
the common stock purchase agreement;

o any material breach of the representations or warranties or
covenants contained in the common stock purchase agreement or any
related agreements which has or which could have a material adverse
affect on us subject to a cure period of ten trading days;

o a default by us of any payment obligation in excess of $1.0
million; or

o any participation or threatened participation in insolvency or
bankruptcy proceedings by or against us.

Commitment Shares Issued to Fusion

Under the terms of the common stock purchase agreement Fusion
has received 2,000,000 shares of our common stock as a commitment fee and
warrants to purchase 1,000,000 shares of our common stock, exercisable at $.50
per share. Unless an event of default occurs, these shares must be held by
Fusion until 24 months from the date of the common stock purchase agreement,
which is approximately May 2003, or the date the common stock purchase agreement
is 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 we have obtained Fusion's prior written consent.

SELLING STOCKHOLDER

The following table presents information regarding the selling stockholder.
Neither the selling stockholder nor any of its affiliates has held a position or
office, or had any other material relationship, with us.

Percentage of Percentage of
Shares Outstanding Outstanding
Beneficially Shares Shares
Owned Beneficially Shares to be Beneficially
Selling Before Owned Before Sold in the Owned Before
Stockholder Offering Offering (1) Offering Offering (1)
----------- ------------ -------------- ------------ --------------

Fusion Capital Fund II, LLC (1) (2) 3,365,853 6.6% 3,365,853 0%

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

(1) As of the date hereof, 4,214,604 shares of our common stock have been
acquired by Fusion under the common stock purchase agreement. Fusion may
acquire up to an additional 11,785,396 shares under the common stock
purchase agreement. Percentage of outstanding shares is based on 50,316,544
shares of common stock outstanding as of December 7, 2001, together with
such additional December 7, 2001 shares of common stock that may be acquired
by Fusion from us under the common stock purchase agreement after the date
hereof. Fusion may not purchase shares of our common stock under the common
stock purchase agreement if Fusion, together with its affiliates, would
beneficially own more than 9.9% of our common stock outstanding at the time
of the purchase by Fusion. However, even though Fusion may not receive
additional shares of our common stock in the event that the 9.9% limitation
is ever reached, Fusion is still obligated to pay to us $43,750 on each
trading day, unless the common stock purchase agreement is suspended, an
event of default occurs or the agreement is terminated. Under these
circumstances, Fusion would have the right to acquire additional shares in
the future should its ownership subsequently become less than the 9.9%.
Fusion has the right at any time to sell any shares purchased under the
common stock purchase agreement which would allow it to avoid the 9.9%
limitation. Therefore, we do not believe that Fusion will ever reach the
9.9% limitation.

(2) Steven G. Martin and Joshua B. Scheinfeld, the principals of Fusion, are
deemed to be beneficial owners of all of the shares of common stock owned by
Fusion. Messrs. Martin and Scheinfeld have shared voting and
disproportionate power over the shares being offered under this prospectus.

Plan of Distribution

The common stock offered by this prospectus is being offered by
Fusion Capital Fund II, LLC, the selling stockholder. The common stock may be
sold or distributed from time to time by the selling stockholder directly to one
or more purchasers or through brokers, dealers, or underwriters who may act
solely as agents at market prices prevailing at the time of sale, at prices
related to the 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:

o ordinary brokers' transactions;
o transactions involving cross or block trades;
o through brokers, dealers, or underwriters who may act solely as
agents
o "at the market" into an existing market for the common stock;
o in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected
through agents;
o in privately negotiated transactions; or
o 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. In addition, in certain states, the shares may not be sold unless
they have been registered or qualified for sale in the state or an exemption
from the 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 shareholder and/or
purchasers of the common stock for whom the broker-dealers may act as agent. The
compensation paid to a particular broker-dealer may be less than or in excess of
customary commissions.

Fusion is an "underwriter" within the meaning of the Securities
Act.

Neither we nor Fusion can presently estimate the amount of
compensation that any agent will receive. We know of no existing arrangements
between Fusion, any other stockholder, broker, dealer, underwriter, or agent
relating to the sale or distribution of the shares offered by this Prospectus.
At the 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. We have also agreed to
indemnify Fusion 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 our directors, officers, and controlling
persons, we have been advised that in the opinion of the SEC this
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.

We have advised Fusion that while it is engaged in a distribution
of the shares included in this Prospectus it is required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934, as amended.
With certain exceptions, Regulation M precludes the selling stockholder, any
affiliated purchasers, and any broker-dealer or other person who participates in
the distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the shares offered hereby this
Prospectus.

This offering will terminate on the date that all shares offered
by this Prospectus have been sold by Fusion.

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, 2000 and 1999,
and for each of the years in the three-year period ended December 31, 2000, have
been included herein and in the registration statement in reliance upon the
report of KPMG LLP, independent accountants, appearing elsewhere herein, and
upon the authority of KPMG LLP as experts in accounting and auditing. The audit
report of KPMG LLP covering the December 31, 2000 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.
Also, the report of KPMG LLP covering the December 31, 2000 financial statements
refers to a change in the method of revenue recognition for up-front
non-refundable license fees in 2000.

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, 2000, 1999 and 1998
Independent Auditors' Report................................................................... F-2
Balance Sheets-- December 31, 2000 and December 31, 1999....................................... F-3
Statements of Operations--Years Ended December 31, 2000, 1999 and 1998......................... F-4
Statements of Stockholders' Equity (Deficit) --Years Ended December 31, 2000, 1999 and 1998.... F-5
Statements of Cash Flows--Years Ended December 31, 2000, 1999 and 1998......................... F-7
Notes to Financial Statements--Years Ended December 31, 2000, 1999 and 1998.................... F-8

Three Months and Nine Months Ended September 30, 2001 and 2000
Condensed Balance Sheets - September 30, 2001 (Unaudited) and December 31, 2000................ F-19
Condensed Statements of Operations (Unaudited) - Three Months and Nine Months
Ended September 30, 2001 and 2000......................................................... F-20
Condensed Statements of Cash Flows (Unaudited) - Nine Months Ended
September 30, 2001 and 2000............................................................... F-21
Notes to Condensed Financial Statements........................................................ F-22

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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 17 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 17. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the financial statements, the Company changed its
method of accounting for revenue recognition for up-front non-refundable license
fees in 2000.

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

Short Hills, New Jersey
March 30, 2001

F-2

UNIGENE LABORATORIES, INC.
BALANCE SHEETS
DECEMBER 31, 2000 and 1999

2000 1999
---- ----

ASSETS
- ------
Current assets:
Cash and cash equivalents $ 17,108 $ 682,629
Contract receivables 165,671 3,526,229
Prepaid expenses 129,493 210,195
Inventory (Note 8) 415,420 867,566
------------ ------------
Total current assets 727,692 5,286,619

Property, plant and equipment - net (Note 4) 5,684,127 6,740,354

Patents and other intangibles, net 1,288,686 1,264,268
Investment in joint venture (Note 5) 900,000 --
Other assets 446,894 486,612
------------ ------------
$ 9,047,399 $ 13,777,853
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------

Current liabilities:
Accounts payable $ 2,834,556 $ 1,258,334
Accrued expenses (Note 9) 3,761,277 2,217,413
Notes payable - stockholders (Note 3) 2,873,323 1,140,000
Current portion - long-term notes payable -
stockholders 1,870,000 960,606
5% convertible debentures (Note 6) 2,400,000 2,400,000
Current portion - capital lease obligations (Note 10) 55,398 69,708
Deferred revenue 200,000 --
------------ ------------
Total current liabilities 13,994,554 8,046,061

