UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549 FORM 10-K (X)
  ANNUAL REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal
  year ended December 31, 2000OR(  
  )
  TRANSITION REPORT PURSUANT TO SECTION 13 OR
  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)For the transaction period from
  ___________________ to ____________________
 Commission File Number000-30493 BIONEBRASKA, INC.(Exact name of registrant as specified in its charter) Delaware
  
  47-0727668(State or other jurisdiction of
  
  (I.R.S. Employerincorporation or organization)
  
  Identification No.)
 3820 N.W. 46th Street, Lincoln, Nebraska 68524-1637(Address of principal executive offices) Registrant's telephone number, including area
code:  (402) 470-2100 Securities registered pursuant to Section 12(b) of the Act:  None
Securities registered pursuant to section 12(g) of the Act: Common Stock, $.01
par value. Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
          Yes (X)       No  (   ) Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (   ) As
of March 20, 2001, the Company had outstanding 7,359,183 shares of Common
Stock, $.01 par value.


TABLE OF CONTENTS PART IITEM
  1.
  BUSINESSITEM 2.
  PROPERTIESITEM 3.
  LEGAL PROCEEDINGSITEM
  4.
  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM
  5.
  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
  MATTERSITEM 6.
  SELECTED FINANCIAL DATAITEM
  7.
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
  RESULTS OF OPERATIONSITEM
  7A.
  QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKSITEM
  8.
  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM
  9.
  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSUREPART IIIITEM
  10.
  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11.
  EXECUTIVE COMPENSATIONITEM
  12.
  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTITEM
  13.
  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSPART IVITEM
  14.
  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K


PART I ITEM 1. 
BUSINESS Introduction BioNebraska,
Inc. (the Company or BioNebraska) is a development stage therapeutics
company which was incorporated in 1988 and began development programs in
1989.  Since 1992, the Company has focused
on reactivating major body endocrine hormone cascades with regulatory peptide
hormones in the natural form.  The
Company is engaged in clinical development of products for the treatment of
Type 2 (adult onset) Diabetes, obesity, impaired glucose tolerance, advanced
cases of osteoporosis and other symptoms of aging and various acute
applications for serious medical conditions. The Company
has and continues to develop, with the use of genetic engineering, the
capability to biologically produce, purify and amidate middle-range peptide
hormones (referred to generally as MR Peptides) in a natural form.  Several MR Peptides serve as key hormones
which activate and regulate particular body systems and functions.  As a result of body malfunction or advancing
age, these peptide hormones are often deficient or lacking.  The Companys MR Peptide hormones serve to
naturally activate the endocrine cascades which govern the relevant bodily
functions.  The Company has developed a
process for adding an amide (a chemical addition) to the carboxy terminus
(one-end) of recombinant peptides.  An
amide is often required to give a peptide full biological activity.  The Company believes its ability to produce
these peptide hormones in the natural form at relatively low cost will enable
the peptides to be reintroduced into the body to help restore and augment these
hormones in patients who have lost the ability to produce them as a result of
advancing age or body malfunctions.  
The restoration or addition of these peptide hormones, in turn, may
serve to partially or wholly restore the relevant body systems or functions. One of the
Companys two principal pharmaceutical products under development is human
Glucagon-Like Peptide-1 (GLP-1).  The
Companys goal is to be a leader in the biological production of GLP-1 in the
naturally-occurring form.  GLP-1 is
believed to be an important peptide hormone that regulates metabolism and
reduces high glucose levels in the blood and at the same time restores blood
insulin towards normal levels in Type 2 diabetics, as well as persons with
impaired glucose tolerance (IGT). The
Company has successfully completed a Phase I/II clinical trial on the
application of GLP-1 to treat patients with Type 2 Diabetes and is currently
conducting a Phase IIa trial for the treatment of this indication.  In the event this Phase IIa trial is
successful, Phase IIb and Phase III trials are expected to be conducted in
several clinics nationwide and in Europe with the goal of fulfilling the
requirements for the U.S. Food and Drug Administration (FDA) and European
regulatory approvals to market the treatment. The
Company has successfully completed a Phase I/II clinical trial to establish the
safety and efficacy of using GLP-1 to control obesity and excess appetite.  The trial was conducted by Professor Mark K.
Gutniak at the Karolinska Institute in Stockholm, Sweden.  The Company plans to commence a Phase II
clinical trial for the GLP-1 Treatment of obesity in Denmark during the second
quarter of this year. BioNebraska
is also conducting preliminary clinical evaluations of GLP-1 for acute
applications, where there are serious medical conditions.

The
Companys other principal pharmaceutical product under development is Human
Growth Hormone Releasing Factor (also known as growth hormone releasing hormone
and referred to as GRF). The Company believes GRF can be an effective therapy
in combination with parathyroid hormone for osteoporosis and various other
symptoms of aging.  The Company has
initiated, under a physician-sponsored IND, at the Osteoporosis Clinic of the
Columbia/Presbyterian Hospital in Haverstraw, New York, an initial clinical
trial utilizing GRF and parathyroid hormone (PTH), which can also be produced
with the Companys technologies, in separate three-month cohorts.  The objective is to stimulate new bone mass
formation in elderly female patients with advanced osteoporosis.  If GRF and PTH, respectively, prove to be
safe and well tolerated, the next arm of this clinical trial planned would be to
treat with a combination of GRF and PTH. 
If safe and efficacious, this combined treatment could be important for
the broad range of patients at substantial risk of fractures from osteoporosis
and other bone depletion disorders.

The Company
believes this peptide hormone can also serve as an effective therapy to improve
the heart pumping functions of older patients suffering from enlarged left
ventricle cardiomyopathy (ELVC) and other forms of congestive heart failure
(CHF).  A Phase I/II clinical trial
has been initiated under a physician-sponsored IND at Massachusetts General
Hospital which is affiliated with Harvard Medical School (MGH/Harvard) for
the GRF treatment of elderly patients with ELVC.

The Company
also believes that GRF can be an effective treatment to strengthen muscle
structure and mobility in persons suffering from old age muscle frailty.  The Company supports at the University of
Virginia Medical Center in Charlottesville an ongoing investigator clinical
trial to measure safety and early efficacy in the treatment of old age muscle
frailty with GRF.

Company Progress

BioNebraska
received its initial funding and began development programs in May 1989, having
been incorporated in April 1988.  From
1992 until the present, the Company has dedicated the major part of its efforts
and resources to the development and production scale-up of its proprietary
technologies and methods for manufacturing MR Peptides.  Since 1997, the Company has also focused on
evaluation and clinical development of its primary peptide products for
potential medical applications.  The
Company now has the production capabilities and cGMP facilities to supply its
primary peptides for large scale clinical trials and is preparing for
commercial-scale recombinant production of GLP-1, GRF and PTH.  The Company intends to be a leading producer
of these high purity peptides in their natural form.

The Company
is focusing on the use of natural MR Peptide regulatory hormones for therapy
because they have been broadly studied and generally found to be safe.  Accordingly, the Company believes the time
for development and pre-clinical and clinical testing of its natural MR Peptide
hormone products may be shortened. 
However, the Company does not expect regulatory approval for commercialization
of its primary diabetes program before 2005.

The
Companys planned pharmaceutical products will require additional development,
construction of significant additional plant facilities, further clinical
testing and additional investment prior to commercialization.  The pharmaceutical products require the
approval of the FDA for sale in the United States.  If and when approved as products, they must be manufactured in
commercial quantities and marketed successfully.  Although the Company has successfully produced peptide hormones
in limited quantities for research and development, the Company has not
produced commercial quantities and does not yet have adequate facilities and
staff to produce peptide hormones for commercial therapeutic purposes, although
a commercial-sized fermentation plant has been constructed and is undergoing
validation.

In addition,
the Company currently has no established marketing capabilities, and will need
to either develop such capabilities internally or enter into arrangements with
one or more corporate partners for marketing and distribution.  The Companys ability to successfully
commercialize its products may depend in part on the extent to which
reimbursement for the costs of such products and treatments will be available
from government health administration authorities, private health insurers, and
other organizations.  Each of these
steps involves significant amounts of time and expense and could be subject to
unforeseen delays.  There can be no
assurance that any of the Companys product development efforts will be
successfully completed, that regulatory approvals will be obtained where
required, or that any products, if developed and introduced, will be
successfully marketed or achieve market acceptance.

Middle-Range Peptides

Peptides are
formed by amino acids which act as building blocks in various combinations
and sequences.  MR Peptides generally
refer to peptides which are made up of 20 to 60 amino acid building blocks or
residues.  Peptides consisting of more
than 60 amino acid residues are generally known as proteins and tend to develop
complex three dimensional structures. 
Some peptides, including many MR Peptides, perform fundamental
activation and regulatory functions as hormones in the body and consequently
can be pharmaceutically important.

Peptides
made up of less than 20 amino acid residues generally can be produced in
commercial quantities by conventional chemical synthesis and often at
acceptable costs.  Proteins also can be
efficiently produced by conventional biological means using genetic engineering
(referred to generally as recombinant production) at relatively high but
often acceptable costs for pharmaceutical applications.  Due to the inherent difficulty and expense,
and the inability to amidate, associated with the recombinant production of MR
Peptides, recombinant methods of producing MR Peptides have not been generally
successful.  Further, the expense of
producing MR Peptides with conventional chemical synthesis dramatically increases
when the peptides incorporate more than 20 amino acid residues, and efficiency
is sharply decreased.  The difficulties
of manufacturing MR Peptides by chemical synthesis and the associated costs are
often not acceptable for commercial pharmaceutical use, particularly when the
size of the MR Peptide increases above 25 amino acid residues.  The Company believes it has developed novel
technologies and processes for the efficient production and purification of MR
Peptides at relatively low costs, as compared to the reported cost of chemical
synthesis.

These
technologies and processes involve the introduction of the gene code for a
proprietary expression leader peptide connected to a molecule, which is a
precursor to the MR Peptide, into an organism, such as E. coli bacteria.  The bacteria are then introduced into a
carefully controlled environment in a fermentation vessel and are grown by
fermentation.  The bacteria are then harvested,
their cells broken open and the precursor MR Peptide, with the leader peptide
attached, is selectively removed from the cell mass by proprietary purification
methods.  The MR Peptide is then severed
from the leader peptide using proprietary technologies, further purified and
often amidated, to yield the natural human form of the MR Peptide.  The production of an MR Peptide by these
genetic engineering and biological means is referred to as recombinant
production and the product produced is a recombinant MR Peptide.

An important
characteristic of many MR Peptides is that, in their natural form, they end
with an amide.  This amide ending is
often required to constitute the natural peptide and develop full biological
activity but cannot be made by recombinant production and must be added by
chemical means.  The inability to add
amide endings on MR Peptides at an acceptable cost has been a major impediment
to the efficient recombinant production of MR Peptides.  The Company believes it and its scientific
collaborators have developed several efficient, novel and proprietary processes
for adding this amide to MR Peptides which are produced recombinantly.  In combination with the Companys other
recombinant production technologies, this makes possible the efficient and
relatively low cost production of natural MR Peptides of high purity which
incorporate the amide.

Protein
hormone therapies are generally expensive. 
For example, it is the Companys understanding that growth hormone
replacement treatment of abnormal short stature can cost patients in excess of
$20,000 per year and an annual treatment with erythropoietin (EPO) to
supplement kidney dialysis can cost $10,000 to $14,000.  These treatment costs result in part from
the high production costs for the particular protein or peptide.  The Company believes that the lack of efficient
recombinant production and amidation processes has been a major impediment in
the development and production of MR Peptide hormone therapies for wide medical
applications.  The Companys goal is to
lower the costs of MR Peptide hormone therapies to increase the feasibility of
sustained treatments with these peptides and to increase the availability of
third party reimbursement for these therapies.

MR Peptide Production

The Company
has developed and plans to continue to develop and scale-up recombinant
production processes to produce MR Peptide hormones for its GLP-1 and GRF
Programs, as well as for other proprietary Company pharmaceutical
programs.  The Company may also produce
MR Peptide hormones for other pharmaceutical customers under contract.  Production processes have been developed for
GLP-1, GRF, two forms of PTH, and certain other MR Peptide hormones, such as
calcitonin and calcitonin analogs.

The Company
has designed and built fermentation and peptide purification facilities to
produce cGMP pharmaceutical peptide products. 
In its current facility, BioNebraska can produce enough precursor
materials by fermentation to produce up to 100 kilograms of peptide per
year.  While it will only be able to
produce at the rate of 12 kilograms per year of peptide in its current
facility, the Company is planning to build a larger (120 kilograms per year)
downstream processing facility in the near future.

Pharmaceutical
Programs

The
Companys pharmaceutical programs are initially focused on conducting human
clinical trials on the therapeutic applications of GLP-1 and GRF.  It is the Companys plan to raise funds in
equity offerings to support its pharmaceutical programs, including the clinical
trials and the scaling up of cGMP production of these peptide hormones.  The Company also plans to obtain one or more
pharmaceutical company marketing partners to commercialize applications of its
products and to provide strategic and potentially financial support for the
later stages of clinical trials.  The
Companys ability to commercialize these peptide hormones is dependent on the
Companys success in raising the necessary funds and entering into one or more
collaborations with marketing partners. 
There is no assurance that the Company will be able to do so.

GLP-1 Therapy for Type 2 Diabetes and Impaired Glucose
Tolerance

One of the
Companys two principal therapeutic platforms involves the recombinant
production and formulation of GLP-1, which is a hormone made up of 30 amino
acid residues with an amide at the C terminus. 
This hormone is also referred to as GLP–1 (7–36) amide.  GLP-1 has been demonstrated in more than 50
short studies of humans with Type 2 Diabetes and related conditions to
substantially reduce high glucose levels in the blood and at the same time to
restore high blood insulin toward normal levels.

Type 2
Diabetes, also known as Non-Insulin Dependent Diabetes Mellitus and adult
onset diabetes, when untreated is characterized generally by elevated levels
of glucose in the blood that result from defects in insulin secretion and
action.  The disease, which normally
appears after the age of 40, is preceded by conditions known as impaired
glucose tolerance (IGT) and impaired fasting glucose (IFG).  Normally, coincident with IGT and IFG, is the
condition of insulin resistance, where substantially higher insulin levels in
the blood than normal are required to induce muscle and other tissues to take
up or metabolize normal amounts of glucose. 
Also coincident with IGT and IFG is the development of cardiovascular
disease and obesity.

A
substantial number of persons with IGT and IFG progress in the course of one or
more years into the state of Type 2 Diabetes. 
Progression to Type 2 Diabetes is thought to result from loss of B-cell
compensation and eventual failure.  This
state is characterized by a loss of blood glucose control and a material
elevation of glucose and (initially) insulin above normal levels in the
blood.  As these high levels of glucose
persist in Type 2 Diabetes, numerous adverse effects develop.  The pressure on the beta cells in the
pancreas to produce the extra insulin required for glucose control slowly
destroys them.  The high levels of
glucose and insulin often result in obesity or increased obesity and in further
deterioration over time of the cardiovascular system, the kidneys, the nervous
system (including impotence), vision and other systems, as well as premature
death.

Current
medications for Type 2 Diabetes available on the market include a variety of
agents in pill form.  Some of these
cause insulin to be released by the beta cells in the pancreas, some reduce the
inappropriate release of glucose from the liver during the fasting state and
some reduce insulin resistance.  The
agents which cause the release of high amounts of insulin appear to have the
effect of accelerating the demise of the beta cells and increasing
cardiovascular risks.  Generally after a
few years of use of these agents, due to the progressive elimination of beta
cells leaving an inadequate number of such cells to produce the elevated
insulin required to metabolize the glucose, insulin must be injected into the
patient.  This is required to maintain
the ever-increasing insulin levels needed to overcome the increasing insulin
resistance in order to metabolize the glucose and to bring down the elevated
glucose levels in the blood toward normal.

A recent
study in Type 2 Diabetes patients (the UKPDS study) has shown that the severe
complications from Diabetes can be minimized by holding glucose levels near
normal.  This is accomplished through
the use of invasive blood glucose monitors (often four times per day) to
measure blood glucose for the purposes of adjusting the amount of insulin
available in the blood.  Adjustment of
insulin levels is accomplished with the use of oral agents (in early stages of
Type 2 Diabetes) or insulin injections (in later stages of Type 2 Diabetes), as
the case may be, in order to keep glucose levels within normal tolerances.  This Tight Control objective is considered
to be the optimum therapeutic goal in Diabetes.  This is because, as indicated in the study noted above, Tight
Control appears to have reduced the deterioration in body systems which was
evident in the less well controlled patients who were studied in parallel.  Tight Control is difficult and expensive to
achieve and requires major patient discipline to rigidly follow the
protocols.  This discipline can be more
easily achieved with younger and middle-age patients, and has proved difficult
to achieve in the elderly.  Tight
Control requires a support network of doctors and nurses to provide frequent
monitoring and counseling to the patient.

Because
GLP-1 appears to trigger a number of regulatory responses in the body which
have the cumulative effect of reducing high glucose levels in the blood and at
the same time restoring blood insulin towards normal levels, it is the
Companys hypothesis that the application of GLP-1 could deliver the equivalent
of Tight Control, i.e., the progressive normalization of glucose, while at the
same time bringing insulin levels back toward normal.  The latter effect is important because there would be less strain
and demand on the patients remaining beta cells, thereby tending to preserve
their function.  It is also conceivable,
though not demonstrated, that using GLP-1 to achieve Tight Control could
involve less invasive glucose monitoring and fewer requirements to adjust
insulin, with less opportunities for hypoglycemia and less treatment pain and
expense.  Also, the cardiovascular and
other complications attributed to disregulated insulin levels could be
minimized.  Even when the Type 2 patient
requires injected insulin because of the depletion of beta cells, GLP-1 could
be important in eliminating or minimizing the amount needed and the
complications from elevated levels of insulin. 
Finally, the Company believes that the application of GLP-1 in most
stages of Type 2 Diabetes may serve to preserve pancreatic beta cells and their
function and essentially arrest the otherwise inevitable progress of the
disease.

