FORM 10-Q
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


(Mark One)

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

          For the quarterly period ended June 30, 2001
                                         -------------

                 Commission file number  0-16005

                           Unigene Laboratories, Inc.
             (Exact name of registrant as specified in its charter)

         Delaware                                    22-2328609
-------------------------------                      ----------
(State or other jurisdiction of                   (I.R.S. Employer
 incorporation or organization)                  Identification No.)


110 Little Falls Road, Fairfield, New Jersey          07004
--------------------------------------------------------------
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code: (973) 882-0860
                                                    --------------

---------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)

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__.

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Common Stock, $.01 Par Value -- 48,372,583 shares as of August 1, 2001


<PAGE>

                                      INDEX

                           UNIGENE LABORATORIES, INC.




PART I.  FINANCIAL INFORMATION                                            PAGE
                                                                          ----

Item 1. Financial Statements (Unaudited)

Condensed balance sheets-
    June 30, 2001 and December 31, 2000                                    3

Condensed statements of operations-
    Three months and six months ended June 30, 2001 and 2000               4

Condensed statements of cash flows-
    Six months ended June 30, 2001 and 2000                                5

Notes to condensed financial statements-
    June 30, 2001                                                          6

Item 2. Management's Discussion and Analysis of Financial
    Condition and Results of Operations                                   11

Item 3. Quantitative and Qualitative Disclosures About
    Market Risk                                                           17

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                20

Item 2.  Changes in Securities and Use of Proceeds                        20

Item 3.  Defaults Upon Senior Securities                                  20

Item 4.  Submission of Matters to a Vote of Security Holders              21

Item 6.  Exhibits and Reports on Form 8-K                                 22

SIGNATURES                                                                23

<PAGE>

PART I.  FINANCIAL INFORMATION
Item 1.   Financial Statements

                           UNIGENE LABORATORIES, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     June 30, 2001        December 31, 2000
                                                                     -------------        -----------------
 ASSETS                                                              (Unaudited)
 ------
 Current assets:
<S>                                                                  <C>                    <C>
     Cash and cash equivalents                                       $     24,521           $     17,108
     Receivables                                                           61,475                165,671
     Prepaid expenses                                                      84,680                129,493
     Inventory                                                            463,986                415,420
                                                                     ------------           ------------
                   Total current assets                                   634,662                727,692

 Property, plant and equipment, net                                     4,901,362              5,684,127
 Investment in joint venture                                              900,000                900,000
 Patents and other intangibles, net                                     1,358,921              1,288,686
 Other assets                                                             368,632                446,894
                                                                     ------------           ------------
                                                                     $  8,163,577           $  9,047,399
                                                                     ============           ============
 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 Current liabilities:
     Accounts payable                                                $  3,448,363           $  2,834,556
     Accrued expenses                                                   4,915,831              3,761,277
     Notes payable - stockholders                                       6,433,323              2,873,323
     Current portion - long-term notes payable -
       stockholders                                                     1,870,000              1,870,000
     5% convertible debentures                                          2,400,000              2,400,000
     Current portion - capital lease obligations                           51,635                 55,398
     Deferred revenue                                                        --                  200,000
                                                                     ------------           ------------
                   Total current liabilities                           19,119,152             13,994,554

 Joint venture obligation,  excluding current portion                     495,000                495,000
 Capital lease obligations, excluding current portion                      40,698                 50,572

 Commitments and contingencies
 Stockholders' deficit:
     Common Stock - par value $.01 per share,
        authorized 60,000,000 shares,
        issued 47,485,730 shares in 2001 and
        44,441,855 shares in 2000                                         474,857                444,419
     Additional paid-in capital                                        69,960,596             70,053,710
     Deferred stock option compensation                                  (113,978)              (284,948)
     Deferred stock offering costs                                           --                 (327,000)
     Accumulated deficit                                              (81,811,717)           (75,377,877)
     Less: Treasury stock, at cost, 7,290 shares                           (1,031)                (1,031)
                                                                     ------------           ------------
                   Total stockholders' deficit                        (11,491,273)            (5,492,727)
                                                                     ------------           ------------
                                                                     $  8,163,577           $  9,047,399
                                                                     ============           ============
</TABLE>