Notes payable - stockholders, excluding
current portion (Note 3) -- 909,394
Joint venture obligation, excluding current portion 495,000 --
Capital lease obligations, excluding
current portion (Note 10) 50,572 93,415

Commitments and contingencies (Notes 5,6,7,11 and 18)
Stockholders' equity (deficit) (Notes 7,12 and 13):
Common Stock - par value $.01 per share, authorized 60,000,000 shares,
issued 44,441,855 shares in 2000 and
43,088,184 shares in 1999 444,419 430,882
Additional paid-in capital 70,053,710 67,207,604
Deferred stock option compensation (284,948) --
Deferred stock offering costs (327,000) --
Accumulated deficit (75,377,877) (62,908,472)
Less: Treasury stock, at cost,
7,290 shares (1,031) (1,031)
------------ ------------
Total stockholders' equity (deficit) (5,492,727) 4,728,983
------------ ------------
$ 9,047,399 $ 13,777,853
============ ============

See accompanying notes to financial statements.

F-3

UNIGENE LABORATORIES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 2000, 1999 and 1998

2000 1999 1998
---- ---- ----

Licensing and other revenue $ 3,286,961 $ 9,589,413 $ 5,049,844
------------ ------------ ------------
Operating expenses:
Research and development 11,484,379 9,374,528 9,041,618
General and administrative 3,187,465 2,211,778 2,067,958
------------ ------------ ------------
14,671,844 11,586,306 11,109,576
------------ ------------ ------------
Operating loss (11,384,883) (1,996,893) (6,059,732)

Other income (expense):
Interest income 49,130 37,545 107,502
Interest expense (1,198,508) (1,171,260) (784,972)
------------ ------------ ------------
Loss before income taxes,
extraordinary item and cumulative
effect of accounting change (12,534,261) (3,130,608) (6,737,202)

Income tax benefit (Note 14) 1,064,856 1,553,268 --
------------ ------------ ------------

Loss before extraordinary item and cumulative
effect of accounting change (11,469,405) (1,577,340) (6,737,202)

Extraordinary item-loss
on early extinguishment of debt (Note 6) -- -- (143,810)

Cumulative effect of revenue recognition
accounting change (Note 2) (1,000,000) -- --
------------ ------------ ------------
Net loss $(12,469,405) $ (1,577,340) $ (6,881,012)
============ ============ ============
Loss per share - basic and diluted:
Loss before extraordinary item
and cumulative effect of accounting change $ (.26) $ (.04) $ (.17)

Extraordinary item -- -- (.01)

Cumulative effect of accounting change (.02) -- --
------------ ------------ ------------
Net loss per share $ (.28) $ (.04) $ (.18)

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

Weighted average number of shares
outstanding - basic and diluted 44,008,154 40,718,519 38,701,253
============ ============ ============
Pro forma amounts assuming the new revenue recognition principle is applied
retroactively, exclusive of cumulative effect adjustment:

Loss before extraordinary item $(11,469,405) $ (777,340) $ (5,937,202)
============ ============ ============
Net loss $(11,469,405) $ (777,340) $ (6,081,012)
============ ============ ============
Earnings per share -- basic and diluted:
Loss before extraordinary item $ (.26) $ (.02) $ (.15)

============ ============ ============
Net loss $ (.26) $ (.02) $ (.16)
============ ============ ============

See accompanying notes to financial statements.

F-4

UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2000, 1999 and 1998

Common Stock
--------------- Deferred Deferred
Additional Stock Stock
Number of Par Paid-in Option Offering Accumulated
Shares Value Capital Compensation Costs Deficit
------------- -------- ------------ ------------- -------- ------------

Balance,
January 1, 1998 38,517,722 $ 385,177 $ 63,499,439 $ -- $ -- $(54,450,120)

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

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

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

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

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

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

Net loss -- -- -- -- -- (6,881,012)
------------ ---------- ------------ ------- --------- ------------
Balance,
December 31, 1998 39,384,822 393,848 65,158,403 -- -- (61,331,132)

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

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

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

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

Treasury
Stock Total
----------- -------

Balance,
January 1, 1998 $ (1,031) $ 9,433,465

Conversion of 9.5%
Debentures -- 500,194

Conversion of
notes payable -
stockholders -- 221,727

Conversion of
10% Debentures and
accrued interest -- 204,375

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

Exercise of
stock options -- 47,969

Issuance of warrants
as compensation -- 6,574

Net loss -- (6,881,012)
---------- -----------
Balance,
December 31, 1998 (1,031) 4,220,088

Conversion of 5%
Debentures into
Common Stock
and Warrants -- 1,895,275

Issuance of Common
Stock as payment of
interest on 5%
Debentures -- 190,960

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

(Continued)
F-5

UNIGENE LABORATORIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Years Ended December 31, 2000, 1999 and 1998

Common Stock
--------------- Deferred Deferred
Additional Stock Stock
Number of Par Paid-in Option Offering Accumulated Treasury
Shares Value Capital Compensation Costs Deficit Stock Total
------------- -------- ------------ ------------- -------- ------------ -------- -----

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

Exercise of
warrants 1,118,071 11,181 1,317,087 -- -- -- -- 1,328,268

Exercise of
stock options 235,600 2,356 298,177 -- -- -- -- 300,533

Deferred stock
option compensation -- -- 683,733 (284,948) -- -- -- 398,785

Deferred stock offering
costs -- -- 327,000 -- (327,000) -- -- --

Issuance of warrants
as compensation -- -- 220,109 -- -- -- -- 220,109

Net loss -- -- -- -- -- (12,469,405) -- (12,469,405)
---------- --------- ----------- ---------- --------- ------------ --------- ------------
Balance,
December 31,
2000 44,441,855 $444,419 $70,053,710 $ (284,948) $(327,000) $(75,377,877) $ (1,031) $ (5,492,727)
========== ========= =========== ========== ========= ============ ========= ============

See accompanying notes to financial statements.

F-6

UNIGENE LABORATORIES, INC.
STATEMENTS OF CASH FLOWS

Years Ended December 31,
----------------------------------------
2000 1999 1998
---- ---- ----