A serious
danger for all Diabetics under medication is the hypoglycemic condition, where
glucose levels, due to medication miscalculation or otherwise, drop seriously
below normal.  In its worst
manifestation, more often seen in the elderly, this condition can result in
death or serious coma with permanent damage to the brain.  In milder cases, there can be a shock to the
system and some neural damage and disorientation, often requiring help from
another person to restore glucose levels and obtain relief.  It is the Companys hypothesis, unproven as
yet, that GLP-1 medication will serve to minimize this danger of hypoglycemic
shock.  This is because the GLP-1
regulatory functions appear to be effective in lowering glucose only when
glucose levels are higher than normal and do not appear to have the effect of
pushing glucose levels sufficiently below normal to cause hypoglycemia.

The Company
has formed an Advisory Board of leading U.S. and European clinical experts on
GLP-1 and its potential role in metabolic malfunctions and disease, such as
Type 2 Diabetes, to participate in the design and review of clinical trials and
to analyze the results of these trials.

The Company
has successfully completed in the United States corporate Phase I/II clinical
trials for the FDA, measuring safety, dose-ranging and early efficacy of GLP-1
in the treatment of Type 2 diabetes.  A
Phase II trial, under a physician-sponsored IND, has also been completed at the
Panum Institute in Copenhagen, Denmark, under the direction of Professor Dr.
Jens Juul Holst. The results from the trial indicate significant improvements
in glucose control and pancreatic insulin expression and secretion, as well as
significant reductions in insulin resistance, in advanced Type 2 diabetics
after GLP-1 treatment over six weeks.  A
Phase IIa corporate FDA clinical trial is currently in progress to measure
dose-ranging and efficacy and a Phase IIb multi-center corporate FDA clinical
trial is expected to commence later this year. 
If these Phase II trials are successful, the Company expects that
multi-center Phase III clinical trials will be conducted with the goal of
obtaining FDA and European regulatory approvals for the marketing of this
therapy.  The Company has also completed
extensive pre-clinical chronic and acute toxicology tests with GLP-1, using
many times the proposed human dosage. 
None of these tests nor any of the human trials to date have indicated
any systemic toxicity from the Companys GLP-1.

GLP-1 Therapy for Obesity and Excess Appetite

At the end
of 2000, the Company successfully completed a Phase I/II clinical trial to
preliminarily test the effect of GLP-1 treatment on food intake and appetite in
healthy obese patients and its safety in this application.  The trial was conducted by an investigator
affiliated with the Karolinska Institute in Stockholm, Sweden under a
physician-sponsored IND.  The trial
demonstrated a significant reduction of food intake with five days of GLP-1
treatment.  The Company intends to
initiate in the second quarter of 2001 a Phase II Company-sponsored trial in
Denmark for the GLP-1 treatment of healthy obese patients over a period of six
weeks.  The target will be to
demonstrate significant weight reduction from the treatment.  In the event this trial is successful, the
Company intends to initiate additional Phase II and III trials in Europe and
the U.S. with a view toward obtaining regulatory marketing approvals for this
application.

GRF Therapy for CHF and other Symptoms of Aging

The
Companys other principal therapeutic platform involves the recombinant
production and amidation of GRF, which is a hormone made up of 44 amino acid
residues with a C-terminal amide.  GRF
is generally believed to activate and regulate a major endocrine hormone
cascade (referred to herein as the growth/maintenance endocrine
cascade).  To accomplish this, GRF
releases the several forms of growth hormone which in turn stimulates the
production and release of IGF-1 and IGF-1 binding proteins and feed-back
control mechanisms that generally govern the growth of the body during younger
years and the maintenance of the body in the years after growth stops.

The Company
is engaged in a long-term program for the application of GRF in combination
with PTH as a therapy for osteoporosis. 
The Company completed a pilot study in 1997 on the application of GRF to
treat a small number of elderly female patients with advanced cases of
post-menopausal osteoporosis.  Advanced
cases of osteoporosis are those where the patient has suffered one or more
fractures without substantial trauma. 
This pilot study sought to determine an appropriate GRF dose and then
demonstrate that the application of low dose GRF therapy would achieve significant
growth hormone responses in these patients over a sustained period.  The study indicated that low GRF doses are
well tolerated and without any apparent significant adverse side effects in
this fragile group.  The study also
indicated that low doses of GRF reactivated substantial growth hormone releases
in most of the patients.  These results
were consistent with the reactivation of the growth/maintenance cascade.

If GRF and
PTH, respectively, prove to be safe and well tolerated in the initial clinical
trials currently being carried out by Professor Robert Lindsay, President of
the U.S. Osteoporosis Foundation, at the Helen Hays Unit of New York Columbia
Presbyterian Hospital, the next clinical trial planned will be to treat with a
combination of GRF and PTH.  If this
trial indicates safety and early efficacy, substantially longer clinical trials
in several medical centers with a larger number of patients will be
required.  In the event these larger
trials show safety and efficacy, the Company could then be in a position to
apply for regulatory approvals for marketing the therapy.  If safe and efficacious, this combined
treatment could be important for the broad range of patients at substantial
risk of fractures from osteoporosis and other bone depletion disorders who
currently have no effective therapy. 
The Company holds issued patents in the United States covering the use
of GRF for the treatment of osteoporosis. 
The Company also holds issued patents in the United States and in
several European countries covering the use of GRF and PTH in combination for
the treatment of osteoporosis.

A
Phase I/II clinical trial, under a physician-sponsored IND, is near completion
with the application of the Companys GRF at the University of Virginia Medical
Center for the treatment of catabolism and muscle frailty in the elderly under
the direction of Professor Johannes Veldhuis. 
In the event the results of these trials are encouraging, Professor
Veldhuis will then conduct Phase II clinical trials for the application of GRF,
and GRF in combination with androgens and estrogens, for the treatment of these
indications.  Professor Veldhuis is a
leading investigator in the growth/maintenance endocrine cascade and is a
Coordinator for the National Institutes of Health in this field.  If warranted, the Company will then proceed
with Phase II and III trials to demonstrate definitive therapeutic applications
for this condition.  The Company holds
patents, issued in the U.S. and Europe, for the use of GRF, and GRF in
combination with testosterone, for the treatment of severe catabolism and
shock.

The Company
initiated, under a physician-sponsored IND,a program
for the use of GRF to improve the heart pumping functions of older patients
suffering from an enlarged left ventricle, a prevalent and serious form of
congestive heart failure (CHF).  In
the event results of the MGH/Harvard dose-ranging and early efficacy trial are
positive, the Company will embark on Phase II and III clinical trials for the
purpose of obtaining FDA and other regulatory approvals for the marketing of
GRF for this CHF condition.

Peptide Hormone Delivery

The initial
delivery mode for GLP-1 and GRF in the respective pharmaceutical programs will
be subcutaneous infusion using programmable external pumps and to a lesser
extent by subcutaneous injection.  The
Company believes that these delivery methods are appropriate, given the serious
nature of the illnesses addressed and the substantial markets involved.  See Markets and Marketing below.  Because each of these products has potential
applications in wider markets, i.e., GLP-1 to arrest the progress of Type 2
Diabetes and to prevent persons with IGT from becoming Type 2 Diabetics and
GRF/PTH for material addition of bone mass to osteoporotics, the Company
intends to embark upon programs to deliver these peptide products by means
which will not require continuous subcutaneous infusion with an external pump
or one or more subcutaneous injections each day.  New technologies for subcutaneous infusion with a small
disposable patch device over one to three days, or through the sustained
release of these therapies over one or more months by injected depot, are being
considered.

Possibilities
for delivering these peptides include injected depot sustained-release
technologies, the use of implanted steady state and programmable pumps,
orally-administered tablets, buccal tablets and deep lung insufflation
techniques.  Several companies have
recently reported the successful delivery in humans of peptide hormones by oral
tablets.  Because it does not have or
intend to develop new non-injection or infusion technologies in-house, the
Company will be required to work with one or more of the several companies
which have developed proprietary technologies in these delivery areas.  There is no assurance that the Company will
be able to demonstrate appropriate non-injection or non-infusion delivery
methods for its products or that, even if it does, an appropriate commercial
agreement can be entered into with the company possessing the particular
delivery technology.

The Company
intends to consider new delivery systems which can provide the functional
equivalent of the injection or infusion delivery systems initially used.  The Company has embarked on programs for the
development of injected depot release of GLP-1 and also for its administration
with an oral pill.  These systems, if
effective, would then be substituted for those systems as the equivalent.  In general, additional clinical trials can
be expected to be required before FDA or other regulatory approval can be
obtained for wider applications of GLP-1 and GRF products using these new
delivery methods.  There can be no
assurance that such approvals will be forthcoming.

Proprietary Rights

See Item
7-Additional Factors That May Affect Future Performance  Dependence on Patents
and Proprietary Technology.

Markets and Marketing

The
Company believes that there are approximately 16 million persons in the United
States suffering from Diabetes, of which approximately 15 million have Type 2
Diabetes. A major portion of these persons are diagnosed from time to time and
put on medication.  The Company believes
that similar incidence of this disease exist in Western and Central Europe,
Japan, Canada and Australia.  The
Company believes that China has over 40 million and India has over 30 million
persons suffering from Type 2 Diabetes and Impaired Glucose Tolerance.  The Company is not aware of any existing
drug therapy which has the broad capability of holding glucose to near normal
levels while, at the same time, substantially lowering insulin levels for Type
2 Diabetics and avoiding episodes of hypoglycemia.

The Company
intends to establish one or more collaborations to market GLP-1 therapy for
Type 2 Diabetes.  The Companys
development program entails clinical trials for the delivery of GLP-1 by
external pump infusion and by a skin patch device which provides an equivalent
infusion delivery as a therapy for Type 2 Diabetes and, if successful, applying
to the FDA for marketing approval.  The
Company expects to develop additional delivery methods for GLP-1 for the
treatment of this disease in parallel to its current clinical  trials which are expected to use external
pump infusion; and, in the event initial regulatory approval for GLP-1 is
obtained, intends to apply for regulatory approval of these additional delivery
methods.

The Company
believes that, at any one time, there are in excess of one million cases of
acute osteoporosis in the United States. 
In addition, the Company believes that over 20 million women in the
United States suffer substantial bone depletion from post menopausal
osteoporosis conditions, and as a result, have a likelihood of developing
serious bone fractures.  Older men,
believed to number approximately one-tenth of the women with an osteoporosis
condition in the same age ranges, also suffer from osteoporosis, sustain
similar bone depletion conditions and have substantial risks of serious
fractures.  As many as 50 million people
in Europe and Japan may suffer from acute osteoporosis and from the lesser
forms of osteoporosis.  The Company is
not aware of any existing therapy for osteoporosis which has the capability of
adding substantial natural bone mass to all parts of the skeleton of patients
who suffer from osteoporosis.  The
Company intends to conduct clinical trials for the application of GRF/PTH as a
therapy for acute osteoporosis with the objective of applying for market
approvals.  The Company may enter into a
collaborative or marketing arrangement with one or more pharmaceutical
companies for the conduct of its osteoporosis clinical program, as well as for
the marketing of other GRF therapies for the elderly.

The Company
believes that there are currently more than 4 million cases of congestive heart
failure in the United States and similar prevalence levels in relation to
population in Western and Central Europe, Japan, China and Canada. The Company
believes that a substantial number of these could benefit from GRF
therapy.  The Companys initial focus
will be on the application of GRF for enlarged left ventricle cardiomyopathy
with initial studies being carried out at MGH/Harvard.  In the event this program is successful, the
Company will move into further clinical trials for this condition with a view
toward obtaining applicable regulatory approvals.  The marketing of GRF for this and similar applications, in the
event regulatory approvals are received, is expected to be carried out on a
collaborative basis with a company which has an appropriate marketing presence
in the cardiovascular field.  Other than
a heart transplant and the use of growth hormone in younger cases, the Company
is not aware of any therapies which have had substantial success in reversing
the deterioration in, or in strengthening, the heart function in these
cases.  There can be no assurance that
any such GRF therapeutic application will be successful or obtain regulatory
approval or that the Companys GRF could be marketed profitably for this
application.

Obesity is a
major health problem in the U.S. 
Approximately twenty percent of the U.S. population is severely obese
and more than forty percent are obese. 
Obesity often leads to aberrant glucose metabolism and Type 2
Diabetes.  The Company believes that, in
the event its clinical trials program for appetite control and weight reduction
with GLP-1 proves successful, the application of GLP-1 for treatment of obesity
will achieve a substantial market position. 
The Company plans to enlist a substantial corporate partner for this activity.

GRF Royalty

In 1996, in
connection with the Companys purchase of a former equity interest in the
Companys GRF program, the Company agreed to pay Cambridge Biotech Corporation
(now Aquila Biopharmaceuticals, Inc., a wholly-owned subsidiary of Antigenics
Inc.) a royalty on proceeds from the sale of GRF made by the Company for
certain therapeutic purposes described in the agreement.  The Company has the right to buy out the
royalty interest by a lump sum payment within a six year period expiring on December
31, 2002 or a larger amount payment within a ten year period expiring on
December 31, 2006.  The Company has not
yet decided whether it will exercise this right to make a lump sum payment
because the amount of royalties are unknown at this time.

Government Regulation

Regulation
by governmental entities in the United States and other countries will be a
significant factor in the preclinical and clinical testing, production,
labeling, sale, distribution, marketing, advertising and promotion of any
products developed by the Company or its strategic partners.  The Company's therapeutic products will
require regulatory approval or clearance by governmental agencies prior to
commercialization.  The nature and the
extent to which such regulation may apply to the Company or its strategic
partners will vary depending on the nature of any such products.

Human
pharmaceutical therapeutic products, including pharmaceutical MR Peptides, are
subject to rigorous preclinical and clinical testing and other requirements by
the United States Food and Drug Administration (FDA) in the United States and
similar health authorities in foreign countries.  Various federal and, in some cases, state statutes and
regulations also govern or influence the manufacturing, safety, labeling,
distribution, storage, record keeping and marketing of such products.  The process of obtaining these approvals or
clearances is uncertain and the process of and the subsequent compliance with
appropriate federal and foreign statutes and regulations is time consuming and
require the expenditure of substantial resources.

Generally,
to gain FDA pre-market approval for a biopharmaceutical product, a company
first must conduct extensive preclinical studies in the laboratory and in
animal model systems to gain preliminary information on a product's potential
efficacy and to identify any safety problems. 
The results of these studies are submitted as a part of an
investigational new drug application (IND), which must become effective
before human clinical trials of an investigational drug can start.  To commercialize any products, the Company
and its strategic partners will be required to sponsor and file an IND and will
be responsible for initiating and overseeing a series of clinical trials to
demonstrate the safety, purity, efficacy and potency in the case of biological
drugs, or safety and efficacy in the case of non–biological drugs that
are necessary to obtain FDA approval of any such products.  Clinical trials are normally done in three
phases (Phase I - safety and pharmacologic assessment; Phase II, dose ranging
and efficacy trials, and Phase III  200-1000 patient trials to provide
substantial, longer term evidence of safety and efficacy).  These trials normally take three to six or
more years to complete.

After
completion of clinical trials for a new product, FDA marketing approval must be
obtained.  Because the Companys current
MR Peptide products are classified as drugs, the Company will be required to
file a new drug application (NDA) and receive approval before commercial marketing
of the drug.  These testing and approval
processes are uncertain and require substantial time and the expenditure of
substantial resources, and there can be no assurance that any such approval
will be granted on a timely basis, if at all. 
NDAs submitted to the FDA can take, on average, two to five years to
receive approval.  In the event a
therapeutic product is considered to be important and have efficacy, not
available with existing products, this period can be substantially
shortened.  The FDA must confirm that
good laboratory, clinical and manufacturing practices were maintained as well
as determine that safety, purity, efficacy, and potency have been
established.  If questions arise during
the FDA review process, approval can take more than five years.

Even if FDA
regulatory approvals are obtained, a marketed product is subject to continual
review, and later discovery of previously unknown problems or failure to comply
with the applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market as well as possible
civil or criminal sanctions, including but not limited to recall or seizure of
product, injunction against manufacture, distribution, sales and marketing and
criminal prosecution.

For
marketing outside the United States, the Company will also be subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for pharmaceutical products. 
The requirements governing the conduct of clinical trials, product
licensing, pricing and reimbursement vary widely from country to country.

Competition

In
general, the markets being addressed by the Company are very large and would
logically attract the attention of large companies which could expend substantial
resources in the development and marketing of competitive products.  There can be no assurance that, in the case
of each of the Companys programs and products, one or more major competitors
will not enter the market with an equivalent or superior program or
product.  Potential competitors may also
have significantly greater experience than the Company in conducting clinical
trials and in obtaining FDA and other regulatory approvals of products for
health care.

The
Companys competitive position will also depend in part on its ability to
obtain patent protection for its processes and products.  The Company owns or has licensed a
substantial number of patents and patent applications covering methods for the
recombinant production of GLP-1 and GRF, and certain other peptide
hormones.  Patent protection for the
Company does exist for important therapeutic uses related to GRF and may exist
for some important therapeutic uses of GLP-1. 
Patent protection will not be available, however, with regard to many
therapeutic uses of GLP-1 and GRF, and other peptide hormones which the Company
may desire to produce.  Patent
protection may exist for various methods of producing GLP–1 and GRF, and
other peptide hormones by recombinant methods. 
There can be no assurance, however, that any new patent protection will
materialize.