 See notes to condensed financial statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                                 Three Months Ended               Six Months Ended
                                                      June 30                         June 30
                                                      -------                         -------
                                                2001            2000*           2001             2000*
                                                ----            ----            ----             ----
<S>                                         <C>             <C>             <C>             <C>
 Licensing and other revenue                $     88,042    $    200,776    $    361,817    $  1,402,026
                                            ------------    ------------    ------------    ------------

 Operating expenses:

     Research and development                  2,267,546       2,931,806       4,568,016       4,930,474

     General and administrative                  627,458       1,017,656       1,236,973       1,617,069
                                            ------------    ------------    ------------    ------------
                                               2,895,004       3,949,462       5,804,989       6,547,543
                                            ------------    ------------    ------------    ------------

 Operating loss                               (2,806,962)     (3,748,686)     (5,443,172)     (5,145,517)
                                            ------------    ------------    ------------    ------------

 Other income (expense):
    Interest income                                2,157          24,440           5,493          36,515
    Interest expense                            (503,924)       (292,671)       (996,161)       (547,203)
                                            ------------    ------------    ------------    ------------

                                                (501,767)       (268,231)       (990,668)       (510,688)
                                            ------------    ------------    ------------    ------------

 Loss before cumulative effect of
   accounting change                          (3,308,729)     (4,016,917)     (6,433,840)     (5,656,205)

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


 Net loss                                   $ (3,308,729)   $ (4,016,917)   $ (6,433,840)   $ (6,656,205)
                                            ============    ============    ============    ============

 Loss per share basic and diluted:

 Loss before cumulative effect of
   accounting change                        $       (.07)   $       (.09)   $       (.14)   $       (.13)

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


 Net loss per share                         $       (.07)   $       (.09)   $       (.14)   $       (.15)
                                            ------------    ------------    ------------    ------------

 Weighted average number of
   shares outstanding -
   basic and diluted                          46,767,154      43,980,296      45,630,289      43,661,288
                                            ============    ============    ============    ============
</TABLE>

* Restated - See Note A.

See notes to condensed financial statements.


<PAGE>


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

<TABLE>
<CAPTION>
                                                                            Six Months Ended
                                                                                June 30
                                                                       ---------------------------
                                                                       2001                   2000
                                                                       ----                   ----
<S>                                                                <C>                      <C>
Net cash used for operating activities                             $(3,754,870)             $(1,417,619)
                                                                   -----------              -----------
 Investing activities:

    Purchase of equipment and furniture                                (12,166)                (168,646)
    Increase in patents and other intangibles                          (91,174)                 (54,437)
    Decrease in other assets                                            57,105                   52,927
    Construction of leasehold improvements                              (2,169)                (168,779)
                                                                   -----------              -----------
                                                                       (48,404)                (338,935)
                                                                   -----------              -----------
 Financing activities:

    Proceeds from sale of stock, net                                   262,829                     --
    Issuance of stockholder notes                                    3,560,000                     --
    Exercise of stock options and warrants                               1,495                1,237,197
    Repayment of capital lease obligations                             (13,637)                 (31,226)
                                                                   -----------              -----------
                                                                     3,810,687                1,205,971
                                                                   -----------              -----------

Net increase (decrease) in cash and cash equivalents                     7,413                 (550,583)

Cash and cash equivalents at beginning of year                          17,108                  682,629
                                                                   -----------              -----------
Cash and cash equivalents at end of period                         $    24,521              $   132,046
                                                                   ===========              ===========
SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash investing and financing activities:

Investment in joint venture and related obligations                       --                $   900,000
                                                                   ===========              ===========
Cash paid for interest                                             $    30,896              $    16,991
                                                                   ===========              ===========
</TABLE>

See notes to condensed financial statements

                                       5

<PAGE>


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

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the six-month period ended June 30, 2001 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2001. For further information, please refer to the Company's financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 2000.