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $(12,469,405) $ (1,577,340) $ (6,881,012)
Adjustments to reconcile net loss to net
cash used by operating activities:
Non-cash cumulative effect adjustment .................. 1,000,000 -- --
Amortization of deferred revenue ....................... (800,000) -- --
Non-cash compensation .................................. 618,894 -- 6,574
Depreciation and amortization .......................... 1,617,957 1,558,663 1,552,734
Amortization of beneficial conversion feature on 5%
Debentures .......................................... -- 197,193 489,603
20% premium on 5% Debentures ........................... -- 400,000 --
Payment of interest through the issuance of Common Stock -- 190,960 44,060
Decrease in other assets ............................... 42,312 64,528 48,500
(Increase) decrease in contract receivables ............ 3,360,558 (3,210,171) (316,058)
(Increase) decrease in prepaid expenses and
inventory ............................................ 532,848 (188,092) (55,424)
Increase in accounts payable and accrued
expenses ............................................. 2,715,086 1,163,795 247,237
------------ ------------ ------------
Net cash used for operating activities ................. (3,381,750) (1,400,464) (4,863,786)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction of leasehold and building improvements ..... (235,764) (4,010) (8,384)
Purchase of furniture and equipment ..................... (283,589) (134,127) (76,486)
Increase in patents and other assets .................... (69,389) (88,695) (264,959)
------------ ------------ ------------
Net cash used in investing activities ................... (588,742) (226,832) (349,829)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt ................ -- 1,870,000 4,000,000
Proceeds from issuance of short-term debt, net .......... 1,733,323 100,000 --
Repayment of long-term debt and capital lease
obligations ........................................... (57,153) (62,739) (304,138)
Exercise of stock options and warrants .................. 1,628,801 -- 47,969
Debt issuance and other costs ........................... -- -- (253,879)
------------ ------------ ------------
Net cash provided by financing activities ............... 3,304,971 1,907,261 3,489,952
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ...................................... (665,521) 279,965 (1,723,663)
Cash and cash equivalents at
beginning of period ................................... 682,629 402,664 2,126,327
------------ ------------ ------------
Cash and cash equivalents at end of period .............. $ 17,108 $ 682,629 $ 402,664
============ ============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash investing and financing activities:
Investment in joint venture and related obligations ..... $ 900,000 -- --
Acquisition of equipment through capital leases ......... -- $ 36,617 $ 221,900
Conversion of convertible debentures and accrued
interest into Common Stock ........................... -- $ 2,190,960 $ 707,069
Conversion of notes payable - stockholders
into Common Stock ..................................... -- -- $ 225,000
Value of beneficial conversion feature and related
warrants on issuance of 5% Debentures ................ -- -- $ 686,796
============ ============ ============
Cash paid for interest .................................. $ 39,800 $ 24,700 $ 119,000
============ ============ ============

See accompanying notes to financial statements

F-7

UNIGENE LABORATORIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998

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 peptides for medical
use. 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, 2000, 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 2000, 1999
and 1998, almost all of the Company's revenue was generated from one customer,
Pfizer (see Note 16). The Pfizer agreement was terminated in March 2001.

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. Commencing in 2000, non-refundable license fees received
upon execution of license agreements where the Company has continuing
involvement are deferred and recognized as revenue over the life of the
agreement. Prior to the implementation of SAB 101, non-refundable license fees
received upon execution of license agreements were recognized as revenue
immediately. 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
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
was required to 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 calculated as of January 1, 2000. The Company adopted SAB 101 in
2000,

F-8

changing its revenue recognition policy for up-front licensing fees that
require services to be performed in the future from immediate revenue
recognition to deferral of revenue with the up-front fee recognized over the
life of the agreement. In 1997, the Company recognized $3,000,000 in revenue
from an up-front licensing fee from Pfizer. With the adoption of SAB 101, the
Company is now recognizing this revenue over a 45 month period, equivalent to
the term of its oral Calcitonin agreement with Pfizer which was terminated in
March 2001. The Company therefore recognized a non-cash cumulative effect
adjustment of $1,000,000 as of January 1, 2000 representing a revenue deferral
over the remaining 15 months of the agreement. The Company recognized $800,000
of revenue in 2000 and $200,000 in revenue will be recognized in 2001 as a
result of this deferral. The pro forma effects of retroactive application of
this new revenue recognition principle on net loss and related per share
amounts, for the years ended December 31, 2000, 1999 and 1998 are presented in
the accompanying statements of operations.

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, 2000, six 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 $186,000 and
$143,600 at December 31, 2000 and 1999, respectively.

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 and Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services."

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 both basic and diluted
earnings per share ("EPS") 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, 2000, 1999 and 1998 because the Company's convertible debentures,
stock options and warrants were not included in the calculation since the
inclusion of such potential shares (approximately 3,200,000 potential shares of
Common Stock at December 31, 2000) 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

F-9

cost amounts. Given our financial condition described in Note 17, it is not
practicable to estimate the fair value of our financial instruments at December
31, 2000.

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

3. Related Party Transactions

Notes payable - stockholders. Since 1995, Warren P. Levy, Ronald S. Levy and Jay
Levy each an officer and director of the Company, and another member of their
family (collectively, the "Levys"), have extended loans to the Company for
working capital needs. Each of the loans is evidenced by a promissory note that
sets the terms of the loan. The variable interest rate on these notes is
equivalent to the Merrill Lynch Margin Loan Rate plus .25%. The principal amount
is collateralized by security interests in the Company's Fairfield, New Jersey
plant and equipment and Boonton, New Jersey equipment.

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 or 2000. During 2000, the Levys loaned to the
Company an additional $1,733,323 in short-term notes. As of December 31, 2000,
the outstanding loans by the Levys to Unigene, all classified as short-term
debt, consisted of: joint loans 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) and
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. During 2000, $4,600 in interest was paid on these loans. As of
December 31, 2000, accrued interest on all Levy loans totalled approximately
$922,000.

Interest and principal payments required under these loans have not been made by
Unigene, but the Levys have waived all default provisions including additional
interest penalties due under these loans through December 31, 2000.

From January 1, 2001 through March 30, 2001 the Levys loaned to the Company an
additional $1,610,000 of demand notes at the Merrill Lynch Margin Loan Rate plus
.25%, of which $500,000 is secured by a security interest in certain of our
patents.

F-10

4. Property, Plant and Equipment

Property, plant and equipment consisted of the following at December 31, 2000
and 1999:

Estimated
Depreciable
2000 1999 Lives
---------- ----------- -----------
Building and
improvements ........ $ 1,397,210 $ 1,377,075 25 years
Leasehold improvements 8,695,851 8,480,222 Lease Term
Manufacturing equipment 4,000,940 3,842,038 10 years
Laboratory equipment .. 2,815,870 2,704,820 5 years
Other equipment ....... 466,523 466,523 10 years
Office equipment and
furniture ........... 340,843 327,206 5 years
Equipment under capital
leases .............. 258,517 258,517 Lease Term
----------- -----------
17,975,754 17,456,401
Less accumulated
depreciation and
amortization ........ 12,412,794 10,837,214
----------- -----------
5,562,960 6,619,187
Land .................. 121,167 121,167
----------- -----------
$ 5,684,127 $ 6,740,354
=========== ===========

Depreciation and amortization expense on property, plant and equipment was
$1,576,000, $1,520,000, and $1,520,000 in 2000, 1999 and 1998, respectively.

5. 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 have a 45% interest in
the joint venture profits and losses. 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, the joint venture may be required to
conduct brief local human trials. 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.

Under the terms of the joint venture with SPG, Unigene is obligated to
contribute up to $405,000 in cash during 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. As of December 31, 2000, we have
not made any investments in the joint venture. 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.
We recognized the entire $350,000 obligation as an expense in 2000.

F-11

6. 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.

In March 1996, the Company completed a private placement of $9,080,000 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 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 as a result of
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. During 1999, 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 as
of December 31, 2000.

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,
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. In July 2000, Unigene submitted to
the American Arbitration Association a statement in which it denies the amount
of Tail Wind'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 June 2001. The outcome of the proceeding is uncertain. An
extremely unfavorable ruling could have a material adverse effect on Unigene.

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

F-12

interest expense over the earliest conversion periods using the effective
interest method (approximately $197,000 and $490,000 for the years ended
December 31, 1999 and 1998, respectively).