The Company
has focused on the medical application of peptide hormones in the precise
natural form to reactivate body endocrine systems in the belief that, for
long-term and possibly lifetime applications, the patients long-term, adverse
side effects profile from these therapies should be minimized and,
consequently, regulatory clearances for long-term use should be
simplified.  BioNebraska is aware of one
company that appears to have an early stage program for the recombinant
production of GLP-1.  The Company
believes that competition may also come from chemically constructed forms of
its peptide products, non-natural, chemically-constructed small peptides and
small chemical molecule agents and mimics which attempt to emulate the effect
of the Companys natural-form regulatory peptide hormones.  The competition may also come from smaller,
non-natural but easier to produce analogs of the Companys peptide products
which may be more amenable to synthesis by chemical means.  None of these competitive technologies are
believed to have been qualified or are near qualification with regulatory
authorities for long-term pharmaceutical use.

The
Company believes that two large pharmaceutical companies are pursuing programs
for the therapeutic use of non-natural analogs of GLP-1 for Type 2
Diabetes.  The Company believes that
such activities are in the early development stage.  The Company also understands that the relatively high cost of
producing GLP-1 and its analogs by chemical synthesis has been a substantial
deterrent to these programs and that there has not been evident success to date
in being able to recombinantly produce and amidate the GLP-1 molecule in the
natural form on a sufficiently low-cost basis for large scale therapy.  The Company believes that the processes it
has developed for the production and amidation of GLP-1 and certain other
processes for production may be substantially protected by its nineteen issued
U.S. patents and are also covered by additional patent applications which have
been filed or will be filed in the U.S. and other jurisdictions.  However, there can be no assurance that a
competitor will not succeed in reaching the market with a GLP-1 therapy program
before the Company, that the Companys processes for the production and
amidation of GLP-1 will be protected by additional issued patents or that
efficient recombinant production methods, other than those protected by the
patent applications and issued patents, will not be developed and deployed for
the production of GLP-1.

The Company
is not aware of any programs of pharmaceutical companies which are focusing on
the therapeutic application of GRF for enlarged left ventricle or other forms
of CHF.  The only current therapy known
to the Company for the advanced enlarged left ventricle form of CHF is heart
transplant, which is often not a practical alternative, particularly when the
patient is elderly.

The Company
is aware of a program in late stages of clinical trials for the use of PTH to
treat forms of osteoporosis.  The
Company believes that any regulatory approval of such a program will have a
beneficial effect on its program to use GRF and PTH in combination for the
treatment of osteoporosis, which is covered by U.S. and other patents.

The Company
is aware of certain programs being undertaken by at least one large
pharmaceutical company to create small peptides or small molecule chemical
mimics which, when delivered as a therapy, could have the effect of releasing growth
hormone in the patient.  While the
Company believes that these research programs are still in early development
stages, there can be no assurance that such a small peptide or chemical mimic
will not be developed which could be used in competition with GRF therapy for
osteoporosis or other applications.  A
small peptide or mimic could, if successfully developed, also become a
competitor in the treatment of certain symptoms of aging.

The Company
is aware that an application for the use of a shorter analog of GRF, which is
not the natural form, has been approved by the FDA for the treatment of short
stature.  However, the Company
understands that this form of GRF is produced by chemical means, which the
Company believes involves considerably greater expense and may be difficult to
formulate and less pure than the form derived from the recombinant manufacture
of GRF.

Middle-Range
Peptide Production

The Company
is aware of one large Japanese company which states that it is able to
recombinantly produce, purify and amidate certain MR Peptides on an efficient
basis.  The Company is aware of one
small U.S. company that has indicated an interest in entering the MR Peptide
business, but has not, to the Companys knowledge, demonstrated the technical
capabilities to do so.

Employees

As
of March 6, 2001, the Company employed 107 full-time and four part-time
employees, and has been using the services of 20 part-time consultants,
primarily for medical advice and studies, and research and development
functions. Eighteen of the employees hold degrees at the doctorate level, eight
at the masters level and 58 others are university graduates in science.  No employees are represented by labor
organizations and there are no collective bargaining agreements.  The Company believes that its relations with
its employees are good.

ITEM 2. 
PROPERTIES

Facilities

The Company
currently leases approximately 40,000 square feet of facilities in the Lincoln,
Nebraska Air Park.  The Company has two
leases through the year 2013, with options to renew the leases through the year
2018.  In these facilities, the Company
has constructed offices and research laboratories, quality control and quality
acceptance laboratories and a downstream processing plant which will have a
production capacity of 12 kilograms per year. 
This downstream processing plant has been started up and its operation
is being validated.  Also in these
facilities, the construction and installation of a commercial-sized
fermentation plant has been completed and is currently being validated.  The fermentation plant is large enough to
support commercial downstream processing plants with aggregate capacities of up
to 100 kilograms per year.



ITEM 3.  LEGAL PROCEEDINGS

The Company
is not a party to any material legal proceedings.

ITEM 4.  SUBMISSION OF MATTERS
TO A VOTE OF SECURITY HOLDERS

Not
applicable.

PART II

ITEM 5.  MARKET FOR THE
REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

Holders

There is no
established trading market for the Companys Common Stock.  As of March 20, 2001, the Companys Common
Stock was held of record by 450 persons. 
In addition, a number of shares were held in street name by nominees for
a number of additional shareholders. 
The Company also has seven series of outstanding convertible preferred
stock.

Dividends

To date, the
Company has not paid cash dividends on its Common Stock and currently does not
intend to pay cash dividends in the foreseeable future.  If and to the extent that any operating
profits are realized, the Company currently intends, for the foreseeable
future, to utilize such profits for operating purposes.  Any future determination to pay cash
dividends will be at the discretion of the Board of Directors and will be
dependent upon the Companys financial condition, results of operations,
capital requirements and other such factors as the Board of Directors deems
relevant.  As long as any Convertible
Preferred Stock is outstanding, no dividend whatsoever may be declared or paid upon,
nor shall any distribution be made upon Common Stock or any junior securities,
unless payment in full of all cumulative dividends on the outstanding
Convertible Preferred Stock has been paid.

Sales of Unregistered
Securities Since September 30, 2000.

In December
2000, the holder of a placement agent warrant exercised a warrant to purchase
22,000 shares of common stock at $7.00 per share.

In December
2000, a holder of the Companys outstanding preferred stock converted 850
shares of Series F Preferred Stock into 10,625 shares of Common Stock at a
conversion price of $8.00 per share. 
The Company believes that the transactions enumerated above were exempt
under Section 4(2) of the Act, and from the Registration and prospectus
delivery requirements of that Act and from applicable state securities laws in
the states where the United States purchasers reside.

ITEM 6.  SELECTED FINANCIAL DATA

The
following tables set forth selected financial data of the Company, which should
be read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and with the Companys Consolidated
Financial Statements.  The selected
financial data as of and for the years ended December 31, 2000, 1999, 1998,
1997 and 1996 are derived from the audited financial statements of the Company.
The financial statements for the year 2000 have been audited by Deloitte &
Touche LLP, who were appointed as the Companys new independent auditors in
November 2000. The financial statements for all prior years were audited by
Loren D. Swanson, CPA, independent auditor.

Selected
Financial Data(Dollars
in thousands, except per share data)

Year
  Ended December 31,2000
  
  1999
  
  1998
  
  1997
  
  1996Statement of Operations Data:Operating revenues
  & collaborative payments
  $  10
  
  $  5
  
  $  12
  
  $  6
  
  $
  295Loss from continuing
  operations applicable to common shareholders
  (22,320)
  
  (15,388)
  
  (10,862)
  
  (5,984)
  
  (5,398)Loss from operations
  per share applicable to common shareholders
  (3.14)
  
  (3.04)
  
  (2.55)
  
  (1.41)
  
  (1.27)

As of
  December 31,2000
  
  1999
  
  1998
  
  1997
  
  1996Balance Sheet Data:Total assets
  $16,573
  
  $23,505
  
  $10,262
  
  $3,050
  
  $3,464Long term debt
  2,592
  
  1,428
  
  255
  
  96
  
  46Redeemable preferred
  stock
  16,676
  
  15,453
  
  14,125
  
  3,158
  
  1,491Shareholders equity
  (deficit)
  (4,837)
  
  3,478
  
  (7,359)
  
  (3,911)
  
  1,117ITEM 7.  MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The
following analysis of the financial condition and results of operations of the
Company should be read in conjunction with the preceding Selected Financial
Data, the Companys Consolidated Financial Statements and Notes thereto and
the other financial data included elsewhere in this document.  The dollar amounts below have been rounded
in order to simplify their presentation. 
However, the ratios and percentages are calculated using the detailed
financial information contained in the Consolidated Financial Statements and
the Notes thereto and the financial data included elsewhere in this
document.  References to years are for
the respective fiscal years ended December 31, unless otherwise noted.

Overview

BioNebraska
is a development stage therapeutics company engaged in the recombinant
production and clinical development of peptide hormone products for the
treatment of Type 2 Diabetes, impaired glucose tolerance, advanced cases of
osteoporosis and other symptoms of aging, obesity and excess appetite and
various acute conditions.  The Company
is conducting clinical trials of these products for several of these
applications.  No regulatory approvals
have been obtained, and consequently, the Company has derived no revenues from
the sale of these products.

Since
inception in 1989, the Company has experienced operating losses and anticipates
that its operating losses will continue for the foreseeable future until such
time as one or more therapeutic products receive regulatory approval and are
successfully marketed.  Expenditures
will be primarily related to research and development activities, which include
clinical trials, and scale-up of commercial manufacturing.

Results of Operations

Fiscal
Years Ended December 31, 2000 and 1999

Research
and development expenses include those costs associated with the research,
development, production and testing of the Companys pharmaceutical products
and the protection of proprietary rights. 
Included in research and development expenses are direct costs incurred
in conducting the Companys clinical trials. Total research and development
costs increased from $10.4 million in 1999 to $14.5 million in 2000. The
increase primarily reflects increased clinical trial activity and a
compensation charge of $2.3 million associated with the modification of stock
option terms. Additional costs were also incurred associated with increased
production scale up activities and further development of the Companys
production technology.

General and administrative
expenses increased from $2.2 million in 1999 to $5.3 million in 2000.  The increase primarily reflects a
compensation charge of $2.8 million associated with the modification of stock
option terms, together with higher operating costs as the Company strengthened
its administrative support structure.

Interest
income increased from $291,519 to $740,532 in 2000 reflecting the higher
average cash balance in 2000, following the sale of equity securities in the
fourth quarter of 1999. The Company incurred $499,822 in interest expense in
2000 as compared to $231,550 in 1999. The increase reflects interest charges
associated with the extension of certain preferred stock terms and an increase
in equipment financing costs.

Fiscal
Years Ended December 31, 1999 and 1998

Research and
development costs increased from $6.5 million in 1998 to $10.4 million in 1999,
due to the increased number of trials to test the safety and efficacy of the
Companys therapeutic products and a compensation charge of $0.3 million
associated with the increased expense of stock appreciation rights. In
addition, expenditures of $0.7 million were incurred in acquiring the
outstanding stock of R&C Enterprises. The acquisition costs were expensed
as research and development costs in accordance with FASB Statement No. 2
and Interpretation No. 4.  No
significant tangible assets were acquired and no liabilities were assumed in
this acquisition.  Certain rights to
patents were acquired, but this value was expensed as research and development
because there were no products or related revenues.

General and
administrative expenses decreased from $2.5 million in 1998 to $2.2 million
in 1999.  Costs in 1998 included a $0.3
million charge associated with modification of stock option terms.

The Company
incurred $231,550 in interest expense in 1999, compared to $319,549 in 1998.
The 1998 interest expenses related primarily to a convertible bridge financing
under which the Company issued $3,765,500 in principal amount of Bridge
Notes.  Each Bridge Note holder had the
right to convert to Common Stock up to 50% of the principal amount of the Bridge
Notes at a price of $7.00 per share. 
Interest accrued under the Bridge Notes at 10% per annum for the first
six months and at 12% per annum during the six-month extension period. As of
December 31, 1998, $413,000 principal plus accrued interest had been converted
into 65,329 shares of common stock and principal of $1,240,750, plus accrued
interest had been repaid by the Company. 
Of the remaining $2,111,750 of principal, $988,000 of principal, plus
accrued interest, was converted into 160,478 shares of common stock in
1999.  The balance of $1,123,750 of
principal, plus accrued interest was repaid by the Company in early 1999.

Liquidity and Capital
Resources

The Company has financed its
operations since inception primarily through sales of equity securities and, to
a lesser extent, collaboration payments and sales of metal detection kits.  Collaboration payments received and metal
detection kit sales were $2.7 million and $1.0 million, respectively, from
inception through 2000.  From inception
through 2000, the Company has received approximately $68 million in net
proceeds from equity financings, of which almost $25 million was raised through
the sale of Common Stock in 1999.

During 2000,
the Company sold 370,516 shares of common stock at $12.50 per share. In
addition, warrants and stock options  to
purchase a total of  229,471 shares were
exercised for gross proceeds of $1.4 million. During the year the Company used
approximately $14.2 million of cash for operating activities and $2.3 million
for asset acquisitions.  Proceeds from
equipment financing totaled $2.8 million and capital repayments in respect of
equipment financing were $0.9 million. 
As of December 31, 2000, the Company had total cash and cash equivalents
of $9.5 million, and working capital of $7.6 million.

In December
of 2000, the Company converted outstanding stock appreciation rights to
non-qualified stock options to purchase 96,387 shares of Common Stock. The
Company recorded an expense for the difference between the accrued liability
and the intrinsic value of the stock options (fair value for non-employees),
which were fully vested when issued.

At December
31, 2000, the Company had a shareholders deficit accumulated during the
development stage of $63.5 million. 
Historically, the auditors reports on the Companys financial
statements have contained an explanatory paragraph concerning the Companys
ability to continue as a going concern and its status as a development stage
company.  The Company expects to
continue to incur additional losses, and will require additional working
capital, as it incurs substantial expenses related to additional personnel,
clinical trials, research and development activities, and scale-up of
commercial manufacturing.  Based on its
current operating plan, the Company believes that existing cash and cash
equivalents will be sufficient to fund its operations at the current levels
until the middle of 2001.  The Companys
plans assume that it will receive, prior to that time, additional financing
from the sales of further equity securities in the private equity markets.  Any additional required financing may not be
available to the Company on satisfactory terms, if at all.  The unavailability of acceptable financing
would prevent or delay the development and commercialization of the Companys
products.

In June
1998, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 133 Accounting for Derivative
Instruments and Hedging Activities. 
SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value.  Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting.  SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000, with earlier adoption encouraged.  The adoption of SFAS No. 133 was not a
material to the Companys financial statements.

Impact of Inflation

The impact
of inflation on the financial position or results of operations of the Company
was not material for the years ended December 31, 2000, 1999 and 1998.

Cautionary Statement
About Forward-Looking Statements

Certain
statements in this Annual Report on Form 10-K, particularly under this Item 2,
may constitute forward looking statements within the Private Securities
Litigation Reform Act of 1995 (the Reform Act).  Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements, expressed or implied by such
forward-looking statements. The words believe, expect, anticipate, seek
and similar expressions identify forward-looking statements.  Readers are cautioned not to place undue
reliance on these forward-looking statements that speak only as of the date the
statement was made.  These statements
are subject to risks and uncertainties that could cause actual results to
differ materially from the statements, including the uncertainties involved in
the additional development of the Companys new pharmaceutical products, the
outcomes of clinical trials, obtaining regulatory approvals or clearances, the
ability of the Companys products to be manufactured in commercial quantities,
construction of additional facilities for commercial production, the
development of internal or contractual distribution and marketing capabilities,
the extent to which reimbursement for the costs of the products and treatments
will be available from government health administration authorities, private
health insurers and other organizations, protection of the Companys patent and
proprietary rights, potential competition and the dependence of the Company on
obtaining future financing.  The Company
does not undertake responsibility to update such forward-looking statements to
reflect events that arise after the date of this report.  Following is a detailed discussion of these risks
and uncertainties follows under the heading, Additional Factors That May
Affect Future Performance.

Additional Factors
That May Affect Future Performance

BioNebraskas
business is subject to various risks, including those described below.  You should carefully consider these risk
factors, together with all of the other information in this Form 10-K.  Any of these risks could materially
adversely affect the Companys business, operating results and financial condition.

Development Stage Enterprise; Risks of New Product
Development; Market Uncertainty. 
The Company is a development stage enterprise and its operations to date
have been funded principally by sales of equity and convertible debt securities
to investors.  The Company is pursuing
the development of several new pharmaceutical products.  The Companys planned pharmaceutical
products will require additional development, construction of significant plant
facilities, clinical testing and investment prior to commercialization.  The pharmaceutical products require the
approval of the FDA for sale in the United States and of the relevant
regulatory authorities for sale in Europe. Once approved as products, they must
be manufactured in commercial quantities and marketed successfully.  The Company currently has limited marketing
capabilities, and will need to either develop such capabilities internally or
enter into arrangements with one or more corporate partners for marketing and
distribution.  Each of these steps
involves significant amounts of time and expense and could be subject to
unforeseen delays.  There can be no
assurance that any of the Companys product development efforts will be
successfully completed, that regulatory approvals will be obtained where
required, or that any products, if developed and introduced, will be
successfully marketed or achieve market acceptance.

Historical and Continuing Operating Losses.Historically,
the auditors reports on the Companys financial statements have contained an
explanatory paragraph concerning the Companys ability to continue as a going
concern and its status as a development stage company. Operating as a
development company, the Company has incurred significant operating losses in
each year since inception of its business in 1989 and, based on audited
financial information,  had an
accumulated deficit of $63.5 million as of December 31, 2000.  The Companys ability to achieve profitable
operations is dependent in large part on obtaining regulatory approvals of some
of its products, entering into agreements for product development and
commercialization, and making the transition to a manufacturing and marketing
company.  There can be no assurance that
the Company will ever achieve a profitable level of operations.