In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 summarizes certain of the staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements
and specifically addresses revenue recognition in the biotechnology industry for
non-refundable technology access fees and other non-refundable fees. The Company
adopted SAB 101, effective January 1, 2000 changing its revenue recognition
policy for up-front licensing fees that require services to be performed in the
future from immediate revenue recognition to deferral of revenue with the
up-front fee recognized over the life of the agreement.

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

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

NOTE B - LIQUIDITY

The Company has incurred annual operating losses since its inception and, as a
result, at June 30, 2001 has an accumulated deficit of approximately
$81,812,000 and has a working capital deficiency of approximately $18,484,000.
These factors raise substantial doubt about the Company's ability to continue as
a going concern. However, the financial statements have been prepared on a going
concern basis and as such do not include any adjustments that might result from
the outcome of this uncertainty. The Company's cash requirements are
approximately $10 to 11 million per year to

                                       6

<PAGE>

operate its research and peptide manufacturing facilities and develop its three
Calcitonin products. In addition, the Company has principal, interest and
default interest obligations under its outstanding notes payable to stockholders
and its 5% debentures, in addition to its obligations relating to its current
and former joint ventures in China. The Company's cash requirements related to
the 5% debentures include the principal, redemption premium, delisting penalties
and the increased interest rate described in Note D. Management is actively
seeking licensing and/or supply agreements with pharmaceutical companies for
oral, nasal and injectable forms of Calcitonin as well as for other oral
peptides. With the termination of our Pfizer collaboration, we currently have no
licenses for any of our products in the U.S. We do not have sufficient financial
resources to continue to fund our operations at the current level. However, the
agreement that we have entered into with Fusion Capital Fund II, LLC has
provided Unigene with funding beginning in the second quarter of 2001. During
the second quarter of 2001, the Company received gross proceeds of $455,290 from
the sale of 1,041,500 shares of common stock to Fusion. See Note F.

Under the agreement with Fusion, the Company may elect to sell to Fusion, at the
then current market price, on each trading day $43,750 of our common stock up to
an aggregate of $21,000,000 over a period of 24 months, provided that Unigene
continues to satisfy the requirements that are a condition to Fusion's
obligation. The Board of Directors has authorized the sale to Fusion of up to
6,000,000 shares of Unigene common stock. However, we cannot predict if we will
be able to meet the requirements for continued funding under the Fusion
agreement.

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

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

NOTE C - NOTES PAYABLE - STOCKHOLDERS

During the first quarter of 2001, Jay Levy, the Chairman of the Board and an
officer of the Company, loaned to the Company $1,600,000 evidenced by demand
notes bearing interest at the Merrill Lynch Margin Loan Rate plus .25%. Due to
the fact that the Company did not make principal and interest payments when due,
the interest rate on $1,100,000 of these 2001 loans, as well as on $2,365,000 of
prior demand loans made to the Company by Jay Levy, has increased an additional
5% per year to the Merrill Lynch Margin Loan Rate plus 5.25% (12.75% as of June
30, 2001) and the interest rate on $1,870,000 of term notes evidencing loans
made by Jay Levy to the Company has increased an additional 5% per year from 6%
to 11%. The increased rate is calculated on both past due principal and
interest. During the second quarter of 2001, Jay Levy loaned to the Company an
additional $1,950,000 evidenced by demand notes bearing interest at the Merrill
Lynch Margin Loan Rate plus

                                       7

<PAGE>

 .25% (7.75% as of June 30, 2001).

During the first quarter of 2001 Warren Levy, an officer and director of the
Company, loaned to the Company $5,000 evidenced by a demand note bearing
interest at the Merrill Lynch Margin Loan Rate plus .25% (7.75% as of June 30,
2001). Due to the fact that the Company did not made principal and interest
payments when due, the interest rate on $260,000 of prior demand loans made to
the Company by Warren Levy has increased an additional 5% per year to the
Merrill Lynch Margin Loan Rate plus 5.25% (12.75% as of June 30, 2001). The
increased rate is calculated on both past due principal and interest.