7. Fusion Capital Financing

On December 18, 2000, and as amended March 30, 2001, 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. Fusion is committed to purchase the
shares over a twenty-four month period, subject to a six-month extension or
earlier termination at our discretion. We may decrease this amount at any time
that the price of our common stock is less than $15 per share. If our stock
price equals or exceeds $4 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. However, Fusion's commitment does not begin until a
registration statement covering the resale of the shares purchased by Fusion is
declared effective by the Securities and Exchange Commission. We cannot predict
when or if the SEC will declare our registration statement effective. In
addition, Unigene must continue to satisfy its requirements that are a condition
to Fusion's obligation including: the continued effectiveness of the related
registration statement, no default or acceleration of any obligations in excess
of $1,000,000, no insolvency or bankruptcy proceedings, continued listing of
Unigene common stock on the OTC Bulletin Board, and we must avoid the failure 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. 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; 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. In addition to the
2,000,000 shares and five-year warrants to purchase 1,000,000 shares of common
stock at an exercise price of $.50 per share that we issued to Fusion as of
March 30, 2001 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. We may be required to
obtain the approval of Unigene stockholders to an amendment to Unigene's
certificate of incorporation increasing the number of shares of Unigene common
stock that the Company is authorized to issue in order to issue and sell
additional shares to Fusion.

In December 2000, the Company issued a five-year warrant to purchase 373,002
shares of Unigene common stock to its investment banker as a fee for the Fusion
financing agreement. The warrant has an exercise price of $1.126 and a fair
value of $327,000 using the Black-Scholes pricing model. The fair value of the
warrant has been deferred pending the closing of the Fusion financing. When the
registration statement for the financing is declared effective, these deferred
offering costs will be charged to additional paid-in capital. If the
registration statement is not declared effective, or the offering is terminated,
these deferred offering costs will be charged to operations.

8. Inventory - Inventory consists of the following:

Dec. 31, 2000 Dec. 31, 1999
------------- -------------
Finished goods $ 89,104 $ 596,359
Raw material 326,316 271,207
------- -------
Total $ 415,420 $ 867,566
=========== ===========

The Company wrote-off $515,000 of finished goods inventory in the fourth quarter
of 2000 as a result of Pfizer's termination of its license agreement with the
Company.

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

Dec. 31, 2000 Dec. 31, 1999
------------- -------------
Interest - notes payable to stockholders $ 921,722 $ 645,290
Interest - 5% convertible debentures 1,083,194 243,196
China joint ventures 680,000 --
Clinical trials/contract research 665,568 763,352
Vacation pay 204,948 187,710
Consultants 47,000 164,500
Other 158,845 213,365
---------- ----------
Total $3,761,277 $2,217,413
========== ==========

F-13

10. Obligations Under Capital Leases

The Company entered into various lease arrangements during 1999 and 1998 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, 2000 are
as follows:

2001 $ 71,860
2002 48,347
2003 10,656
----------
Total minimum lease payments 130,863

Less amount representing interest 24,893
----------

Present value of net minimum
lease payments 105,970

Less current portion 55,398
-----------

Obligations under capital leases,
excluding current portion $ 50,572
==========

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

11. 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 and office equipment under various
operating leases expiring in 2001 through 2003. Total future minimum rentals
under these noncancelable operating leases as of December 31, 2000 are as
follows:

2001 $222,584
2002 207,936
2003 189,764
2004 15,444
---------
$635,728

Total rent expense was approximately $259,000, $243,000 and $209,000 for 2000,
1999 and 1998, respectively.

12. Stockholders' Equity

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, 2000, an aggregate of 322,000 of these
warrants have been exercised and 132,000 remain unexercised.

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 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

F-14

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 2000, the Company
issued warrants to purchase 150,000 shares of Common Stock, expiring in 2005, to
its investment banker. These warrants are exercisable at $2.66 and resulted in
2000 compensation expense of $220,000. The Company's investment bankers received
an additional warrant to purchase 373,002 shares of Common Stock at an exercise
price of $1.126 per share, expiring in 2005, for arranging the Fusion financing.
During 2000, the Company issued to various consultants 850,536 shares of Common
Stock upon the exercise of warrants at exercise prices ranging from $1.38 to
$2.43 per share. In addition, the Company issued to various consultants 263,360
shares of Common Stock upon the cashless exercise of an aggregate of 475,623
warrants at exercise prices ranging from $.46 to $2 per share.

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 6.

In August 1998, an aggregate of $225,000 in principal amount of notes payable
from stockholders was converted into 163,635 shares of Common Stock at a
conversion price of $1.375 per share; such conversion was at a price slightly
higher than the then market price of the Common Stock.

As of December 31, 2000, there are warrants outstanding, all of which are
currently exercisable, to purchase an aggregate of 989,000 shares of Common
Stock at exercise prices ranging from $1.13 to $3.50 per share, with a weighted
average exercise price of $2.11.

13. Stock Option Plans

During 1994, the Company's stockholders approved the adoption of the 1994
Employee Stock Option Plan (the "1994 Plan"). All employees of the Company were
eligible to participate in the 1994 Plan, including executive officers and
directors who are employees of the Company. The 1994 Plan terminated on June 6,
2000; however, 1,729,965 options previously granted continue to be outstanding
and exercisable under that plan as of December 31, 2000.

At the Company's 1999 Annual Meeting, the stockholders approved the adoption of
a 1999 Directors Stock Option Plan (the "1999 Plan") under which 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 market
price 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.

In November 1999, the Board of Directors approved, subject to stockholder
approval, the adoption of a new Stock Option Plan (the "2000 Plan") to replace
the 1994 Plan. All employees (including directors who are employees), as well as
certain consultants, are eligible to receive option grants under the 2000 Plan.
Options granted under the 2000 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 2000
Plan.

In November 1999, the Board granted under the 2000 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 2000 Plan. At the Company's June
6, 2000 Annual Meeting, the stockholders approved the 2000 Plan. In accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", the measurement date for

F-15

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 $398,785 as compensation expense in
2000, leaving a balance of $284,948 as deferred stock option compensation at
December 31, 2000.

The following summarizes activity for options granted to directors and employees
under the 1994, 1999 and 2000 Plans:

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

Outstanding January 1, 1998 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
=========

Granted 571,500 $ 1.96 $ 0.87
Cancelled (64,650) -- 1.78
Exercised (245,600) -- 1.28
---------- ========== ========
Outstanding December 31, 2000 2,307,115 1,968,540
========== =========

A summary of options outstanding and exercisable as of December 31, 2000,
follows:

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

$ .50-.98 773,250 9.0 $ .65 514,925 $ .65
1.00-1.97 858,365 6.6 1.81 812,115 1.83
2.16-4.69 675,500 5.8 2.81 641,500 2.80
------- -------
2,307,115 1.71 1,968,540 1.84
========= ==== ========= ====

As of December 31, 2000, options to purchase 310,000 shares and 3,463,850 shares
of Common Stock were available for grant under the 1999 and 2000 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:

2000 1999 1998
----------- ----------- -----------

Net loss:
As reported $ (12,469,405) (1,577,340) (6,881,012)
Pro forma (12,644,405) (2,182,340) (7,796,012)
============ =========== ==========
Basic and diluted net loss per share:
As reported $ (0.28) (0.04) (0.18)
Pro forma (0.29) (0.05) (0.20)
============ =========== ==========

F-16

The fair value of the stock options granted in 2000, 1999 and 1998 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 103%
in 2000, 74% in 1999 and 63% in 1998; a risk-free interest rate of 4.7% in 2000,
6.4% in 1999 and 4.8% in 1998; and expected lives of 5 years in 2000 and 6 years
in 1999 and 1998.