Sufficiency of Working Capital; Dependence on Future
Financing.  Depending upon the
circumstances and the progress of the Companys development efforts, the
Company believes that existing funds should be adequate to finance operations
at the current levels until the middle of 2001. The Company will require
additional funding prior to that time, and the Companys plan of operation
assumes that additional funding will be received through the sale of additional
equity securities.  There can be no assurance
that future funding will be available, or, if available, that it will be on
terms acceptable or favorable to the Company or its shareholders.  The Companys plan of operation also assumes
that none of the holders of Preferred Stock will exercise any put rights that
become available to require the Company to repurchase such shares.  If future financing is required for
operations and is unavailable for any reason, the Company may be forced to
discontinue some or all of its operations or delay the development and
commercialization of its products.

Outcome of Human Clinical Trials and Dependence Upon New
Production Processes.The Companys plans are based on (i) completing clinical studies of
GLP-1, GRF and GRF in combination with PTH which demonstrate that they have
therapeutic applications; (ii) further developing and scaling up commercial
processes for the production of human peptide hormones, including GLP-1, GRF
and PTH; and (iii) obtaining approval from the FDA, European or other
regulatory authorities to market these therapies.  The Company has not yet accomplished the foregoing objectives
and, as a result, its plans and processes have not been fully developed and
tested. Failure (i) to efficiently produce peptide hormones in appropriate
amounts, (ii) to successfully control glucose levels in Type 2 diabetics with
GLP-1 in its human studies, or (iii) to release the natural elements of the
patients growth and maintenance cascade with GRF, would each have a material
adverse effect on the Company.  There is
no assurance that any of the Companys other programs will be successfully
developed or marketed.

Lack of Commercial Production Experience.  Although the Company has successfully
produced peptide hormones in limited quantities for research, development and
clinical trials and has completed the construction of its first fermentation
plant and has constructed and is operating its first small size down stream
processing plant, the Company has not produced commercial quantities and does
not yet have adequate facilities and staff to produce peptide hormones for
commercial pharmaceutical applications. 
While large batches of peptide have been made which, if made
continuously, would result in substantial production, there can be no assurance
that the Company will be able to efficiently produce commercial quantities of
these peptide hormones.  The Company
will need to obtain various other licenses and approvals to construct and
operate commercial production facilities, and there is no assurance that they
can be obtained.

Government Regulation.  The Companys planned pharmaceutical
products will be subject to extensive regulation by federal, state and local
government authorities in the United States and any other countries where the
Companys products may be tested or marketed. 
The FDA and comparable agencies in other countries impose substantial
requirements that must be satisfied before newly developed pharmaceutical
products may be sold.  Approval by the
FDA in most cases requires lengthy, detailed, and costly laboratory and
clinical testing procedures to demonstrate a products efficacy and safety
before the product can be sold.  There
can be no assurance that the Company will receive FDA approval for any of its
planned pharmaceutical products or, even if it does receive FDA approval for a
particular product, that the Company will ever recover its costs in connection
with obtaining such approval.  With
respect to any of the Companys planned products, the failure of the Company to
receive requisite FDA approval, or significant delays in obtaining such
approval, could prevent the commercial development of such product and could
have a material adverse effect on the Company. 
The Company has not applied for, and does not have, the approval of any
foreign country to sell its products. 
To date the Company has not brought any product through the FDA approval
process and may encounter unforeseen difficulties or delays in doing so.  The Companys ability to successfully
commercialize any pharmaceutical products will depend on its ability to meet
the FDAs current Good Manufacturing Practices (cGMP) and other regulations
relating to advertising and promoting, selling and marketing, labeling, and
continual review by regulatory authorities. No assurance can be given that the
Companys current production processes can be scaled-up to commercial levels
under cGMP standards at an acceptable cost. 
If commercial scale cGMP processes and facilities cannot be attained,
the Companys ability to conduct commercial manufacturing will be adversely
affected.

Dependence on Health Care Reimbursement.  The Companys ability to commercialize its
products successfully may depend in part on the extent to which reimbursement
for the costs of such products and related treatments will be available from
government health administration authorities, private health insurers, and
other organizations.  Government and
other third-party payors are increasingly challenging the prices of medical
products and services.  Uncertainty
exists as to the reimbursement status of newly approved health care products,
and there can be no assurance that adequate third-party coverage will be
available to enable the Company to maintain price levels sufficient to realize
an appropriate return on its investment in product development.  If adequate coverage and reimbursement
levels are not provided by government and other third-party payors for use of
the Companys products, the market acceptance of these products could be
adversely affected.

Rapid Technological Change.  All of the Companys business areas have
been characterized by rapid technological change.  Changes in technology may result in partial or total obsolescence
of the Companys present and proposed products within time frames not
anticipated by the Company.  The Company
will be required to respond to these changes by enhancing its existing products
and developing and/or marketing new products. 
There can be no assurance that the Company will be able to respond
successfully.

Dependence on Patents and Proprietary Technology.  The success of the Company will depend on
its ability to maintain competitive technological positions in the areas of the
therapeutic applications of its products and its production technologies.  The Company has filed a significant number
of patent applications and has received several issued patents in the United
States and other jurisdictions with respect to its production processes and
some therapeutic patents.  Patent
protection will not be available, however, 
with regard to many therapeutic uses of GLP-1, GRF, PTH and other
peptide hormones which the Company may desire to produce. There can be no
assurance that the Companys patent applications, whether domestic or foreign,
will be granted or that, if granted, will provide the Company a significant
competitive advantage.

While the
Company does not believe that it will infringe the intellectual property rights
of others, there can be no assurance that such a claim will not be asserted
against the Company in the future or that the Company will be able to
successfully defend against any such claim. 
A United States patent was issued on March 25, 1997 to Massachusetts
General Hospital with claims directed to the use of GLP-1 (7-36) amide for the
treatment of Type 2 diabetes and hyperglycemia and for the enhancement of beta-cell
expression of insulin.  The Company may
be required to obtain a license or a sublicense under this patent to carry out
its planned programs in the United States. The Company can provide no assurance
that it will be able to obtain a license or a sublicense, on commercially
reasonable terms, under this patent.  If
a license or sublicense under this patent is necessary, and the Company cannot
obtain such a license or sublicense, and cannot successfully challenge the
validity of such patent, the Company may be prohibited from selling GLP-1
(7-36) amide in the United States, for treatment of the covered conditions, and
the Company may need to emphasize marketing strategies in countries where
Massachusetts General Hospital has not obtained patent protection.

Even if the
Company determines that a license or sublicense under this patent is
unnecessary, patent infringement litigation may ensue.  Even if an infringement claim by the
Massachusetts General Hospital is without merit, and if the Company prevailed
in demonstrating that the patent is invalid and/or not infringed, defending a
lawsuit will take significant time, and might be expensive and time consuming
for management.  If the Company does not
prevail in such a lawsuit and sells products that are covered by the patent,
then the Company might have to pay substantial damages for past infringement in
the United States.  Further, the Company
would be prohibited from selling its products before it obtained a license,
which, if available at all, might require the Company to pay substantial
royalties.

The Company
is aware of several issued patents and patent applications relating to the
combined therapeutic use of GLP-1 and oral hypoglycemic agents (i.e., oral
drugs exhibiting a glucose-lowering effect) to treat diabetes.  If the Company determines that GLP-1 should
be used and sold in combination with such an oral hypoglycemic agent, the
Company may be required to obtain a license or sublicense to one or more of
these patents; the Company can provide no assurance that it will be able to do
so on commercially reasonable terms.  If
a license or sublicense is necessary, and the Company cannot obtain such a
license or sublicense and cannot successfully challenge the validity of the
patent, then the Company may be prohibited from selling such a combination of
GLP-1 and an oral hypoglycemic agent in the United States and other countries
where such patents are in force.

The
commercial success of the Company also will depend upon avoiding the
infringement of patents issued to competitors and avoiding breach of the
technology licenses upon which certain of the Companys planned future products
are or will be based.  There can be no
assurance that patents do not exist or that patent applications could not be
filed which would have an adverse effect on the Companys ability to produce
and market its products.  In the event
the Company inadvertently breaches an existing license or fails to obtain a
license for any technology that it may require to commercialize its products, a
material adverse effect on the Company could result.  Litigation, which could result in substantial cost to the
Company, may be necessary to enforce the Companys patent and license rights or
to determine the scope and validity of others proprietary rights.  If competitors of the Company prepare and
file patent applications in the United States that claim technology also
claimed by the Company, the Company may have to participate in interference
proceedings declared by the Patent and Trademark Office to determine priority
of invention, which could result in substantial cost to the Company, even if
the outcome is favorable to the Company. 
There can be no assurance that the Companys patents, if issued, would
be held valid by a court of competent jurisdiction.  An adverse outcome could subject the Company to significant
liabilities to third parties, require disputed rights to be licensed from third
parties or require the Company to cease using the relevant technology.

The Company
also relies on certain technologies which constitute proprietary trade secrets
and know-how that are not patentable and therefore may be available to the
Companys competitors.  Although the
Company has also taken steps to protect its unpatented trade secrets and
know-how through confidentiality agreements, there can be no assurance that
these agreements can be effectively enforced. 
There can be no assurance that the Company will maintain the
confidentiality of its technology, dissemination of which could have a material
adverse effect on the Company, and 
there can be no assurance that others will not independently develop
technologies similar to those developed by the Company or obtain access to the
Companys technologies.

Competition. 
There can be no assurance that potential competitors, which have
substantially greater financial resources, more extensive business experience
and greater development, marketing and support capabilities than the Company,
may not succeed in developing competitive production capabilities and therefore
competitive products.

Dependence on Key Personnel and Availability of Qualified
Personnel.  The future success
of the Company is dependent upon the abilities and continued services of the
executive officers and senior management personnel.  While the Company has been able to hire four senior executives in
the last six months, competition for personnel is intense and there is no
assurance that the Company will be able to continue to attract and retain the
necessary qualified personnel.

No Public Market for the Shares; Lack of Liquidity.  There is currently no public market for the
Companys Common Stock and there can be no assurance that a public market for
the Common Stock will develop in the future or that the outstanding shares can
be resold at or above the price at which they were purchased.  Further, all of the shares were issued based
on exemptions from registration under the Securities Act of 1933 and applicable
state law.  Consequently, the
outstanding shares cannot be sold unless they are registered or an exemption
from such registration is available. 
Accordingly, investors should anticipate holding their outstanding
securities for an extended period of time.

Voting Control. 
The Companys current officers, directors and 5% shareholders collectively
own Common Stock and Preferred Stock which, for practical purposes, provides
voting control and enables them to direct the affairs of the Company, including
the appointment of officers and determination of officers compensation.  The issuance of additional Common Stock or
Preferred Stock under certain circumstances could have the effect of changing
control of the Company.  See Principal
Shareholders and Description of Securities.

ITEM 7A.  QUALITATIVE AND
QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS

BioNebraska
is exposed to market risk related to changes in interest rates.  The Company does not use derivative
financial instruments for speculative or trading purposes.  Due to the short-term nature of the cash
equivalents, the Company believes that there is no material exposure to
interest rate risk.

ITEM 8.  FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA

The following financial statements are
  included in the Form 10-K:Independent Auditors ReportsConsolidated Balance Sheets as of December
  31, 2000 and 1999Consolidated Statements of Operations for
  years ended December 31, 2000,
  1999, and 1998 and for the period from April 15, 1988 (date of incorporation) to December 31,
  2000Consolidated Statements of Cash Flows for
  years ended December 31, 2000,
  1999 and 1998 and for the period from April 15, 1988 (date of incorporation) to December 31,
  2000Consolidated Statements of Shareholders
  Equity/(Deficit) for years ended December 31, 2000, 1999 and 1998 and
  for the period from April 15,
  1988 (date of incorporation) to December 31, 2000Notes to Consolidated Financial StatementsLoren D. SwansonCertified Public Accountant6120 Havelock Avenue,
Suite A-2Lincoln, Nebraska 68507

Independent Auditors Report

The Board of DirectorsBioNebraska, Inc.3820
N. W. 46th StreetLincoln,
Nebraska 68524

I have audited the accompanying consolidated
balance sheet of BioNebraska, Inc. and subsidiary as of December 31, 1999 and
the related consolidated statements of operations, shareholders equity, and
cash flows for the years ended December 31, 1999 and 1998, and the cumulative
period from April 15, 1988 (date of incorporation) to December 31, 1999.  These financial statements are the
responsibility of the Companys management. 
My responsibility is to express an opinion on these financial statements
based on my audits.

I conducted my audits in accordance with
generally accepted auditing standards. 
Those standards require that I 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 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.  I believe that
my audits provide a reasonable basis for my opinion.

In my opinion, the financial statements
referred to above represent fairly, in all material respects, the financial
position of BioNebraska, Inc. and subsidiary as of December 31, 1999 and the
results of their operations and their cash flows for the years ended December
31, 1999 and 1998 and for the cumulative period from April 15, 1988 (date of
incorporation) to December 31, 1999, in conformity with generally accepted
accounting principles.

The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern.  As discussed in Note 12 to the financial
statements, the Company, from inception, has incurred losses from development
activities that raise substantial questions about its ability to continue as a
going concern, unless supporting funds or assistance continue to become
available to the Company from external sources.  Management has in the past and continues to rely on the proceeds
of private investments and development collaborations to fund its operating
deficit.  The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

As disclosed in Notes 9 and 11, the
accompanying 1999 and 1998 financial statements have been restated.

/s/Loren D.
Swanson

Loren
D. SwansonMarch
4, 2000 (November 9, 2000 as to Note 9 and March 20, 2001 as to Note 11)

INDEPENDENT AUDITORS
REPORT

To
the Board of Directors and ShareholdersBioNebraska,
Inc.Lincoln,
Nebraska

We have audited the accompanying consolidated
balance sheet of BioNebraska, Inc. and subsidiary (a development stage company)
as of December 31, 2000, and the related consolidated statements of operations,
shareholders equity (deficit), and cash flows for the year then ended, and for
the cumulative period from April 15, 1988 (date of incorporation) to December
31, 2000.  These financial statements
are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial
statements based on our audit.  The
Companys consolidated financial statements for the cumulative period April 15,
1988 (date of incorporation) through December 31, 1999 were audited by another
auditor whose report, dated March 4, 2000 (November 9, 2000 as to Note 9 and
March 20, 2001 as to Note 11), is included herein.  The consolidated financial statements for the cumulative period April
15, 1988 (date of incorporation) through December 31, 1999 reflect total
revenues of $3,650,337 and a net loss of $43,960,043.  Our opinion, insofar as it relates to the amounts included for
such prior periods, is based solely on the report of such other auditor.

We conducted our audit 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 audit and the report of the other auditor provides a
reasonable basis for our opinion.

In our opinion, based on our audit and the
report of the other auditor, such financial statements present fairly, in all
material respects, the financial position of BioNebraska, Inc. and subsidiary
as of December 31, 2000, and the results of their operations and their cash
flows for the year then ended, and for the period from April 15, 1988 (date of
incorporation) to December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.

The Company is in the development stage at
December 31, 2000.  As discussed in Note
1 to the consolidated financial statements, the Company has not yet completed
product development, obtained required regulatory approvals, or verified the
market acceptance and demand for such product.

The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a
going concern.  The Company is a
development stage therapeutics enterprise focused on reactivating major body
endocrine hormone cascades with regulatory peptide hormones in the natural
form.  As discussed in Note 12 to the
financial statements, the Company, from inception, has incurred losses from
development activities that raise substantial doubt about its ability to
continue as a going concern. 
Managements plans concerning these matters are also described in Note
12.  The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

/s/
Deloitte & Touche LLP

March
20, 2001Lincoln,
Nebraska

BIONEBRASKA, INC.AND SUBSIDIARY(a development stage company)Consolidated Balance Sheets

December 31,2000
  1999ASSETSCurrent assetsCash and cash equivalents
  $9,492,135
  $18,393,567Prepaid expenses
  174,499
  --Other current assets
  45,734
  49,068Total current assets
  9,712,368
  18,442,635Property and equipment, net of accumulateddepreciation $2,973,722 and $2,085,439
  5,780,172
  4,342,809Patents and patents licensed, net of accumulatedamortization of $170,529 and $128,805
  663,437
  590,942Deferred financing costs, net of accumulated
  amortization of $128,172
  384,517
  --Other assets
  32,599
  128,217Total assets
  $16,573,093
  $23,504,603LIABILITIES
  AND SHAREHOLDERSEQUITY/(DEFICIT)Current liabilities:Accounts payable
  $628,374
  $1,608,335Accrued expenses
  288,354
  29,270Accrued stock appreciation
  rights
  --
  956,377Capital lease obligations 
  current portion
  617,251
  333,715Notes payable  current portion
  608,299
  217,780Total current
  liabilities
  2,142,278
  3,145,477Long-term liabilities:Capital lease obligations  less
  current portion
  1,036,871
  762,645Notes payable  less current
  portion
  1,555,465
  665,564Total long-term
  liabilities
  2,592,336
  1,428,209Total liabilities
  4,734,614
  4,573,686Redeemable preferred stockSeries A, E, and F ($0.01 par
  value, 411,750 sharesauthorized, 138,088 and 
     138,938 issued andoutstanding in 2000 and 1999, at redemption value)
  16,675,502
  15,453,012Shareholders equity/(deficit)Common stock, ($0.01 par value, 20,000,000 shares
  authorized,7,329,845 and 6,719,233 shares issued and
  outstanding in 2000 and 1999)
  73,298
  67,192Convertible preferred stock,
  Series B, C, D, G($0.01 par value; 216,500 shares 
     authorized,148,104 shares issued and outstanding)
  1,481
  1,481Additional paid-in capital
  58,603,886
  47,369,275Deficit accumulated during
  development stage
  (63,515,688)
  (43,960,043)Total shareholders
  equity/(deficit)
  (4,837,023)
  3,477,905Total liabilities
  and shareholders equity/(deficit)
  $16,573,093
  $23,504,603See accompanying
notes to consolidated financial statements

BIONEBRASKA, INC.AND
SUBSIDIARY(a development stage company)Consolidated Statements of Operations

2000
  Year Ended
  December 31,
  1999
  1998
  Cumulative period from
  April 15, 1988 (date of
  incorporation)
  to December 31, 2000REVENUESCollaborative research agreements
  $--
  $--
  $2,186
  $1,528,583Joint venture sales and services
  --
  --
  --
  1,150,000Metal detection kit sales
  10,040
  5,181
  10,368
  981,794Total revenues
  10,040
  5,181
  12,554
  3,660,377OPERATING COSTS AND EXPENSESGeneral and administrative
  5,305,063
  2,245,934
  2,468,639
  19,002,550Research and development
  14,501,332
  10,435,131
  6,452,230
  48,286,583Total
  19,806,395
  12,681,065
  8,920,869
  67,289,133OPERATING LOSS
  (19,796,355)
  (12,675,884)
  (8,908,315)
  (63,628,756)OTHER INCOME (EXPENSE)Interest income
  740,532
  291,519
  357,385
  1,597,259Interest expense
  (499,822)
  (231,550)
  (319,549)
  (1,484,191)240,710
  59,969
  37,836
  113,068NET LOSS
  ($19,555,645)
  ($12,615,915)
  ($8,870,479)
  ($63,515,688)Preferred stock dividends (accreted $1,319,921, $1,328,208,
  and $791,384 for 2000, 1999, and 1998, accumulating but not declared of
  $1,444,014, $1,444,014, and $1,200,262 for 2000, 1999, and 1998 respectively)
  (2,763,935)
  (2,772,222)
  (1,991,646)
  (9,865,919)Net loss applicable to common stock
  ($22,319,580)
  ($15,388,137)
  ($10,862,125)
  ($73,381,607)Basic and diluted loss per common share
  ($3.14)
  ($3.04)
  ($2.55)
  ($19.15)Average number of common shares outstanding 
  basic and diluted
  7,108,617
  5,058,928
  4,264,559
  3,832,698See
accompanying notes to consolidated financial statements.