During the first quarter of 2001 Ronald Levy, an officer and director of the
Company, loaned to the Company $5,000 evidenced by a demand note bearing
interest at the Merrill Lynch Margin Loan Rate plus .25% (7.75% as of June 30,
2001). Due to the fact that the Company did not make principal and interest
payments when due, the interest rate on $248,323 of prior demand loans made to
the Company by Ronald Levy has increased an additional 5% per year to the
Merrill Lynch Margin Loan Rate plus 5.25% (12.75% as of June 30, 2001). The
increased rate is calculated on both past due principal and interest.

NOTE D - CONVERTIBLE DEBENTURES

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

Through June 30, 2001, we issued a total of 3,703,362 shares of Unigene common
stock upon conversion of $2,000,000 in principal amount of the 5% debentures and
in payment of interest on the 5% debentures. Also, we issued an additional
103,032 shares of Unigene common stock upon the cashless exercise of all of the
141,123 warrants issued upon conversion of the 5% debentures.

On January 5, 2000, the Company failed to make the required semi-annual interest
payment on the outstanding 5% debentures. As a result, the interest rate on the
outstanding 5% debentures has increased to 20% per year. The semi-annual
interest payments due July 5, 2000, January 5, 2001 and July 5, 2001 also have
not been made. As of June 30, 2001, the accrued and unpaid interest on the 5%
debentures totaled approximately $666,000. In addition, due to the delisting of
the Unigene common stock from the Nasdaq National Market in October 1999, the
Company became obligated under a separate agreement to pay the holder of the 5%
debentures an amount equal to 2% of the

                                       8

<PAGE>

outstanding principal amount of the debentures per month. The Company has not
made any of these payments to date, but has accrued the amounts as an expense.
As of June 30, 2001, the accrued and unpaid amount of this penalty totaled
approximately $857,000.

The holder of the 5% debentures commenced an arbitration proceeding in which the
holder claimed that it is entitled, as of June 30, 2000, to payments in respect
of the 5% debentures in the amount of approximately $3,400,000, consisting of
principal, interest and penalties, resulting from the Company's default under
various provisions of the debentures and related agreements. These alleged
defaults included the Company 's failure to redeem the debentures after becoming
obligated to do so, the failure to pay interest when due, and the failure to pay
liquidated damages arising from the delisting of the Unigene common stock from
the Nasdaq National Market. In July 2000, the Company submitted to the American
Arbitration Association a statement in which it denies the amount of the
holder's claim and makes certain counterclaims. A hearing on the matter before
an arbitrator appointed by the American Arbitration Association was scheduled
for June 2001. In June 2001, the arbitration was postponed to allow Tail Wind
and Unigene to engage in settlement discussions. The outcome of these
negotiations is uncertain. An extremely unfavorable settlement or arbitration
ruling could have a material adverse effect on the Company.

NOTE E - INVENTORY

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

                                   June 30, 2001     December 31, 2000
                                   -------------     -----------------

     Finished goods..........     $   230,000         $      89,104
     Raw materials...........         233,986               326,316
                                  ---------------    ---------------
          Total..............     $   463,986         $     415,420
                                  ===============    ================