During 1995, the Company granted to a consultant options to purchase 10,000
shares of the Company's Common Stock, expiring in 2000, immediately exercisable
at $1.44 per share. These options were exercised in a cashless exercise during
2000, resulting in the issuance of 4,175 shares of Common Stock.

14. Income Taxes

As of December 31, 2000, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the approximate amount of
$68,000,000, expiring from 2001 through 2020, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. In
addition, the Company has research and development credits in the approximate
amount of $2,500,000, which are available to reduce the amount of future federal
income taxes. These credits expire from 2001 through 2020. The Company has New
Jersey operating loss carryforwards in the approximate amount of $23,300,000,
expiring from 2003 through 2007, which are available to reduce future earnings,
which would otherwise be subject to state income tax. As of December 31, 2000,
approximately $11,400,000 of these New Jersey loss carryforwards have been
approved for future sale under a program of the New Jersey Economic Development
Authority (the "NJEDA"). In order to realize these benefits, the Company 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, and there are 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. In the fourth quarters of
2000 and 1999, the Company realized $1,065,000 and $1,553,000, respectively, of
tax benefits arising from the sale of a portion of the Company's New Jersey net
operating loss carryforwards that had previously been subject to a full
valuation allowance.

Given the Company's past history of incurring operating losses, any gross
deferred tax assets that are recognizable under SFAS No. 109 have been fully
reserved. As of December 31, 2000 and 1999, the Company had gross deferred tax
assets of approximately $29,000,000 and $26,000,000, respectively, subject to
valuation allowances of $29,000,000 and $26,000,000, respectively. The gross
deferred tax assets were 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.

15. 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
2000, 1999 and 1998 was approximately $48,000, $44,000 and $43,000,
respectively.

16. 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. In June 2000, Pfizer Inc. acquired
Warner-Lambert. During 1997, the Company received $3 million for an equity
investment and $3 million for a licensing fee (see Note 2). Several milestones
were achieved during 1998, resulting in milestone revenue of $5 million. In
1999, two pilot human studies for the Company's oral calcitonin formulation were
successfully concluded, resulting in milestone revenue totaling $5 million. Also
in 1999, the Company and Pfizer identified an oral calcitonin formulation to be
used in the Phase I/II clinical study entitling the Company to milestone revenue
of an additional $4.5 million. During 2000, two milestones were achieved
resulting in milestone revenue of $2 million. Patient dosing for this study was
completed in December 2000. Pfizer analyzed the results of this study and
terminated the agreement in March 2001 citing scientific and technical reasons.

F-17

17. Liquidity

The Company has incurred annual operating losses since its inception and, as a
result, at December 31, 2000 has an accumulated deficit of approximately
$75,378,000 and has a working capital deficiency of approximately $13,267,000.
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 to 11 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 under its outstanding notes
payable to stockholders and 5% Convertible Debentures and its obligations
relating to its current and former joint ventures in China. The Company's cash
requirements related to the 5% Debentures include the redemption premium,
delisting penalties and the increased interest rate described in Note 6.
Management is actively seeking licensing and/or supply agreements with
pharmaceutical companies for oral, nasal and injectable forms of Calcitonin as
well as for other oral peptides. With the recent termination of our Pfizer
collaboration, we currently have no licenses for any of our products in the U.S.
We do not have sufficient financial resources to continue to fund our operations
at the current level. We had 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 year
ended December 31, 2000, an operating cash flow deficit of $3,382,000. The
agreement that we have entered into with Fusion could provide Unigene with
funding beginning in the first half of 2001. See Note 7.

Under the agreement with Fusion, after a registration statement is declared
effective by the SEC for the resale of the shares of Unigene common stock to be
sold to Fusion, Fusion will be required to purchase, at the then current market
price, shares of Unigene common stock at the rate of $875,000 per month over a
period of 24 months, provided that Unigene continues to satisfy the requirements
that are a condition to Fusion's obligation. The Board of Directors has
authorized the sale to Fusion of up to 6,000,000 shares of Unigene common stock.
We anticipate that, in order to sell significantly in excess of 6,000,000 shares
to Fusion, it may be necessary to obtain stockholder approval of an amendment to
our Certificate of Incorporation to increase the number of shares of Unigene
common stock that we are authorized to issue. However, we cannot predict when or
if the SEC will declare the registration statement effective, if the
stockholders will approve an amendment to our Certificate of Incorporation or if
we will be able to meet the continuing requirements of the Fusion agreement.

If we do not receive any financing from Fusion, we will need to secure another
source of financing in order to satisfy our working capital needs, which may be
unavailable or the cost of which may be prohibitively expensive. Should such
financing be unavailable or prohibitively expensive, it will be necessary for
Unigene to curtail significantly its operations or consider alternative uses of
its technology and manufacturing capability including the supply of Calcitonin
to other companies. Assuming we are able to raise additional capital through our
agreement with Fusion, we still anticipate that we may need additional capital
to implement fully our business plans. We believe that satisfying our capital
requirements over the long term will require the successful commercialization of
our Calcitonin product or another peptide product in the United States and
abroad. However, it is uncertain whether or not any of our products will be
approved or will be commercially successful. The commercialization of our oral
Calcitonin product may require us to incur additional capital expenditures to
expand or upgrade our manufacturing operations to satisfy future supply
obligations. However, we cannot determine either the cost or the timing of such
capital expenditures at this time.

18. Legal Matters

In addition to the arbitration proceedings discussed in Note 6, Reseau de Voyage
Sterling, Inc. (Reseau) filed suit against the Company in July 2000. Reseau,
which purchased from a third party a warrant to purchase one million shares of
Unigene common stock, alleges that the Company breached a verbal agreement to
extend the term of the warrant beyond its expiration date. Reseau is seeking
damages of $2 million. We believe that the suit is completely without merit and
we intend to vigorously contest the claim.

F-18

UNIGENE LABORATORIES, INC.
CONDENSED BALANCE SHEETS

September 30, 2001 December 31, 2000
------------------ -----------------
(Unaudited)

ASSETS
- ------
Current assets:
Cash and cash equivalents $ 76,385 $ 17,108
Receivables 35,475 165,671
Prepaid expenses 51,989 129,493
Inventory 289,807 415,420
------------ ------------
Total current assets 453,656 727,692

Property, plant and equipment, net 4,503,368 5,684,127
Investment in joint venture 900,000 900,000
Patents and other intangibles, net 1,382,223 1,288,686
Other assets 359,264 446,894
------------ ------------
$ 7,598,511 $ 9,047,399
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------

Current liabilities:
Accounts payable $ 3,495,980 $ 2,834,556
Accrued expenses 5,553,624 3,761,277
Notes payable - stockholders 7,908,323 2,873,323
Current portion - long-term notes payable -
stockholders 1,870,000 1,870,000
5% convertible debentures 2,400,000 2,400,000
Current portion - capital lease obligations 42,158 55,398
Deferred revenue -- 200,000
------------ ------------
Total current liabilities 21,270,085 13,994,554

Joint venture obligation, excluding current portion 495,000 495,000
Capital lease obligations, excluding current portion 28,129 50,572

Commitments and contingencies
Stockholders' deficit:
Common Stock - par value $.01 per share,
authorized 100,000,000 shares,
issued 48,923,222 shares in 2001 and
44,441,855 shares in 2000 489,232 444,419
Additional paid-in capital 70,388,971 70,053,710
Deferred stock option compensation (28,493) (284,948)
Deferred stock offering costs -- (327,000)
Accumulated deficit (85,043,382) (75,377,877)
Less: Treasury stock, at cost, 7,290 shares (1,031) (1,031)
------------ ------------
Total stockholders' deficit (14,194,703) (5,492,727)
------------ ------------
$ 7,598,511 $ 9,047,399
============ ============