BIONEBRASKA, INC.AND SUBSIDIARY(a development stage company)Consolidated Statements of Cash Flows

2000
  Year
  Ended
  December 31
  1999
  1998
  Cumulative
  period from
  April 15, 1988 (date of
  incorporation)
  to December 31, 2000CASH
  FLOWS FROM OPERATING ACTIVITIESNet
  loss
  ($19,555,645)
  ($12,615,915)
  ($8,870,479)
  ($63,515,688)Adjustments
  to reconcile net loss to net cash flows 
    from operating activities:Depreciation
  and amortization
  1,012,507
  790,191
  612,051
  3,383,225Amortization
  of deferred financing costs
  128,172
  
  
  128,172Acquired
  in process research and development
  
  700,000
  
  1,200,000Stock-based
  compensation expense
  5,079,408
  
  810,000
  5,889,408Change
  in operating assets and liabilities:Prepaid expenses
  and other current assets
  (171,163)
  (44,322)
  240,017
  (220,231)Accounts payable
  and accrued expenses
  (720,876)
  1,690,847
  (4,822)
  1,873,105Net
  cash flows from operating activities
  (14,227,597)
  (9,479,199)
  (7,213,233)
  (51,262,009)CASH
  FLOWS FROM INVESTING ACTIVITIES:Purchase
  of property and equipment
  (2,325,646)
  (3,980,757)
  (721,550)
  (8,753,894)Decrease
  in other assets
  13,118
  (15,401)
  (15,078)
  (264,278)Increase
  in patents
  (114,219)
  (117,188)
  (47,027)
  (841,260)Acquisition
  of R&C, Inc. and GRFCo
  
  (700,000)
  
  (1,200,000)Net
  cash flows from investing activities
  (2,426,747)
  (4,813,346)
  (783,655)
  (11,059,432)CASH
  FLOWS FROM FINANCING ACTIVITIESNet
  proceeds from issuance of common stock and 
    exercise of warrants
  5,914,731
  23,792,651
  
  39,363,320Net
  proceeds from issuance of preferred stock
  
  
  15,175,000
  27,231,371Restricted
  cash from Series G preferred stock
  
  3,114,774
  (3,114,774)
  Proceeds
  from long-term obligations
  2,765,502
  1,799,791
  466,272
  5,439,432Payments
  on notes payable and capital leases
  (927,321)
  (300,525)
  (200,461)
  (1,621,547)Proceeds
  from bridge notes payable
  
  
  1,085,500
  3,765,500Payments
  on bridge notes
  
  (1,123,750)
  (1,240,750)
  (2,364,500)Net cash flows
  from financing activities
  7,752,912
  27,282,941
  12,170,787
  71,813,576NET
  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
  (8,901,432)
  12,990,396
  4,173,899
  9,492,135CASH
  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
  18,393,567
  5,403,171
  1,229,272
  CASH
  AND CASH EQUIVALENTS AT END OF PERIOD
  $9,492,135
  $18,393,567
  $5,403,171
  $9,492,135Supplemental
  Disclosures of Investing and Financing ActivitiesInterest
  paid
  $324,938
  $223,342
  $275,205
  $1,077,447Conversion
  of bridge notes to common stock
  $
  $988,000
  $413,000
  $1,401,000Conversion
  of preferred Series F to common stock
  $105,721
  $
  $
  $105,721Conversion
  of SARs to options
  $956,377
  $
  $
  $See accompanying
notes to consolidated financial statements.


BIONEBRASKA, INC.AND SUBSIDIARY(a development stage company)Consolidated Statements of Shareholders
Equity/(Deficit) Convertible Preferred
  Stock
  Common Stock
  Additional Paid-in
  Capital
  Deficit Accumulated
  During Development Stage
  TotalNumber of Shares
  Par Value Series B
  Amount
  Par Value Series C
  Amount
  Par Value Series D
  Amount
  Par Value Series G
  Amount
  Number of Shares
  Par Amount
  Amount
  Amount
  AmountINITIAL
  ISSUEIssuance
  of common stock
  
  
  
  
  
  2,085,003
  $20,850
  $703,649
  
  $724,499Debt
  conversion to common stock
  
  
  
  
  
  821,992
  8,220
  1,953,443
  
  1,961,6631993
  unit common stock offering
  
  
  
  
  
  1,109,750
  11,097
  5,470,792
  
  5,481,8891995
  warrants exercised
  
  
  
  
  
  242,370
  2,424
  1,494,211
  
  1,496,6351995
  issuance of 16,365 shares of 
    preferred stock, Series B
  16,365
  $164
  
  
  
  
  
  1,472,686
  
  1,472,8501996
  issuance of 21,000 shares of 
    preferred stock, Series C
  21,000
  
  $210
  
  
  
  
  1,889,790
  
  1,890,0001996
  issuance of 60,739 shares of 
    preferred stock, Series D
  60,739
  
  
  $607
  
  
  
  6,021,614
  
  6,022,221Accretion
  of preferred stock, Series
     A and E to redemption value
  
  
  
  
  
  
  
  (487,121)
  
  (487,121)Net
  loss for the period from April 
    15, 1988 (date of incorporation) to 
    December 31, 1997
  
  
  
  
  
  
  
  
  ($22,473,649)
  (22,473,649)BALANCE
  AT DECEMBER 31, 1997
  98,104
  164
  210
  607
  0
  4,259,115
  42,591
  18,519,064
  (22,473,649)
  (3,911,013)Issuance
  of preferred stock, Series G
  50,000
  
  
  
  $500
  
  
  4,999,500
  
  5,000,000Modification
  of stock options  
    1993 Plan
  
  
  
  
  
  
  
  810,000
  
  810,000Conversion
  of bridge notes to 
    common stock
  
  
  
  
  
  65,329
  653
  403,600
  
  404,253Accretion
  of preferred stock, Series
    A,E, and F to redemption value
  
  
  
  
  
  
  
  (791,384)
  
  (791,384)Net
  loss
  
  
  
  
  
  
  
  
  (8,870,479)
  (8,870,479)BALANCE
  AT DECEMBER 31, 1998
  148,104
  164
  210
  607
  500
  4,324,444
  43,244
  23,940,780
  (31,344,128)
  (7,358,623)Conversion
  of bridge notes to 
    common stock
  
  
  
  
  
  160,478
  1,605
  930,228
  
  931,833Issuance
  of common stock
  
  
  
  
  
  2,234,311
  22,343
  23,826,475
  
  23,848,818Accretion
  of preferred stock, Series
    A,E, and F to redemption value
  
  
  
  
  
  
  
  (1,328,208)
  
  (1,328,208)Net
  loss
  
  
  
  
  
  
  
  
  (12,615,915)
  (12,615,915)BALANCE
  AT DECEMBER 31, 1999
  148,104
  164
  210
  607
  500
  6,719,233
  67,192
  47,369,275
  (43,960,043)
  3,477,905Issuance
  of common stock
  
  
  
  
  
  370,516
  3,705
  4,549,780
  
  4,553,485Warrants
  exercised
  
  
  
  
  
  229,471
  2,295
  1,358,951
  
  1,361,246Conversion
  of 850 shares Series F 
    to common stock
  
  
  
  
  
  10,625
  106
  97,327
  
  97,433Modification
  of stock options
  
  
  
  
  
  
  
  512,689
  
  512,689Modification
  of stock options  
    1993 Plan
  
  
  
  
  
  
  
  5,032,534
  
  5,032,534Conversion
  of SARs to stock 
    options
  
  
  
  
  
  
  
  1,003,251
  
  1,003,251Accretion
  of preferred stock, Series
    A,E, and F to redemption value
  
  
  
  
  
  
  
  (1,319,921)
  
  (1,319,921)Net
  loss
  
  
  
  
  
  
  
  
  (19,555,645)
  (19,555,645)BALANCE
  AT DECEMBER 31, 2000
  148,104
  $164
  $210
  $607
  $500
  7,329,845
  $73,298
  $58,603,886
  ($63,515,688)
  ($4,837,023) See accompanying
notes to consolidated financial statements.


Note
1.   Summary of Significant
Accounting Policies Description of
Business- The Company is a biological and medical
services developmental stage business. 
Business activities include the development and application of processes
for the production by biological means of middle-range peptide hormones and the
development of pharmaceutical programs for therapeutic applications of
middle-range peptides.  The Company has
not earned significant revenues from planned principal operations.  Accordingly, the Companys activities have
been accounted for as those of a Development Stage Enterprise as set forth in
Statement of Financial Accounting Standards No. 7.  The Company operates and reports in one business segment,
biotechnology development. Principles of
Consolidation- The consolidated financial statements
include accounts of BioNebraska, Inc. a Delaware corporation, and its wholly
owned subsidiary GRF Corporation.  All
inter-company transactions have been eliminated. Use of estimates -The
preparation of the 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
these estimates. Cash equivalents -The Company
considers all highly liquid investments with a maturity of less than three
months when purchased to be cash equivalents. Property and
Equipment -Property and equipment are stated at
cost less accumulated depreciation. 
Depreciation of furniture, fixtures and equipment is computed using
accelerated and straight line methods over estimated useful lives of 3 to 10
years.  Leasehold improvements are
depreciated using the straight line method over the shorter of the lease
arrangements or their estimated useful lives (15 to 40 years). Patents and Patents
Licensed The costs of all patents issued and
licensed are amortized over 17 years on a straight-line basis. Long-lived Assets The Company
reviews long-lived assets and certain intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.  Should such an
assessment indicate that the value of a long-lived asset is impaired, an
impairment loss is recognized for the difference between the carrying value of
the asset and its estimated fair value. Deferred Financing Costs The Company amortizes deferred financing costs on a
straight line basis which approximates the interest method, over the term of
the related financing. Income Taxes The company files a consolidated
income tax return with its subsidiary. 
Deferred tax liabilities and assets are determined based on the
differences between the financial statement carrying amounts and tax bases of
assets and liabilities using enacted tax rates.

Loss per shareLoss per
share is computed by dividing the net loss applicable to common stock by the
weighted-average number of common shares outstanding for the period. Basic and
diluted loss per share are the same because options for 1,834,392, 1,619,005
and 922,005 shares of common stock are excluded in 2000, 1999 and 1998,
respectively, as all common equivalent shares would be antidilutive due to the
losses.

Stock-based
Compensation As permitted by SFAS No. 123,
Accounting for Stock-based Compensation, the Company accounts for its
stock-based awards to employees under the intrinsic value method in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees.  All stock-based awards
to independent consultants are accounted for under the fair value method as
required by SFAS No. 123 and related interpretations.

Revenue Recognition  Revenue related to collaborative payments
from joint ventures and research agreements is recognized when earned under the
terms of the agreement and when performance obligations have been met and related
payments are receivable and non-refundable. 
The Company recognizes revenue from kit sales when they are shipped.

Research and
development 
The Company expenses its research and development and clinical trial
costs as incurred.

Fair Value of
Financial Instruments The carrying value of all financial
instruments, except capital leases and notes payable, approximates fair value
due to the short-term nature of the instruments.  The carrying value of capital leases and notes payable
approximates fair value due to the fixed interest rates on these instruments
being consistent with current interest rates.

Redeemable Preferred StockPreferred stock with redemption rights at the option of the holder are
classified as shareholders equity after such redemption rights have expired.

New Accounting
Pronouncements 
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133 Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to record derivatives on the balance sheet as assets and liabilities, measured
at fair value.  Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting.  SFAS No. 133 is effective
for fiscal years beginning after June 15, 2000, with earlier adoption
encouraged. The adoption of SFAS No. 133 was not material to the Companys
financial statements.

Reclassifications Certain reclassifications have been
made to the prior years financial statements to conform to the current years
presentation.

Note
2.   Property and Equipment

Property
and equipment are comprised of the following:

2000
  1999Buildings
  $209,410
  $149,810Furniture and fixtures
  452,102
  353,459Lab and production equipment
  4,261,815
  3,951,534Leasehold improvements
  516,912
  491,225Construction-in-progress
  3,313,655
  1,482,2208,753,894
  6,428,248Less accumulated depreciation
  (2,973,722)
  (2,085,439)$5,780,172
  $4,342,809

Note 3.  
Other Assets

Other assets are comprised of the following:

2000
  1999Deposits and fees
  $32,599
  $45,717Licensing agreements, net of amortization
  --
  82,500$32,599
  $128,217

Note
4.   Income Taxes

Deferred tax assets and (liabilities) are
comprised of the following:

2000
  1999Deferred
  tax assetsNet
  operating loss carryforwards
  $22,871,000
  $17,197,000Accrued
  liabilities
  96,000
  --Total deferred tax assets
  22,967,000
  17,197,000Less: Valuation allowance
  (22,931,000)
  (17,197,000)Deferred tax liabilitiesPrepaid expenses
  (36,000)
  --Net deferred tax asset
  $
  $

A
valuation allowance has been provided against deferred tax assets as of
December 31, 2000 and 1999 because realization of these amounts is
dependent on generating future taxable income. 
At the present time, the realization of these amounts is considered
unlikely.  As of December 31, 2000, the
Company has net operating loss carryforwards of approximately $57,000,000 which
expire beginning in 2005 through 2020.

A
reconciliation of income taxes is as follows:

2000
  1999
  1998Federal income taxes
  ($6,828,000)
  ($4,416,000)
  ($3,105,000)State income taxes, net of federal benefit
  (975,000)
  (631,000)
  (444,000)Stock compensation
  2,064,000
  193,000
  --Other
  5,000
  --
  --Change in valuation allowance
  5,734,000
  4,854,000
  3,549,000$
  $
  $

Note
5.  Notes Payable

Notes
payable consist of the following:

December 31, 2000
  December 31, 1999Notes payable to financial institutions;
  maturing February 1, 2003 through May 1, 2004; bearing interest between
  13.07% and 13.87%; collateralized by lab and production equipment, payable in
  monthly installments
  $2,163,764
  $883,344Less current portion
  (608,299)
  (217,780)Notes payable, excluding current portion
  $1,555,465
  $665,564

Notes
payable at December 31, 2000 consist of the following:

Year Ending
  December 312001
  $608,2992002
  696,1272003
  607,7662004
  251,572$2,163,764Note
6.       Lease Commitments

Leases  The Company leases land, buildings
and equipment under operating and capital leases which expire at various dates
from February 2001 through October 2013. 
The Companys rent expense for operating leases was approximately
$224,000, $214,000 and $176,000 during the years ended December 31, 2000, 1999
and 1998 respectively.

The Company pays insurance and maintenance
costs associated with leased real estate.

Future minimum payments under non-cancelable
operating and capital leases with initial or remaining terms of one year or
more and present value of the minimum capital lease payments are as follows:

Year Ending
  December 31
  
  Operating Leases
  Capital Leases2001
  $290,376
  $846,5782002
  298,376
  673,3352003
  265,508
  554,4562004
  254,329
  51,9642005
  254,329
  2,879Thereafter
  1,308,027
  --Total minimum obligations
  $2,670,945
  2,129,212Less interest at 10% to 20%
  
  (475,090)Present value of net minimum lease payments
  
  1,654,122Less current portion
  
  (617,251)$1,036,871

Note 7. Commitments
and Contingencies

The Company has entered into license,
clinical trial and supply agreements with universities, research organizations
and commercial companies.  Certain of
the license agreements require payments of royalties on future sales of
resulting products and may subject the Company to minimum annual payments.  Payments under these license agreements have
not been significant and, at December 31, 2000, noncancellable commitments are
immaterial.

The Company has entered into employment agreements
with a number of executive officers. 
The agreements provide for annual base salary compensation, entitlement
to stock options and severance payments in the event of termination, other than
for cause.