See notes to condensed financial statements

F-19

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

Three Months Ended Nine Months Ended
September 30 September 30

2001 2000* 2001 2000*
---- ----- ---- -----

Licensing and other revenue $ 267,654 $ 1,559,164 $ 629,471 $ 2,961,190
------------ ------------ ------------ ------------

Operating expenses:

Research and development 2,288,764 2,905,285 6,856,780 7,835,759

General and administrative 681,862 800,717 1,918,835 2,417,786
------------ ------------ ------------ ------------

2,970,626 3,706,002 8,775,615 10,253,545
------------ ------------ ------------ ------------

Operating loss (2,702,972) (2,146,838) (8,146,144) (7,292,355)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 1,369 4,650 6,862 41,165
Interest expense (530,063) (312,344) (1,526,224) (859,547)
------------ ------------ ------------ ------------

(528,694) (307,694) (1,519,362) (818,382)
------------ ------------ ------------ ------------
Loss before cumulative effect of
accounting change (3,231,666) (2,454,532) (9,665,506) (8,110,737)

Cumulative effect of revenue recognition
accounting change -- -- -- (1,000,000)
------------ ------------ ------------ ------------

Net loss $ (3,231,666) $ (2,454,532) $ (9,665,506) $ (9,110,737)
============ ============ ============ ============
Loss per share basic and diluted:

Loss before cumulative effect of
accounting change $ (.07) $ (.06) $ (.21) $ (.19)

Cumulative effect of
accounting change -- -- -- (.02)
------------ ------------ ------------ ------------

Net loss per share $ (.07) $ (.06) $ (.21) $ (.21)
============ ============ ============ ============

Weighted average number of
shares outstanding -
basic and diluted 48,335,004 44,279,250 46,541,768 43,868,779
============ ============ ============ ============

* Restated - see Note A

See notes to condensed financial statements.

F-20

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

Nine Months Ended
September 30
-----------------------------

Net cash used for operating activities $(5,563,221) $(3,085,949)
----------- -----------
Investing activities:

Purchase of equipment and furniture (12,673) (245,259)
Increase in patents and other intangibles (124,947) (62,932)
Decrease in other assets 55,896 40,364
Construction of leasehold improvements (2,169) (187,704)
----------- -----------
(83,893) (455,531)
----------- -----------
Financing activities:

Proceeds from sale of stock, net 705,579 --
Issuance of stockholder notes 5,035,000 1,358,323
Exercise of stock options and warrants 1,495 1,601,411
Repayment of capital lease obligations (35,683) (51,955)
----------- -----------
5,706,391 2,907,779
----------- -----------

Net increase (decrease) in cash and cash equivalents 59,277 (633,701)

Cash and cash equivalents at beginning of year 17,108 682,629
----------- -----------
Cash and cash equivalents at end of period $ 76,385 $ 48,928
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash investing and financing activities:

Investment in joint venture and related obligations -- $ 900,000
=========== ===========
Cash paid for interest $ 41,000 $ 22,000
=========== ===========

See notes to condensed financial statements.

F-21

UNIGENE LABORATORIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2001
(Unaudited)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America 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, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. For further information, please refer to our financial statements and
footnotes thereto included in Unigene's annual report on Form 10-K for the year
ended December 31, 2000.

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. Unigene
adopted SAB 101, effective January 1, 2000 changing its revenue recognition
policy for up-front licensing fees that require services to be performed in the
future from immediate revenue recognition to deferral of revenue with the
up-front fee recognized over the life of the agreement.

In 1997, we recognized $3,000,000 in revenue from an up-front licensing fee from
Pfizer. With the adoption of SAB 101, we have recognized this revenue over a
45-month period, equivalent to the term of our oral Calcitonin agreement with
Pfizer which was terminated in March 2001. We therefore recognized a non-cash
cumulative effect adjustment of $1,000,000 as of January 1, 2000 representing a
revenue deferral over the remaining 15 months of the agreement. We restated the
accompanying 2000 financial statements for the cumulative effect adjustment and
recognized $200,000 of revenue in each of the quarters through March 31, 2001 as
a result of this deferral.

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, is effective for our fiscal year
beginning January 1, 2001. The adoption of SFAS No. 133 had no effect on our
financial position or results of operations, as we do not engage in derivative
or hedging activities.

NOTE B - LIQUIDITY

Unigene has incurred annual operating losses since its inception and, as a
result, at September 30, 2001 has an accumulated deficit of approximately
$85,000,000 and has a working capital deficiency of approximately $20,800,000.
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. Unigene's cash requirements are approximately $10
to 11 million per year to operate its research and peptide manufacturing
facilities and develop its Calcitonin and other peptide products. In addition,
Unigene has principal, interest and default interest obligations under its
outstanding notes payable to stockholders and its 5% debentures, in addition to
its obligations relating to its current and former joint ventures in China.
Unigene's cash requirements related to the 5% debentures include the principal,
redemption premium, delisting penalties and the increased interest rate
described in Note D. Unigene is actively seeking licensing and/or supply
agreements with pharmaceutical companies for oral, nasal and injectable forms of
Calcitonin as well as for other oral peptides. With the termination of our
Pfizer collaboration, we currently have no licenses for any of our products in
the U.S. We do not have sufficient financial resources to continue to fund our
operations at the current level. Under the agreement with Fusion, Unigene has
the contractual right to sell to Fusion, subject to certain conditions, at the
then current market price, on each trading day $43,750 of our common stock up to
an aggregate of $21,000,000 over a period of 24 months. The Board of Directors
has authorized the sale to Fusion of up to 6,000,000 shares of Unigene common
stock. See Note F. During the third quarter of 2001, Unigene received gross
proceeds of $476,000 from the sale of 1,437,000 shares of common stock to
Fusion. From May 18, 2001, through September 30, 2001, Unigene has received
approximately $931,000 through the sale of 2,478,992 shares of common stock to
Fusion, before cash expenses of

F-22

approximately $226,000. Our sales of common stock to Fusion have been below the
maximum level permitted due to the share price and trading volume of our common
stock. As a result, in the third quarter of 2001, we borrowed an additional
$1,475,000 from Jay Levy, the Chairman of the Board, to fund our operations.

The extent to which we rely on Fusion as a source of financing will depend on a
number of factors, including the prevailing market price and trading volume of
our common stock and the extent to which we are able to secure working capital
from other sources, such as licensing agreements or the sale of calcitonin, both
of which we are actively exploring. If we are unable to enter into a significant
revenue generating license or other arrangement in the near term, we would need
either to secure additional sources of funding in order to satisfy our working
capital needs or significantly curtail our operations. We also could consider a
sale or merger of the company. Should the funding we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require
it, the consequence would be a material adverse effect on our business,
operating results, financial condition and prospects.

We believe that satisfying our capital requirements over the long term will
require the successful commercialization of our oral or nasal Calcitonin product
or another peptide product in the United States and abroad. However, it is
uncertain whether or not any of our products will be approved or will be
commercially successful. The commercialization of one or more peptide products
may require us to incur additional capital expenditures to expand or upgrade our
manufacturing operations to satisfy future supply obligations. We cannot
determine either the cost or the timing of such capital expenditures at this
time.

NOTE C - NOTES PAYABLE - STOCKHOLDERS

During the first quarter of 2001, Jay Levy, the Chairman of the Board and an
officer of Unigene, loaned to Unigene $1,600,000 evidenced by demand notes
bearing interest at the Merrill Lynch Margin Loan Rate plus .25%. Due to the
fact that we did not make principal and interest payments when due, the interest
rate on $1,100,000 of these 2001 loans, as well as on $2,365,000 of prior demand
loans made to Unigene by Jay Levy, has increased an additional 5% per year to
the Merrill Lynch Margin Loan Rate plus 5.25% (11.875% as of September 30, 2001)
and the interest rate on $1,870,000 of term notes evidencing loans made by Jay
Levy to Unigene has increased an additional 5% per year from 6% to 11%. The
increased rate is calculated on both past due principal and interest. During the
second quarter of 2001, Jay Levy loaned to Unigene an additional $1,950,000
evidenced by demand notes bearing interest at the Merrill Lynch Margin Loan Rate
plus .25%. During the third quarter of 2001, Jay Levy loaned to Unigene an
additional $1,475,000 evidenced by demand notes bearing interest at the Merrill
Lynch Margin Loan Rate plus .25% (6.875% as of September 30, 2001).

During the first quarter of 2001 Warren Levy, an officer and director of
Unigene, loaned to Unigene $5,000 evidenced by a demand note bearing interest at
the Merrill Lynch Margin Loan Rate plus .25% (6.875% as of September 30, 2001).
Due to the fact that we did not made principal and interest payments when due,
the interest rate on $260,000 of prior demand loans made to Unigene by Warren
Levy has increased an additional 5% per year to the Merrill Lynch Margin Loan
Rate plus 5.25% (11.875% as of September 30, 2001). The increased rate is
calculated on both past due principal and interest.

During the first quarter of 2001 Ronald Levy, an officer and director of
Unigene, loaned to Unigene $5,000 evidenced by a demand note bearing interest at
the Merrill Lynch Margin Loan Rate plus .25% (6.875% as of September 30, 2001).
Due to the fact that we did not make principal and interest payments when due,
the interest rate on $248,323 of prior demand loans made to Unigene by Ronald
Levy has increased an additional 5% per year to the Merrill Lynch Margin Loan
Rate plus 5.25% (11.875% as of September 30, 2001). The increased rate is
calculated on both past due principal and interest.

NOTE D - CONVERTIBLE DEBENTURES

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 our option, was payable
in shares of Unigene common stock. Upon conversion, the holder of the 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 as a result of
the conversion. However, the number of shares of Unigene common stock that we
were 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,
was limited to 3,852,500 shares. After this share limit was reached, Unigene
became 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,

F-23

Unigene 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. During 1999, 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 September 30, 2001, 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, January 5, 2001 and July 5, 2001 also have
not been made. As of September 30, 2001, the accrued and unpaid interest on the
5% debentures totaled approximately $766,000. In addition, due to the delisting
of the Unigene common stock from the Nasdaq National Market in October 1999, we
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 September 30, 2001, the accrued and
unpaid amount of this penalty totaled approximately $977,000.

The holder of the 5% debentures commenced an arbitration proceeding in which the
holder claimed 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, 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. In July 2000, we submitted to the American
Arbitration Association a statement in which we denied the amount of the
holder's claim and made certain counterclaims. A hearing on the matter before an
arbitrator appointed by the American Arbitration Association was scheduled for
June 2001. In June 2001, the arbitration was postponed to allow Tail Wind and
Unigene to engage in settlement discussions. The outcome of these negotiations
is uncertain. An extremely unfavorable settlement or arbitration ruling could
have a material adverse effect on Unigene.

NOTE E - 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, 2001 December 31, 2000
------------------ -----------------

Finished goods.............. $100,000 $ 89,104
Raw materials............... 189,807 326,316
-------------- -------------
Total......... $289,807 $ 415,420
============== ==============

NOTE F - FUSION CAPITAL FINANCING

On May 9, 2001, Unigene entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, under which Unigene has the right to sell to
Fusion, subject to certain conditions, on each trading day during the term of
the agreement $43,750 of our common stock up to an aggregate of $21,000,000.
Fusion is committed to purchase the shares over a twenty-four month period. We
may decrease this amount or terminate the agreement at any time. If our stock
price equals or exceeds $4.00 per share, for five (5) consecutive trading days,
we have the right to increase the daily purchase amount above $43,750, provided
that the closing sale price of our stock remains at least $4.00. Under the
agreement with Fusion, Unigene must satisfy the requirements that are a
condition to Fusion's obligation including: the continued effectiveness of the
registration statement for the resale of the shares by Fusion, no default on, or
acceleration prior to maturity of, any payment obligations of Unigene in excess
of $1,000,000, no insolvency or bankruptcy of the Company, continued listing of
Unigene common stock on the OTC Bulletin Board, and Unigene must avoid the
failure to meet the maintenance requirements for continued listing on the Nasdaq
Small Cap Market for a period of 10 consecutive trading days or for more than an
aggregate of 30 trading days in any 365-day period. Unigene did not meet all of
the requirements for continued listing on the Nasdaq Small Cap Market. As a
result, Fusion and Unigene amended their agreement to change the continuing
listing requirements to those of the OTC Bulletin Board. Unigene is in
compliance with the amended agreement. The selling price per share to Fusion is
equal to the lesser of: the lowest sale price of our common stock on the day of
purchase by Fusion, or the average of the lowest five closing sale prices of our
common stock, during the 15 trading days prior to the date of purchase by
Fusion. We issued to Fusion 2,000,000 shares of common stock and a five-year
warrant to purchase 1,000,000 shares of common stock at an exercise price of
$.50 per share as compensation for its commitment. Fusion has agreed not to sell
the shares issued as a commitment fee or the shares issuable upon the exercise
of the warrant until the earlier of May 2003, or the termination or a default
under the common stock purchase agreement. In addition to the compensation
shares, the Board of Directors has authorized the issuance and sale to Fusion of
up to 6,000,000 shares of Unigene common stock.

In December 2000, we issued a five-year warrant to purchase 373,002 shares of
Unigene common stock to our investment banker as a fee in connection with the
Fusion financing agreement. The warrant has an exercise price of $1.126 and a
fair value of $327,000 using the Black-Scholes pricing model. The 2,000,000
shares issued to Fusion had a fair market value of $1,000,000 and the warrant
for 1,000,000 shares issued to Fusion had a fair value of $390,000 using the
Black-Scholes pricing model. The value of these warrants and shares had been
deferred pending the closing of the Fusion stock offering. The registration
statement for the stock offering was declared effective in May 2001 and these
deferred offering costs were charged to additional paid-in capital in the second
quarter of 2001.

From May 18, 2001 through September 30, 2001, Unigene has received approximately
$931,000 through the sale of 2,478,992 shares of common stock to Fusion, before
cash expenses of approximately $226,000.

NOTE G - CHINA JOINT VENTURE

In June 2000, Unigene 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 and other indications. Unigene owns 45% of the joint
venture and will have a 45% interest in the joint venture profits and losses. 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. A New Drug Application for its injectable
and nasal products has been filed in China. In addition, the joint venture may
be required to conduct brief local human trials. 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 Unigene's 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 formal operations as of September 30, 2001. We expect operations to
commence in the first quarter of 2002.