The Company monitors concentrations of credit risk associated with
financial institutions with which it conducts business. Operating in a
developmental stage, the Company has not yet been exposed to credit risks of
its customers in the normal course of business.  Concentrations of credit risk associated with trade receivables
are not yet a significant risk.

The Company has a 401(K) retirement plan
covering substantially all employees. 
No contributions are required or allowed by the Company under the
provisions of the plan.

The Company, from time to time, is involved
in various legal matters arising in the ordinary course of business.  In managements opinion, none of these
matters, individually or in the aggregate, will materially affect the Companys
results of operations or its financial position.

Note 8.  Convertible
Bridge Notes

In 1997 and 1998, the Company sold $3,765,500
in principal amount of Subordinated Promissory notes.  Each Note holder had the right to convert to Common Stock up to
50% of the principal amount of the Notes at a price of $7.00 per share.  Interest accrued under the Notes at 10% per
annum for the first six months and at 12% per annum during the six-month
extension period.

As of December 31, 1998, $413,000 principal
plus accrued interest, had been converted into 65,329 shares of common stock
and principal of $1,240,750, plus accrued interest had been repaid by the
Company in 1998.  Of the remaining
$2,111,750 of principal at December 31, 1998, $988,000 principal, plus
accrued interest was subsequently converted into 160,478 shares of common stock
in early 1999.  The balance of
$1,123,750 of principal, plus accrued interest was repaid by the Company, also
in early 1999.

Note 9.  
Stock Options and Warrants

Subsequent to the issuance of the 1999
financial statements, the Companys management determined that modifications to
certain stock options in 1998 were not properly accounted for.  As a result, the financial statements for
the years ended December 31, 1998 and 1999 were restated to increase additional
paid in capital and certain operating expenses for the modification of the
stock options.  As a result of the
restatement, operating expenses and the net loss increased by $810,000 for the
year ended December 31, 1998 and for the cumulative period from April 15, 1988
(date of incorporation) to December 31, 1999 and additional paid in capital and
deficit accumulated during the development stage increased by $810,000 as of
December 31, 1999 and 1998 from amounts previously reported.

The
1993 Stock Plan, as originally adopted andsubsequently amended, authorizes the grant of options to purchase up to
2,140,000 shares of common stock.  Both
incentive stock options and non-qualified stock options may be granted under
the Stock Plan.  All such options are
exercisable at a purchase price equal to the fair market value of Company
common shares, on the date of the grant, as then determined by the Board of
Directors.  At December 31, 2000, there
were outstanding options under the Stock Plan to purchase a total of 1,645,000
shares, of which options to purchase 965,346 shares were exercisable.  The qualified stock options became
exercisable in three equal annual installments after the date of grant and
expire ten years from such date. 
Included in the 1,645,000 shares outstanding as of December 31, 2000 are
options covering 112,000 shares granted to non-employee Directors of the
Company and stock options granted to seven non-employee members of the
Scientific Advisory Board and GLP-1 Medical Advisory Board, covering a total of
47,000 shares.  Each of these grants
vests ratably over a three year period. 
The term of each such non-qualified option extends for the shorter of
the term of service and thereafter for 180 days (to the extent vested at the
time), or ten years.  Also included are
options covering 70,000 shares granted to six non-employee consultants of the
Company with terms consistent with those as stated above.  In addition, options to purchase 93,005
shares of common stock have been issued outside of the 1993 Stock Plan.  These options have an exercise price of
$2.42 per share and are currently exercisable through their expiration in July
2002.

The Board of Directors approved the exchange
of Stock Appreciation Rights (SARs), previously issued to senior employees of
the Company, for non-qualified stock options, covering a total of 116,679
shares. During 1998, a cash payment was made on SARs exercised for 20,292
shares, which left a balance of 96,387 shares. 
In the fourth quarter of 2000 the Company converted the outstanding
stock appreciation rights to non qualified stock options to purchase a total of
96,387 shares of common stock.  These
options, which were issued outside of the 1993 stock plan, have a weighted
average exercise price of $2.58 per share and a weighted average life of 6.84
years.  The Company recorded an expense
of $46,874 for the difference between the accrued liability and the intrinsic
value of the stock options (fair value in the case of non-employees) which were
fully vested when issued.

A summary of changes in outstanding options
under the 1993 Plan for years ended December 31, 2000, 1999 and 1998 are
as follows:

2000
  1999
  1998Shares under option at beginning of year
  1,538,000
  829,000
  746,000Options granted  1993 Plan
  140,000
  767,000
  177,000Options exercised
  (1,000)
  (1,100)
  Options canceled
  (32,000)
  (56,900)
  (94,000)Shares under option end of year
  1,645,000
  1,538,000
  829,000Options exercisable end of year
  965,346
  659,671
  515,352

Stock option weighted average exercise
prices for the 1993plan are summarized as follows:

2000
  1999
  1998Outstanding, beginning of year
  $7.13
  $6.22
  $5.86Granted
  $12.50
  $8.12
  $7.50Exercised
  $6.50
  $7.00
  -Canceled
  $8.16
  $7.05
  $5.78Outstanding, end of year
  $7.57
  $7.13
  $6.22

The following table summarizes information
concerning options outstanding and exercisable options under the 1993 plan as
of December 31, 2000:

WeightedAverage
  Weighted
  
  WeightedRange of
  Options
  Remaining
  Average
  
  AverageExercise
  Out-
  Contractual
  Exercise
  Options
  ExercisePrice
  Standing
  Life in Yrs.
  Price
  Exercisable
  Price$5 - $8
  1,489,000
  7.8
  $7.05
  958,678
  $6.55$12.50
  156,000
  9.4
  $12.50
  6,668
  $12.50Totals
  1,645,000
  
  
  965,346

The Company follows APB No. 25 for
measurement and recognition of stock-based transactions with employees.  No compensation cost was recognized for
stock options granted to employees under the 1993 Stock Plan because the
exercise price for all options granted was at least equal to the fair value of
the common stock at the grant date.  In
2000, 1,118,167 options granted in previous years were extended for a period of
five years.  Compensation expense of
$5,032,534 was recorded in 2000 in connection with these extensions.  If compensation cost for the Companys stock
plans had been determined based on the fair value at the grant dates for grants
consistent with the fair value method provided by SFAS No. 123, the Companys
net losses would have been as follows:

Net loss:
  2000
  1999
  1998As reported
  $(22,319,580)
  $(15,388,137)
  $(10,862,125)Pro forma
  (26,285,009)
  (15,622,506)
  (11,019,718)Basic and diluted net loss per share:As
  reported
  $(3.14)
  $(3.04)
  $(2.55)Pro forma
  (3.70)
  (3.08)
  (2.58)

The fair value of options granted under the
various option plans was estimated on the date of the grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions and results:

2000
  1999
  1998Dividend yield
  None
  None
  NoneExpected volatility
  0
  0
  0Risk-free interest rate
  7%
  5%
  5%Expected life of option
  120 months
  60 months
  60 monthsFair value of optionsgranted during the year
  $775,000
  $1,279,000
  $230,000

The
Company had outstanding warrants to purchase 591,245 and 824,171 shares of
Common Stock as of December 31, 2000 and 1999, respectively.  Exercise prices for the warrants range from
$5.00 to $12.50 per share (weighted average of $7.25 per share as of December
31, 2000).  The warrants, which are
currently exercisable, expire at various dates through February 2005 (1.69 year
weighted average life as of December 31, 2000).

Note
10.   Joint Ventures and GRF
Corporation Acquisition

In July, 1991, the Company entered into a
50/50 contractual joint venture (referred to as Osteoporosis Therapy Company or
OT Company) with R & C Enterprises, Inc., of Omaha, Nebraska (owned in
part by Dr. Robert R. Recker, Director of the Hard Tissue Clinic of the
Creighton University School of Medicine). 
OT Company was formed to develop and market Growth Hormone Releasing
Factor (GRF) therapy for osteoporosis pursuant to two patents issued in the
United States to Dr. Recker and other GRF therapies.  The GRF was to be manufactured exclusively for OT Company by the
Company using its proprietary recombinant peptide production and amidation
technologies.  The Company was paid
$500,000 and $650,000 in 1992 and 1993, respectively, by OT Company for GRF and
services rendered.  These amounts were
accounted for as revenues and are disclosed separately on the Statements of Operations.  The Companys contribution was technology
with no carrying value and no guaranty of the joint ventures debt.

In July, 1992, OT Company and the Company
entered into a joint venture agreement with Cambridge Biotech Corporation, of
Worcester, Massachusetts, to form another joint venture company, GRF
Corporation (GRFCO) to carry out an initial pilot study of GRF therapy for
patients with acute osteoporosis and, if successful, to carry out clinical
trials with the therapy leading to the filing of an NDA with the United States
Food and Drug Administration.  Pursuant
to this joint venture agreement, Cambridge contributed $2 million for the
initial funding of GRFCO to cover the cost of the pilot study and other
preliminary research activities and OT Company contributed rights to patents
with no carrying values. For these contributions, Cambridge received 19% of the
GRFCO equity shares (Class A) and OT Company acquired 81% of the equity shares
(Class B).  However, the parties had
equal voting rights, and neither party had voting control.

In 1996, the
Company acquired Cambridges entire 19% interest in GRFCO shares for
$500,000.  This $500,000 was immediately
expensed as research and development because no tangible assets were acquired
and the intangible assets which were acquired did not relate to revenue
producing products or processes. 
Cambridge (now Acquila Biopharmaceuticals, Inc., a wholly-owned
subsidiary of Antigenics, Inc.) also acquired the right to a 20-year royalty,
which may be bought out at the Companys option in a lump sum payment of
$7,000,000 if paid before December 31, 2002 or in a lump sum payment of
$12,000,000 if paid between January 1, 2003 and December 31, 2006.

On January 6, 1999, the Company acquired all
of the outstanding shares of stock of R & C Enterprises, Inc. and a related
entity, for the sum of $700,000.  This
$700,000 was expensed as research and development because no significant
tangible assets were acquired and the rights to patents which were acquired did
not relate to revenue producing products or processes.  As a result, BioNebraska became the 100%
owner of OT Company and GRFCO.

The following unaudited proforma financial
information presents the results of operations of the Company and GRFCO for the
year ended December 31, 1998, as if the acquisition of GRFCO took place on
January 1, 1998:

1998(in thousands)Total revenue
  $13Net loss
  $(11,582)Basic and diluted net loss per share
  $(2.71)The proforma information for the year ended
December 31, 1998 includes the $700,000 acquisition cost of GRFCO which was
expensed by the Company as research and development at the acquisition
date.  The unaudited proforma condensed
financial information is presented for illustrative purposes only.  The information is not necessarily
indicative of the Companys financial position or results of operations for
future periods or the results that actually would have been realized had the
acquisition and certain transactions occurred as of the beginning of the period
presented.

Note 11. 
Preferred Stock

Subsequent to the issuance of the 1999
financial statements, the Companys management determined that the Companys
Series E and F preferred stock were not properly classified in the financial
statements.  As a result, the financial
statements as of December 31, 1999 were restated to increase redeemable
preferred stock presented outside of shareholders equity/(deficit) and reduce
shareholders equity.  As a result of
the restatement, redeemable preferred stock increased by $13,697,856, additional
paid in capital decreased by $13,696,585, and convertible preferred stock
decreased by $1,271 as of December 31, 1999 from amounts previously reported.

The
Companys Certificate of Incorporation authorizes the Board of Directors to
establish by resolution different classes or series of preferred stock
and to fix the relative rights and preferences of said shares in any class or
series.  The Company may not declare or
pay dividends on its common stock unless dividends on all classes of cumulative
preferred stock have been paid.

Series A Preferred Stock

The Series A Preferred Stock has no voting
power, except in the event that at least one years dividends have not been
paid on the stock prior to May 31, 2003.

The holder of the Series A Preferred Stock is
entitled to receive cumulative dividends at the rate of $7.50 per share per
annum beginning May 31, 1993, payable annually in preference and priority to
any payment of dividends on Common Stock or any other shares ranking junior to
the Series A Preferred Stock as to dividends. 
The Company was required to begin paying dividends on the May 31
following the year in which the Company obtained gross proceeds in excess of
$15 million from public or private offerings of equity securities.  The holder of the Series A Preferred Stock,
however, waived its right to have such dividends paid until May 31, 2003.

The Series A Preferred Stock may be redeemed
by the Company at any time at a redemption price equal to the $100 face value
per share plus all unpaid and accumulated dividends.  In addition, the holder has the right to require the Company to
redeem its Series A Preferred Stock beginning after May 31, 2004 at a
redemption price of the face value per share plus all unpaid and accumulated
dividends.  As of December 31, 2000 and
1999, authorized and outstanding Series A shares were 11,750 shares.

Series B Convertible Preferred Stock

Holders of Series B Preferred Stock are
entitled to vote on all matters submitted to the shareholders and receive one
vote for each share of Common Stock into which such holders shares are then
convertible (currently 14.286 shares).

The Series B Preferred Stockholders are
entitled to receive cumulative dividends at the rate of $9.75 per share per
year, payable annually on a parity with the Series A Preferred Stock and in
preference and priority to any payment of any dividend on the Common Stock or
any other shares junior to the Series B Stock. 
Dividends begin to accrue on the date of the original issue of the
shares of Series B Stock.  As of
December 31, 2000 and 1999, 16,500 Series B shares were authorized of which
16,365 were issued and outstanding.

The
holders of the Series B Preferred Stock have the right at any time to convert
each share of Series B Preferred Stock into 14.286 shares of Common Stock,
which rate is determined by multiplying the number of shares
of Series B Preferred Stock to be converted by $100 and dividing the product
thereof by the Conversion Price, which is initially $7.00, subject to
anti-dilution adjustment.  All
outstanding shares of Series B Preferred Stock will automatically convert into
Common Stock if the Company closes an underwritten public offering of its
Common Stock with gross proceeds of at least $10,000,000 and all accumulated
dividends shall be paid.

The Company may redeem the Series B Preferred
Stock, in whole or in part at any time upon 30 days notice at its $100 face
value plus all unpaid and accumulated dividends.  Holders will have the right to convert to Common Stock any Series
B Preferred Stock that the Company seeks to redeem.

Series C Convertible Preferred Stock

The holders of the Series C Preferred Stock
have the same rights as Class B.  As of
December 31, 2000 and 1999, 50,000 Series C shares were authorized of which
21,000 shares were issued and outstanding.

The Company may redeem the Series C Preferred
Stock, in whole or in part at any time upon 30 days notice at its $100 face
value plus all unpaid and accumulated dividends.  Holders will have the right to convert to Common Stock any Series
C Preferred Stock that the Company seeks to redeem.

Series D Convertible Preferred Stock

The holders of Series D Preferred Stock have
the same rights as Class B.  As of
December 31, 2000 and 1999, 100,000 Series D shares were authorized of which
60,739 shares were issued and outstanding.

The Company may redeem the Series D Preferred
Stock, in whole or in part, at any time upon 30 days notice at its $100 face
value plus all unpaid and accumulated dividends.  Holders will have the right to convert to Common Stock any Series
D Preferred Stock that the Company seeks to redeem.

Series E Convertible Preferred Stock

The holders of Series E Preferred Stock have
the same rights as Class B, except for the terms of redemption. As of December
31, 2000 and 1999, 200,000 Series E shares were authorized, of which 17,070
shares were issued and outstanding.

The
Company may redeem the Series E Preferred Stock, in whole or in part, at any
time upon 30 days notice at its $100 face value plus all unpaid and accumulated
dividends.  Holders will have the right
to convert to Common Stock any Series E Preferred Stock that the Company
seeks to redeem.  From January 1, 2001
to March 31, 2001, the holders may require the Company to redeem all, but not a
portion of, the holders shares of Series E Convertible Preferred Stock at a
redemption price of the face value per share plus all unpaid and accumulated
dividends to the date of redemption.  If
redeemed, proceeds are payable in three installments over 12 months

Series F Convertible Preferred Stock

The holders of Series F Preferred Stock have
the same rights as Class B, except for the terms of redemption and the
conversion price.  In December 2000
holders of 850 shares of Series F Preferred Stock exercised their right to
convert each share of Series F Preferred Stock to 12.5 shares of common
stock.  As of December 31, 2000 and
1999, 200,000 Series F shares were authorized, of which 110,118 were issued and
109,268 and 110,118 shares were outstanding, respectively.

The Company may redeem the Series F Preferred
Stock, in whole or in part, at any time upon 30 days notice on or after January
1, 2002, at its $100 face value plus all unpaid and accumulated dividends.  Holders will have the right to convert to
Common Stock any Series F Preferred Stock that the Company seeks to
redeem.  From January 1, 2002 to March
31, 2002, the holders may require the Company to redeem all, but not a portion
of, the holders shares of Series F Convertible Preferred Stock at a redemption
price of the face value per share plus all unpaid and accumulated dividends to
the date of redemption.  If redeemed,
proceeds are payable in three installments over 12 months.

Series G Convertible Preferred Stock

Under the terms of that certain Investment
Agreement between the Company and Medtronic, Inc. dated June 16, 1998,
Medtronic purchased 50,000 shares of Series G Preferred Stock at $100.00 per
share.  Under the terms of the
Investment Agreement, the gross proceeds received by the Company were to be
used for peptide production scale up and cGMP development that is integral to
the CHF/GRF clinical program of the Company, including but not limited to
preclinical evaluation, drug compatibility of and with Medtronics drug
delivery systems, any clinical trials necessary to obtain regulatory approval
for GRF, and animal feasibility studies. 
At the end of 1998, $1.9 million of the $5 million had been expended,
and all $5 million had been expended by the end of 1999.  Under the Investment Agreement, the holders
of Series G Preferred Stock have a right of first refusal to purchase its pro
rata share of any New Securities that the Company may issue.  The Series G Preferred Stock does not have
redemption rights.

Accumulated
dividends on preferred stock as of December 31, 2000 are as follows:

Preferred Stock
  Series
  Accumulated Dividends
  to 12/31/00A
  $ 668,281B
  970,029C
  1,197,368D
  2,553,139E
  582,513F
  2,663,406G
  1,218,750$ 9,853,486

Accumulated dividends on Series A, E and F of
$3,914,200 and $2,615,001 as of December 31, 2000 and 1999, respectively, are
included in redeemable preferred stock. 
Accumulated dividends on Series B, C, D and G have not been declared and
therefore are not recorded as a liability as of December 31, 2000.

Note 12.  
Going Concern Considerations

The Company, from inception, has experienced
losses from its activities in research and development, without fully
offsetting revenues.  This and the fact
that the Company is a development stage business create a substantial doubt as
to its ability to continue as a going concern.

The Company has obtained financing through
private placement offerings, as reflected in the statement of changes in
shareholders equity/(deficit).  As in
the past, the Company is pursuing additional equity placement offerings to fund
several of its programs as well as its corporate overhead.

The Companys ability to obtain profitability
on substantial portions of its operations will also depend in large part
on:  obtaining regulatory approvals of
some of its products; entering into satisfactory agreements for product commercialization;
making the transition from a developmental stage business to a manufacturing
and marketing company; and obtaining additional financing through development
collaborations or equity or debt issues, as necessary.

The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.

Note
13.Quarterly Data
(unaudited)

For
  the year ended December 31, 2000First
  Second
  Third
  FourthQuarter
  Quarter
  Quarter
  QuarterRevenues
  $
  $7,495
  $2,545
  $Operating costs and expenses
  3,700,429
  3,932,551
  3,417,799
  8,755,616Net loss applicable to common stock
  (4,257,112)
  (4,489,547)
  (4,094,781)
  (9,478,140)Basic and diluted loss per share
  (0.62)
  (0.64)
  (0.57)
  (1.31)For the year ended December 31, 1999First
  Second
  Third
  FourthQuarter
  Quarter
  Quarter
  QuarterRevenues
  $1,176
  $
  $960
  $3,045Operating costs and expenses
  3,232,164
  2,902,435
  2,326,665
  4,219,801Net loss applicable to common stock
  (3,947,919)
  (3,583,923)
  (3,020,497)
  (4,835,798)Basic and diluted loss per share
  (0.90)
  (0.77)
  (0.61)
  (0.76)

ITEM 9.  CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

See the
Companys Current Report on Form 8-K, as filed with the Commission on November
28, 2000.

PART III

ITEM 10.  DIRECTORS AND
EXECUTIVE OFFICERS OF THE REGISTRANT

Following is
a brief summary of the business experience of each of the officers, key
personnel and directors of the Company.

Name
  Age
  OfficesThomas R. Coolidge, J.D.
  67
  Chairman, Chief Executive Officer,
  Secretary and DirectorFred W. Wagner, Ph.D.
  61
  President, Chief Scientist, Treasurer and
  DirectorMario R.W. Ehlers, M.B., Ch.B.and Ph.D.
  42
  Senior Vice President and Chief Medical
  OfficerBarton Holmquist, Ph.D.
  57
  Senior Vice President, Research and
  DevelopmentDavid S. Walker
  40
  Senior Vice President and Chief Financial
  OfficerMalcolm Riddell
  63
  Managing Director - Facilities ConstructionWilliam M. Brown, Ph.D., J.D.
  35
  Vice President and Chief Intellectual Property CounselKris K. Christianson
  43
  Vice President of Quality Assurance and
  Quality ControlChristopher S. Hickey
  48
  Vice President of Production ManagementRoberta L. Schneider, M.D.
  49
  Vice President and Clinical Director for
  Diabetes and Obesity ProgramsDaniel R. Strydom, Ph.D.
  55
  Vice President of ResearchJames A. Williams, Ph.D.
  41
  Vice President and Director of Regulatory Affairs and Molecular
  BiologyWalter R. Barry, III
  34
  DirectorGrant W. Denison, Jr.
  51
  DirectorRichard A. de Souza
  47
  DirectorWilliam J. Jenkins, M.D.
  53
  DirectorStephen W. Jenks
  58
  DirectorErich Sager
  43
  DirectorThomas R. Coolidge, J.D., a founder
of the Company, has been employed by the Company since its inception in 1989
and serves as its Chairman and Chief Executive Officer.  From 1987 through 1988, he was President and
CEO of Finn Sugar U.S., Inc., Schaumberg, Illinois, which provided specialty
enzyme and sweetener products and specialty chemicals to the North American
food markets.  From 1982 through 1987,
he was a Principal in the Stenbeck Group of New York City, where he was
instrumental in winning the private side cellular radio telephone license for
all of the United Kingdom with a U.K. partner and represented that Groups
ownership in connection with the successful building and launching of that
cellular system known as Vodafone to cover the licensed market.  From 1975 through 1982, he served as the
Executive Vice President of Parsons & Whittemore, Inc., a large
privately-held paper pulp and machinery producer, with offices in New York
City, where among his responsibilities were the financing, construction and
start up of one of the largest single-line pulp mills at the time, located in
Alabama.  From 1960 through 1974, he
practiced business and financial law as an associate and partner of a Wall
Street law firm.  He graduated from
Harvard College and Harvard Law School.

Fred W. Wagner, Ph.D.,a founder
of the Company, has been employed by the Company since its inception in 1989
and serves as its President and Chief Scientist.  He became a faculty member of the University of Nebraska-Lincoln
in the Department of Biochemistry in 1968, and a Professor in 1980.  Dr. Wagner retired as an active member
of the faculty at the end of 1995 and now works full time for the Company.  Dr. Wagners areas of research interest
include metallo-proteins and metallo-enzymes, proteolytic enzymes and the
immobilization, manipulation and purification of proteins.  He is an author of more than 50 articles in
scientific journals and of chapters in five books.  Dr. Wagner received his Ph.D. in Biochemistry from Texas
A&M University.

Mario R.W. Ehlers, M.B., Ch.B. (equivalent to M.D.) and Ph.D., joined the
Company in June 1998 as its Senior Vice President and Chief Medical
Officer.  Dr. Ehlers received his
M.B., Ch.B. and Ph.D. in biochemistry at University of Cape Town in South Africa.  Subsequently he served for seven years as a
researcher and instructor at the Center for Biochemical and Biophysical
Sciences for Medicine at Harvard Medical School. From 1992 to 1998, he served
as the Chairman of the Department of Medical Biochemistry at the University of
Cape Town.  Dr. Ehlers combines
strong credentials in the biochemistry of endocrine peptides with extensive
medical and clinical experience.

Barton Holmquist, Ph.D., Senior
Vice President, Research and Development, has been with the Company since
February 1994, having previously been a Harvard Medical School faculty member
(Associate Professor in the Department of Biological Chemistry and Molecular
Pharmacology).  He received his Ph.D.
degree in 1969 from the University of California, Santa Barbara in chemistry
and joined a renowned research group at Harvard where he studied in numerous
areas of peptide chemistry and biochemistry, including the enzymology of
hypertension and alcoholism.  He has
published extensively (over 110 publications) in these and other areas
including the role of metals in biology and ways of examining them, analytical
methods, and other aspects of enzymology. 
Prior to joining the Company, he was a consultant for the Company since
its inception.

David S. Walker, joined the Company in June 2000 and
serves as its Senior Vice President and Chief Financial Officer.  From 1996 to 2000, he was Chief Financial
Officer of Arbor Acres Farm, Inc., an agribusiness company, with overall
responsibility for the finance and information technology functions of the
company.  From 1993 to 1996, Mr. Walker
served as Vice President Finance and Information Technology of Fisons
Corporation, a pharmaceuticals company, having similar responsibilities and
managing a staff of 40 persons.

Malcolm Riddell, Managing Director of Facilities
Construction, has been employed by the Company since September 1989.  From 1980 to 1989, he was President and
Chief Executive Officer of Plaskon Electronic Materials, Inc., a manufacturer
of sophisticated materials for the epoxy encapsulation of semi-conductors.  Prior to then, Mr. Riddell was employed
in several managerial posts by Allied Chemical Corporation.  Mr. Riddell is a graduate in science
and engineering from Fairleigh Dickenson University.

William M. Brown, Ph.D., J.D.,has been
with the Company since October 2000 and serves as Vice President and Chief
Intellectual Property Counsel.  He
received his Ph.D. in molecular biology from the University of Southampton,
England, in 1991, and subsequently completed postdoctoral fellowships at
Harvard Medical School, the National Institutes of Health, Johnson &
Johnson, and Memorial Sloan-Kettering Cancer Center.  He then attended New York Law School while working for a series
of New York City law firms as a scientific consultant on pharmaceutical,
biotech, and medical device product liability and patent litigations.  He also received an M.B.A. from Fairleigh
Dickinson University, NJ.  Before
joining BioNebraska, he was Patent Counsel to Taro Pharmaceuticals, and was
based at their Hawthorne, NY, facility and before that an associate with Kaye
Scholer Fierman Hays & Handler, LLP, in their New York office.  He has authored more than 40 scientific and
legal publications, including 3 books, and continues to serve as a
reviewer/evaluator for Current Drugs and its sister
publications.  He is admitted to the bar
in New York and New Jersey and several federal courts and is registered to
practice before U.S. Patent & Trademark Office.

Kris K. Christiansonhas been with
the Company since 1994 and serves as the Vice President of Quality Assurance
and Quality Control.  She is responsible
for method development and validation, product testing and evaluation of
biological fluids for products.  Before
joining BioNebraska, she worked for Abbott Laboratories, North Chicago,
Illinois, for two years, where her responsibilities included construction and
expression of recombinant proteins, purification and characterization of
proteins and development of immunoassays. 
She was engaged in animal vaccine research and development at SmithKline
Beecham Animal Health, Lincoln, Nebraska for six years prior to working at
Abbott.  She worked in the toxicology
section of Midwest Laboratories, Kansas City, Missouri, for two years after
receiving a M.S. in Microbiology from Kansas State University in 1983.  She is an author of more than ten articles
in scientific journals.

Christopher S. Hickey,joined the
Company in July 1997 as the Vice President of Production Management.  Prior to joining the Company,
Mr. Hickey was employed by Somatogen in Boulder, Colorado for five years,
where his responsibilities included fermentation and purification process
development, production of clinical supplies, maintenance and metrology.  Before joining Somatogen, he worked for
Monsanto in St. Louis, Missouri for fifteen years.  While at Monsanto he was involved in the design, construction,
startup and operation of their pilot plant for the production of proteins from
recombinant DNA technology.  The
Monsanto pilot plant experience resulted in his participation on the startup
team for the worlds largest commercial recombinant DNA protein production
facility.  He received his M.S. in
Microbiology from Clemson University in 1977.

Roberta L. Schneider, M.D.,joined the
Company in February 2001 as its Vice President and Clinical Director for
Diabetes and Obesity Programs.  Dr.
Schneider has over 15 years of pharmaceutical industry experience.  Prior to joining BioNebraska, Dr. Schneider
was Vice President of Drug Development for Takeda America Research and
Development Center for 4 years.  She
directed the conduct of clinical trials for all of the Takeda compounds in US
development including the clinical plan and NDA for ACTOS which was approved
for marketing for Type 2 diabetes mellitus via expedited review.  Before joining Takeda, Dr. Schneider was
Vice President, Medical and Professional Affairs and Medical Director for Novo
Nordisk Pharmaceuticals Inc. for 4 years. 
Dr. Schneiders additional industry experience includes Sterling
Winthrop Pharmaceuticals as Director of Clinical Research and Merck Sharp &
Dohme at Merck & Co as Senior Associate Director of Phase IV Medical
Services.

Daniel J. Strydom, Ph.D., has been
with the Company since December 1996 and serves as Vice President of Research
with the Peptide Group.  He is primarily
responsible for research on the purification and structural purity of the
various peptides of interest to the Company. 
He received his Ph.D. in Physical Chemistry from the University of South
Africa in 1972 and his post-doctoral training at Harvard Medical School in 1973
and 1974.  From 1966 to 1978, his
research on various aspects of protein and peptide chemistry was carried out at
the National Chemical Research Laboratories of the South African Council for
Scientific and Industrial Research. 
From 1978 until December 1996, he carried out research in the Center for
Biochemical and Biophysical Sciences and Medicine at Harvard Medical School in
Boston and was Assistant Professor in the Department of Pathology at Harvard
for the last 10 years.  He has authored
more than 60 articles in scientific journals, and has been active in protein
and peptide chromatographic studies while serving on the editorial boards of
Analytical Biochemistry and Journal of Chromatography.  He is a member and has served on various
committees of the Association of Biomolecular Research Facilities (ABRF), an
international organization which is concerned with establishing and maintaining
high standards of analytical competence in the biotechnical industry and the
biochemical field at universities.

James A. Williams, Ph.D., has been
an employee of the Company since November 1996 and serves as Vice President and
Director of Regulatory Affairs and Molecular Biology.  He received his Ph.D. in Genetics from the University of Alberta
and subsequently spent three years in postdoctoral training at the University
of Wisconsin.  Prior to joining
BioNebraska, he was employed as a Section Manager by Ophidian Pharmaceuticals, Inc.
in Madison, Wisconsin for three years, where his responsibilities included
cloning and E. coli expression vector development for multiple target proteins,
and the development of scalable E. coli fermentation and protein purification
methodologies for large scale manufacture of target proteins.  He was responsible for the development of
the E. coli master and working cell banks, fermentation methodologies, and
downstream recombinant protein purification procedures for cGMP manufacture of
two recombinant proteins that are currently utilized in a clinical development
collaboration with a large pharmaceutical company.

Walter R. Barry, III,has been a
Director of the Company since December, 1993. 
Since 1999, Mr. Barry has been Chairman and Chief Executive Officer
of viaMD.com, a business-to-business e-commerce company focused on the medical
device industry.  From March 1994 to
August 1998, Mr. Barry was a Vice President of Business Development for
First Physician Care, Inc., a physician group practice management company in
Atlanta.  Prior to that, Mr. Barry
was Director of Communications of CareNetwork, a publicly-traded HMO, from July
1991 to February 1994.  From July 1989
to June 1991, Mr. Barry was an Analyst in the Corporate Finance Department
at the New York investment banking firm of Dillon, Read & Company,
Inc.  Mr. Barry graduated from
Princeton University in 1989.

Grant W. Denison, Jr., has been a
Director of the Company since October 29, 1999.  Mr. Denison is the Chief Executive Officer and Chairman of
the Board of BioMarin Pharmaceutical, Inc., a pharmaceutical development
company.  Prior to joining BioMarin,
Mr. Denison served as President, Consumer Products and Corporate Senior
Vice President, Business Development at Searle, a pharmaceutical company, from
July 1993 to April 1997.  Prior to that,
he held positions as Vice President Corporate Planning and President, U.S.
Operations at Monsanto Company, Vice President, International Operations at
Squibb Medical Systems, and Vice President, Planning and Business Development
at Pfizer, Inc.  Mr. Denison also
serves as a director of BioSyn, Nastech Pharmaceutical Company, Inc.,
Dentalview, Inc. and Clubb BioCapital. 
Mr. Denison received an A.B. in Mathematical Economics from Colgate
University and an M.B.A. from Harvard Graduate School of Business
Administration.

Richard A. de Souza, has been a
director of the Company since June 2000. 
Mr. de Souza is currently President, Pharmaceuticals Europe
and Asia, of Warner Lambert/Parke-Davis. 
Prior to this he was with SmithKline Beecham for 22 years, rising to the
position of Chairman, European Pharmaceuticals.  Mr. de Souza is a registered Pharmacist, and commenced
his career in Manufacturing, before moving to Marketing, then Business
Development & Finance.  At
SmithKline Beecham, he has served as Marketing Director/Vice President for
Asia, Middle East and Africa and Senior Vice President and Director, Marketing
for Europe and the USA.  He also held a
broad range of General Manager/Regional Manager assignments throughout the
world.  Additionally,
Mr. de Souza serves on the academic advisory board of INSEAD in
Fontainebleau, France and other academic advisory boards.  He is a frequent speaker on elements of
corporate strategy and related topics.

William J. Jenkins, M.D.,has been a
director of the Company since November 1, 2000.  Since April 1999, Dr. Jenkins has been a pharmaceutical
consultant.  From 1996 to 1999, he
served as the Head of Clinical Development and Regulatory Affairs Worldwide for
Novartis Pharma AG, Basel.  From 1992
through 1996, Dr. Jenkins was with Ciba Geigy, AG, Basel, as its Head of
Medicine and Clinical Development Worldwide, remaining with Ciba through its
merger with Sandoz to form Novartis in 1996. 
Dr. Jenkins holds a B.A., M.D., and other advanced degrees from
Cambridge University, Cambridge, England, as well as advanced degrees from the
Royal College of Physicians, United Kingdom, and London University.  He is a member of the Board of Directors of
Tanox, Inc. Houston, Texas, a publicly-held company which is a developer of
monoclonal antibodies, and ViroLogic, Inc. of San Francisco, California, a
publicly-held company which develops and sells viral drug resistance testing
services, principally for HIV.

Stephen W. Jenks, has been a director of the Company
since March 1998.  Mr. Jenks has
been President of Hollenbeck Investments, a private investment company which he
founded, since 1994.  He also has an
active consulting practice serving wealthy individuals, private companies and
start-up companies.  From 1970 to 1994,
he was with J.P. Morgan in New York and London where his responsibilities at
various times involved the shipping business, project finance, Africa, and
distressed loans.  Mr. Jenks
graduated from the University of Pittsburgh and attended the Wharton School of
Business of the University of Pennsylvania.