Under the terms of the joint venture with SPG, the Company is obligated to
contribute up to $405,000 in cash during 2002 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. As of September 30, 2001, we have
not made any investments in the joint venture. 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 $80,000 had been paid as of September 30, 2001.
Unigene recognized the entire $350,000 obligation as an expense in 2000.

NOTE H - 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 covered under the New Plan.

In November 1999, the Board granted under the New Plan, to employees of Unigene,
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 Unigene'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,

F-25

2001. Unigene recognized $398,785 as compensation expense in 2000, and
compensation expense of $256,455 in the first nine months of 2001, leaving a
balance of $28,493 as deferred stock option compensation.

NOTE I - LEGAL MATTERS

In addition to the arbitration proceedings discussed in Note D, Reseau de Voyage
Sterling, Inc. (Reseau) filed suit against Unigene in July 2000. Reseau, which
purchased from a third party a warrant to purchase one million shares of Unigene
common stock, alleges that Unigene breached a verbal agreement to extend the
term of the warrant beyond its expiration date. Reseau is seeking damages of $2
million. We believe that the suit is completely without merit and we intend to
continue to vigorously contest this claim.

NOTE J - NEW ACCOUNTING PRONOUNCEMENT

In July 2001, the FASB issued Statement No. 142, Goodwill and Other Intangible
Assets. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with definite useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. Unigene is required to adopt the provisions of
Statement 142 effective January 1, 2002.

Upon adoption of Statement 142, Unigene will be required to reassess the useful
lives and residual values of all intangible assets acquired in purchase business
combinations, and make any necessary amortization period adjustments by the end
of the first interim period after adoption. In addition, to the extent an
intangible asset is identified as having an indefinite useful life, Unigene will
be required to test the intangible asset for impairment in accordance with the
provisions of Statement 142 within the first interim period. Any impairment loss
will be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period. Unigene
does not expect the adoption of the pronouncement to have a material effect on
its financial statements.

In June 2001, the FASB issued Statement No. 143, Accounting For Asset Retirement
Obligations. Statement 143 applies to legal obligations associated with the
retirement of tangible long-lived assets that result from the acquisition,
construction, or development and/or the normal operation of a long-lived asset
for certain obligations of lessees. This Statement requires entities to record
the fair value of a liability for an asset retirement obligation in the period
incurred. The fair value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated over the
life of the asset. The liability is accreted at the end of each period through
charges to operating expense. If the obligation is settled for other than the
carrying amount of the liability, the company will recognize a gain or loss on
settlement. We are required to adopt the provisions of Statement No. 143
beginning January 1, 2003. We have not determined the impact, if any, the
adoption of this statement will have on our financial position or results of
operations.

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets. This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
statement supersedes Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement
establishes an accounting model for impairment or disposal of long-lived assets
by sale. Statement 144 is required to be adopted beginning January 1, 2002. We
have not determined the impact, if any, the adoption of Statement No. 144 will
have on our financial position or results of operation.

F-26

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.............. $ 1,225
Blue Sky fees and expenses....................................... 0
Accounting fees and expenses..................................... 4,000
Legal fees and expenses.......................................... 6,000
Registrar and transfer agent's fees and expenses................. 1,000
Printing and engraving expenses.................................. 0
Miscellaneous.................................................... 0
------
Total expenses................................................... $12,225
======

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.

II-1

Item 15. Recent Sales of Unregistered Securities

Since September 30, 1998, Unigene has made the following sales of
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act"):

(1) 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.

(2) 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.

(3) 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.

(4) 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.

(5) 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.

(6) 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.

(7) 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.

(8) 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.

(9) In the quarter ended September 30, 2000, Unigene issued 95,685
shares of Unigene common stock upon the cashless exercise of a total of 195,834
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.

(10) In the quarter ended December 31, 2000, Unigene issued 8,636 shares
of Unigene common stock upon the cashless exercise of a total of 22,000 warrants
at an exercise price of $2.00 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.

II-2

(11) In the quarter ended March 31, 2001, Unigene issued to Fusion
2,000,000 shares of Unigene common stock and a warrant to purchase 1,000,000
shares of Unigene common stock. These securities were issued by Unigene without
registration in reliance on an exemption under Section 4 (2) of the Securities
Act.

(12) In the quarter ended June 30, 2001, Unigene sold 1,041,500 shares
of common stock to Fusion Capital Fund II, LLC for gross proceeds of $455,290.
All of such shares were issued by the Company without registration in reliance
on an exemption under Section 4 (2) of the Securities Act of 1933, as amended.

(13) In the quarter ended September 30, 2001, Unigene sold 1,437,492
shares of common stock to Fusion Capital Fund II, LLC for gross proceeds of
$476,076. All of such shares were issued by the Company without registration in
reliance on an exemption under Section 4 (2) of the Securities Act of 1933, as
amended.

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).

3.1.3 Amendment to Certificate of Incorporation filed July 18, 2001
(incorporated by reference to Exhibit 3.1.3 of Amendment No.2 to
Registrant's Registration Statement No. 333-04557 on Form S-1, filed
December 12, 2001).

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 10,000,000 of
the shares of Unigene common stock 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)).

II-3

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).

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).

10.12 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).

10.14 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).

10.17 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).

10.19 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)).

II-5

10.35 Common Stock Purchase Agreement, dated May 9, 2001, between the
Registrant and Fusion Capital Fund II, LLC (incorporated by
reference to Exhibit 10.35 to the Registrant's Registration
Statement No. 333-60642 on Form S-1, filed May 10, 2001).

10.36 Registration Rights Agreement, dated April 23, 2001, between the
Registrant and Fusion Capital Fund II, LLC (incorporated by
reference to Exhibit 10.36 to the Registrant's Registration
Statement No. 333-60642 on Form S-1, filed May 10, 2001).

10.37 Warrant, dated March 30, 2001, between the Registrant and Fusion
Capital Fund II, LLC (incorporated by reference to Exhibit 10.37 to
the Registrant's Registration Statement No. 333-60642 on Form S-1,
filed May 10, 2001).

10.38 Patent Security Agreement dated March 13, 2001 between the
Registrant and Jay Levy (incorporated by reference to Exhibit 10.38
of Amendment No.2 to Registrant's Registration Statement No.
333-04557 on Form S-1, filed December 12, 2001).

10.39 First Amendment to Patent Security Agreement dated May 29, 2001
between the Registrant and Jay Levy (incorporated by reference to
Exhibit 10.39 of Amendment No.2 to Registrant's Registration
Statement No. 333-04557 on Form S-1, filed December 12, 2001).

10.40 Letter Agreement between Fusion Capital Fund II, LLC and Unigene
Laboratories, Inc. dated November 1, 2001 (incorporated by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001).

10.41 Letter Agreement between Fusion Capital Fund II, LLC and Unigene
Laboratories, Inc. dated November 26, 2001 (incorporated by
reference to Exhibit 10.41 of Amendment No. 2 to Registrant's
Registration Statement No. 333-04557 on Form S-1, filed December 12,
2001).

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)

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

* Filed herewith
** To be filed 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

II-6

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.

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 26th day of December 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.

II-7

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on this 26th day of December 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

* Director
- -----------------
Allen Bloom

* Director
- -----------------
Bruce S. Morra
Director
- -----------------
J. Thomas August

* By Power of Attorney

/s/ Warren P. Levy
- ------------------
Warren P. Levy

II-8

EXHIBIT INDEX

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

23.1 Consent of KPMG LLP.

II-9