Erich Sager,has been a director of the Company since
July 1998.  He is the Managing Partner
of LaMont Asset Management SA, a private investment management firm.  Before joining LaMont, he was head of
private banking at Dresden Bank (Switzerland) Ltd. in Zurich.  He is a member of the board of directors of
BioMarin, Inc., and of Comptec Industries Ltd., a publicly held Canadian
company which manufactures specialty plastic components.

Section 16(a)
Beneficial Ownership Reporting Compliance

To the
Companys knowledge, based solely on a review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the fiscal year ended December 31, 2000, all Section 16(a)
filing requirements applicable to the officers, directors and greater than ten
percent beneficial owners were complied with, except that Medtronic Inc. was
late in filing its Initial Statement of Beneficial Ownership.



ITEM 11.  EXECUTIVE COMPENSATION

Executive Compensation and Employment Agreements

The
following table sets forth the annual compensation for the fiscal years ending
December 31, 2000, 1999 and 1998 for the executive officers of the Company:

Annual
  Compensation
  
  Long Term
  Compensation
  AwardsName and Principal Position
  Year
  Salary
  Bonus
  Options(#)Thomas R. Coolidge, Chairman
  of the Board, Chief Executive Officer and Secretary
  2000
  1999
  1998
  $309,482
  $294,745
  $256,300
  --
  $61,896
  $58,949
  --
  300,000
  --Fred W. Wagner,President, Chief Scientist and Treasurer
  2000
  1999
  1998
  $256,650
  $256,000
  $220,000
  --
  $53,130
  $50,600
  --
  100,000
  --Mario Ehlers,Senior
  Vice President and Chief Medical Officer
  2000
  1999
  1998
  $160,000
  144,000
  72,917
  --
  $32,000
  $28,800
  --
  10,000
  40,000Barton Holmquist,Senior
  Vice President, Research and Development
  2000
  1999
  1998
  $190,000
  $177,100
  $154,000
  --
  $38,000
  $35,420
  --
  25,000
  --Mal Riddell, Managing
  Director
  2000
  1999
  1998
  $160,000
  $150,000
  $130,000
  --
  $32,000
  $30,000
  --
  --
  --





(1)Dr.
Ehlers joined the Company in June 1998. 
Salary reflects a partial year.

Mr.
Coolidge, Dr. Wagner and Dr. Holmquist have entered into employment agreements
with the Company, under which either party may terminate the contract on one
years notice.  The Company has also
entered into employment agreements with Dr. Ehlers and Mr. Riddell, which
can be terminated by either the employee or the Company, on six months notice.

All of the officers
and employees of the Company, including Mr. Coolidge, Dr. Wagner, Dr.
Holmquist, Dr. Ehlers and Mr. Riddell, have signed agreements with the Company
which incorporate provisions for Company ownership of all inventions and
technology conceived by them which pertain to the Companys business, and the
safeguarding of the Companys confidential information and trade secrets.  All of the employment agreements with the
officers and key employees contain covenants prohibiting the employee from (i)
competing with the Company, (ii) interfering with its business or business
relationships, and (iii) soliciting any Company personnel (employees and
independent contractors) for employment elsewhere, during employment with the
Company and thereafter for specified periods after termination of employment
and in the event certain compensation is paid to the officer or key employee.

Stock Plan

The
BioNebraska, Inc. Stock Plan (the Stock Plan), which was originally adopted
in 1993 and subsequently amended, authorizes the grant of options to purchase
up to 2,140,000 shares of Common Stock. 
Both incentive stock options and non-qualified stock options may be
granted under the Stock Plan. Exercise prices for incentive stock options must
equal the market value per share at the time of grant.  The stock options are granted with the
approval of the Board of Directors of the Company or a committee thereof. As of
December 31, 2000, there were outstanding options under the Stock Plan to purchase
a total of 1,645,000 shares, of which options to purchase, 965,346 shares were
exercisable, and 93,005 outstanding options issued outside of the Stock Plan,
which are currently exercisable.Prior
to July 2000, options were generally granted for terms of five years.  In 1998, the Board approved the modification
of outstanding options to purchase an aggregate of 270,000 shares issued to
officers, directors, employees and consultants to extend the terms for five
additional years.  Consistent with industry
practice, the Board elected in July 2000 to grant all new options for ten-year
terms and authorized the modification of all other outstanding options to
extend the terms for five additional years, subject to consent of the
holders.  The Company reported a
compensation charge for financial reporting purposes in 1998 and 2000 to
reflect these extensions.

Option Grants

No stock
options were granted under the BioNebraska, Inc. Stock Plan to the Named
Executive Officers during the year ended December 31, 2000.  Mr. Riddell received a non-qualified stock
option outside the Plan in exchange for the termination of outstanding Stock
Appreciation Rights.  The following
table contains information concerning that stock option grant.

Option Grants in Last Fiscal
  Year
   Individual GrantsName
  OptionsGranted
  % of Total
  Options
  Granted to
  Employees
  in FiscalYear
  Exercise
  PricePer
  Share
  Market
  Price
  on Dateof
  Grant
  ExpirationDate
  Potential Realizable
  Value at Assumed
  Annual Rates of Stock
  Price Appreciation
  for Option Term5%
  10%Malcolm Riddell
  35,511
  21%
  $1.77
  $12.50
  12/01/10
  $33,086
  $86,974

Option Exercises and
Year-End Values

No stock
options were exercised by the Named Executive Officers during the year ended
December 31, 2000.  The following
table sets forth certain information regarding exercisable options held by each
of the Named Executive Officers at the end of the year ended December 31,
2000.

Aggregated Option Exercises
  in Last Fiscal Year andOption Values at Fiscal Year EndShares
  Acquired On
  Exercise (#)
  Value
  Realized
  Number of Securities
  Underlying Unexercised
  Options at December 31, 2000
  Value of Unexercised
  In-the-Money Option
  at December 31, 2000 (1)Name
  
  
  Exercisable
  Unexercisable
  Exercisable
  UnexercisableThomas R. Coolidge
  -
  -
  180,000
  200,000
  $990,000
  $900,000Fred Wagner
  -
  -
  113,334
  66,666
  $690,003
  $299,997Barton Holmquist
  -
  -
  73,334
  16,666
  $487,503
  $74,997Malcolm Riddell
  -
  -
  85,511
  0
  $726,033
  0Mario Ehlers
  -
  -
  30,001
  19,999
  $161,672
  $103,330





(1)Represents only options that were in-the-money
on December 31, 2000.  The value of
unexercised options is calculated by determining the difference between the
fair market value of the shares underlying the options at December 31, 2000 and
the exercise price of the options, times the number of options
outstanding.  Fair market value was
determined based upon the last sales price at which the Company sold Common
Stock in a private placement.

Compensation
of Directors

All
directors hold office for an indefinite term continuing until the next meeting
of stockholders at which directors are elected.  Non-employee directors are paid $1,000 per quarter and $1,000 per
meeting attended, and are reimbursed for expenses and compensated for
consulting services.  In addition, the
current non-employee directors have received non-qualified stock options to
purchase an aggregate of 112,000 shares of Common Stock at the fair market
value on the date of grant.

Compensation
Committee Interlocks and Insider Participation

Mr. Jenks is
a member of the Compensation Committee and also provides consulting services to
BioNebraska.  In 2000, Mr. Jenks earned
$106,615 for these services.

ITEM 12. 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS

The
following table sets forth certain information with respect to beneficial
ownership of the Companys outstanding Common Stock, pursuant to the
requirements of Item 403 of Regulation S-K under the Securities Act of 1933,
and the Companys outstanding voting stock (Common Stock and Series B, C, D, E,
F and G Preferred Stock on an as converted basis) as of March 20, 2001, by (i)
those shareholders known to be the beneficial owners of more than five percent
of the Companys outstanding capital stock, (ii) by each officer and director,
and (iii) by all officers and directors as a group.  Except as otherwise noted, the Company believes that all named
persons have sole voting and sole investment power with respect to such shares.  The Series A Preferred Stock normally has no
voting rights.

Name
  and Addres of 
  Beneficial Owner
  Number
  of 
  Shares(1)(2)
  Percent
  (%) of
  Shares (1)
  Percent
  of Shares on 
  As Converted Basis (1)John
  N. Irwin III
  405 Park Avenue
  New York, NY 10022
  1,366,494(3)
  18.3%
  12.3%Hillside
  Capital  Incorporated
  405 Park Avenue
  New York, NY 10022
  860,885
  11.7%
  7.8%Medtronic, Inc.
  Corporate Center
  7000 Central Avenue N.E.
  Minneapolis, MN 55432
  846,518
  11.5%
  7.7%Thomas R. Coolidge
  Beebe Hill Road
  Falls Village, CT 06031
  813,429(4)
  10.6%
  7.2%Fred W. Wagner, Ph.D.
  321,486
  4.3%
  2.9%Barton Holmquist,
  Ph.D.
  81,667
  1.0%
  *Malcolm Riddell
  85,511
  1.1%Mario R.W. Ehlers,
  M.B., Ch.B and Ph.D.
  33,334
  *
  *Walter R. Barry, III
  19,334
  *
  *Grant W. Denison
  4,000
  *
  *Richard A. de Souza
  --
  *
  *William J. Jenkins,
  M.D.
  --
  *
  *S. William Jenks
  31,143
  *
  *Erich Sager
  38,708
  *
  *All officers and
  directors


as a group (12
  persons)
  1,428,612
  17.7%
  12.2%




*Represents
less than 1%

(1)The
first column is based on the percentage of Common Stock deemed outstanding
under Rule 13d-3(d)(1) under the Exchange Act of 1934, and the second column is
based on (i) 7,359,183 shares of Common Stock (each with one vote per share)
outstanding as of March 20, 2001, plus (ii) 3,656,354 votes based on the voting
rights of the outstanding shares of Series B, C, D, E, F and G Preferred Stock,
which have voting power equal to the number of shares of Common Stock into
which they are convertible.  (Series A
Preferred Stock normally has no voting rights.)

(2)Includes
the following shares of convertible preferred stock and options which are
currently exercisable or will become exercisable within 60 days of the date of
this Form 10-K:  Mr. Coolidge -
280,000 shares; Dr. Wagner  146,667 shares; Dr. Holmquist  81,667
shares; Mr. Riddell  85,511 shares; Dr. Ehlers  33,334 shares;
Mr. Barry  19,334 shares; Mr. Denison  4,000; Mr. Jenks, 31,143
shares; Mr. Sager, 38,708 shares; and all officers and directors as a
group  720,364 shares.  Messrs. Walker,
de Souza, and Jenkins each have outstanding options which are not currently
exercisable.

(3)Mr. Irwin
is the Managing Director of Hillside Capital Incorporated.  Includes (i) 860,885 shares held by Hillside
Capital Incorporated; (ii) 93,005 shares issuable upon an option from the
Company which is currently exercisable by Mr. Irwin; (iii) 40,584 shares
held in trust for Mr. Irwins benefit; and (iv) 27,056 shares held by or
for the benefit of family members, as to which Mr. Irwin disclaims
beneficial ownership.

(4)Includes
89,550 shares held by his spouse, as to which Mr. Coolidge disclaims
beneficial ownership.

ITEM 13.  CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS

Not
applicable.

PART
IV

ITEM 14.   EXHIBITS, FINANCIAL
STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K

(a)      Documents filed as part of this report.

(1)      Financial Statements.  The financial statements of the Company are
listed at Item 8 of this Form 10-K.(2)      Exhibits

3.1     Certificate of Incorporation of the
Company as filed with the Delaware Secretary of State on June 7, 1993. (1)3.2     Amended and Restated
bylaws of the Company, dated April 25, 2000. (1)3.3     Certificate of Designation of Rights and
Preferences of Series A Preferred Stock as filed with the Delaware Secretary of
State on August 30, 1993. (1)3.4     Certificate of Designation of Rights and
Preferences of Series B Convertible Preferred Stock as filed with the Delaware
Secretary of State on December 5, 1994 and amended with the Delaware Secretary
of State on November 6, 1995. (1)3.5     Certificate of Designation of Rights and
Preferences of Series C Convertible Preferred Stock as filed with the Delaware
Secretary of State on November 20, 1995. (1)3.6     Certificate of Designation of Rights and
Preferences of Series D Convertible Preferred Stock as filed with the Delaware
Secretary of State on June 3, 1996. (1)3.7     Certificate of Designation of Rights and
Preferences of Series E Convertible Preferred Stock as filed with the Delaware
Secretary of State on June 19, 1997. (1)3.8     Certificate of Designation of Rights and
Preferences of Series F Convertible Preferred Stock as filed with the Delaware
Secretary of State on May 28, 1998. (1)3.9     Certificate of Designation of Rights and
Preferences of  Series G Convertible
Preferred Stock as filed with the Delaware Secretary of State on June 15, 1998.
(1)10.1* BioNebraska, Inc. 1993 Stock Plan (1)

10.2* Employment Agreement between the Company
and Thomas R. Coolidge dated July 1, 1993. (1)10.3* Employment Agreement between the Company
and Fred W. Wagner, dated July 1, 1993. (1)10.4* Employment Agreement between the Company
and Barton Holmquist dated January 1, 1994. (1)10.5* Employment Agreement between the Company
and Mario Ehlers, dated March 1, 1998. (1)10.6* Employment Agreement between the Company
and Christopher Hickey, dated July 1, 1997. (1)10.7* Employment Agreement between the Company
and Mal Riddell, dated September 18, 1989. (1)10.8   Registration Rights Agreement dated as of
July 13, 1989 and amended as of November 22, 1989, between the Company and
certain security holders of the Company. (1)10.9   Lease Agreement between the Company and
Airport Authority of the City of Lincoln, Nebraska (1)(a)      Commercial Net Building and Ground Lease
of Lincoln Air Park executed November 16, 1998.(b)      Construction Agreement entered into as of
November 16, 1999.(c)      Lease Agreement between the Airport
Authority of the City of Lincoln, Nebraska and BioNebraska, Inc., dated
November 18, 1999.10.10**       Novation
agreement between the Company and the Board of Regents of the University of
Nebraska and Finnish Sugar Co., Ltd., dated effective January 1, 1989. (1)10.11**       License
and Royalty Agreement by and between the Company and Carlsberg A/S, Prof.
Buchardt and Dr. Henriksen, dated as of July 1, 1992. (1)10.12**License Royalty and Development Agreement
by and between the Company and Carlsberg A/S dated as of September 1, 1993. (1)10.13**       License
Agreement between the Company and PolyPeptide Laboratories dated February 17,
1997. (1)10.14**       Settlement
Agreement among the Company, Cambridge Biotech Corporation, GRF Corporation and
OT Company, dated July 15, 1996. (1)10.15 Investment Agreement between the Company
and Medtronic, Inc. dated as of June16, 1998. (1)10.16 Registration Rights Agreement between the
Company and Medtronic, Inc. dated as of June 16, 1998. (1)10.17 Form of Common Stock Warrant issued to
R.J. Steichen & Company on September 2, 1993. (1)10.18 Form of Warrant for purchase of shares of
Common Stock of the Company issued to R.J. Steichen & Company on March 13,
1998. (1)10.19*         Form
of Incentive Stock Option Agreement. (2)10.20*         Form
of Non-Qualified Stock Option Agreement. (2)10.21* Employment Agreement between the
Company and David S. Walker, dated as of May 15, 2000. (2)10.22 Commercial Net Building and Ground Lease
of Lincoln Air Park West dated October 17, 2000, between the Company and the
Airport  Authority of the City of Lincoln,
Nebraska (2)21.1   Subsidiaries of Registrant (1)*        Indicates
Compensation Plan**      Certain information has been deleted from
this exhibit and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment under Rule 24b-2.(1)      Incorporated by Reference from the
BioNebraska, Inc. Registration Statement on Form 10, File No. 000-30493, as
amended.(2)      Filed Herewith(b)      Reports on Form 8-K

The Company
filed a Form 8-K reporting a change in accountants on November 28, 2000. No
financial statements were required to be filed with the Form.

SIGNATURES

Pursuant to
the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

BIONEBRASKA, INC./s/ 
  Thomas R. CoolidgeBy:  Thomas R. CoolidgeChairman
  of the Board andChief
  Executive OfficerEach person
whose signature appears below hereby constitutes and appoints Thomas R.
Coolidge and David S. Walker, and each of them his or her true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his or
her behalf, individually and in each capacity stated below, all amendments and
post-effective amendments to this Form 10-K and to file the same, with all
exhibits thereto and any other documents in connection therewith, 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 and to
all intents and purposes as each might or could do in person, hereby ratifying
and confirming each act that said attorneys-in-fact and agents may lawfully do
or cause to be done by virtue thereof.

Pursuant to
the requirements of the Securities Exchange Act of 1934, this and on the date
Registration Statement has been signed below by the following persons in the
capacities indicated.

SIGNATURE
  Title
  Date/s/Thomas R. Coolidge
  Chairman, Chief Executive Officer,
  March 26, 2001Thomas R. Coolidge
  Secretary and Director/s/David S. Walker
  Senior Vice President and Chief
  March 19, 2001David S. Walker
  Financial Officer (PrincipalFinancial and Accounting Officer)/s/ Fred W. Wagner, Ph.D.
  President, Chief Scientist,
  March 26, 2001Fred W. Wagner, Ph.D.
  Treasurer and Director/s/ Walter R. Barry, III
  Director
  March 14, 2001Walter R. Barry, III/s/Grant W. Denison, Jr.
  Director
  March 26, 2001Grant W. Denison, Jr./s/Richard A. deSouza
  Director
  March 26, 2001Richard A. deSouza/s/William J. Jenkins, M.D.
  Director
  March 19, 2001William J. Jenkins, M.D./s/Stephen W. Jenks
  Director
  March 19, 2001Stephen W. Jenks/s/Erich Sager
  Director
  March 26, 2001Erich Sager