NOTE F - FUSION CAPITAL FINANCING

On May 9, 2001, the Company entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC, under which Fusion has agreed to purchase on each
trading day during the term of the agreement $43,750 of our common stock up to
an aggregate of $21,000,000. Fusion is committed to purchase the shares over a
twenty-four month period. We may decrease this amount or terminate the agreement
at any time. If our stock price equals or exceeds $4.00 per share, for five (5)
consecutive trading days, we have the right to increase the daily purchase
amount above $43,750, providing that the closing sale price of our stock remains
at least $4.00. In order to continue to sell shares to Fusion, the Company must
satisfy the requirements that are a condition to Fusion's obligation including:
the continued effectiveness of the registration statement for the resale of the
shares by Fusion, no default on, or acceleration prior to maturity of, any
payment obligations of Unigene in excess of $1,000,000, no insolvency or
bankruptcy of the Company, continued listing of Unigene common stock on the OTC
Bulletin Board, and Unigene must avoid the failure to meet the maintenance
requirements for listing on the Nasdaq SmallCap Market for a period of 10
consecutive trading days or for more than an aggregate of 30 trading days in any
365-day period. The selling price per share to Fusion is equal to the lesser of:
the lowest sale price of our common stock on the day of purchase by Fusion, or
the average of the lowest five closing sale prices of our common stock, during
the 15 trading days prior to the date of purchase by Fusion. We issued to Fusion
2,000,000 shares of common stock and a five-year warrant to purchase 1,000,000
shares of common stock at an exercise price of $.50 per share as of March 30,
2001 as compensation for its commitment.

                                       9

<PAGE>

Fusion has agreed not to sell the shares issued as a commitment fee or the
shares issuable upon the exercise of the warrant until the earlier of May 2003,
or the termination or a default under the common stock purchase agreement. In
addition to the compensation shares, the Board of Directors has authorized the
issuance and sale to Fusion of up to 6,000,000 shares of the Company common
stock.

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

NOTE G - CHINA JOINT VENTURE

In June 2000, the Company entered into a joint venture with Shijiazhuang
Pharmaceutical Group ("SPG"), a pharmaceutical company in the People's Republic
of China. The joint venture will manufacture and distribute injectable and nasal
Calcitonin products in China (and possibly other selected Asian markets) for the
treatment of osteoporosis. The Company owns 45% of the joint venture and will
have a 45% interest in the joint venture profits and losses. In the first phase
of the collaboration, SPG will contribute its existing injectable Calcitonin
license to the joint venture, which will allow the joint venture to sell our
product in China. A New Drug Application for its injectable and nasal products
has been filed in China. In addition, the joint venture may be required to
conduct brief local human trials. If the product is successful, the joint
venture may establish a facility in China to fill injectable and nasal
Calcitonin products using bulk Calcitonin produced at the Company's Boonton, New
Jersey plant. Eventually the joint venture may manufacture the bulk Calcitonin
in China at a new facility that would be constructed by the joint venture. This
would require local financing by the joint venture. The joint venture has not
yet begun formal operations as of June 30, 2001.

Under the terms of the joint venture with SPG, the Company is obligated to
contribute up to $405,000 in cash during 2001 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by our share of joint venture profits. As of June 30, 2001, we have not
made any investments in the joint venture. In addition, the Company is obligated
to pay to the Qingdao General Pharmaceutical Company an aggregate of $350,000 in
14 monthly installment payments of $25,000 in order to terminate its former
joint venture in China, of which $80,000 had been paid as of June 30, 2001. The
Company recognized the entire $350,000 obligation as an expense in 2000.

NOTE H - STOCK OPTION PLAN

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

                                       10

<PAGE>

In November 1999, the Board granted under the New Plan, to employees of the
Company, stock options to purchase an aggregate of 482,000 shares (of which
14,650 shares were subsequently cancelled) of common stock at an exercise price
of $0.63 per share, the market price on the date of grant. Each of the grants
was made subject to stockholder approval of the New Plan. At the Company's June
6, 2000 Annual Meeting, the stockholders approved the New Plan. In accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", the measurement date for valuing the stock options for the purpose
of determining compensation expense was June 6, 2000, the date of stockholder
approval. The market price of the common stock on this date was $2.093 per
share. Therefore, an aggregate of $683,733 will be charged to compensation
expense over the vesting periods of the options, which vest in approximately 50%
increments on November 5, 2000 and November 5, 2001. The Company recognized
$398,785 as compensation expense in 2000, and compensation expense of $170,970
in the first six months of 2001, leaving a balance of $113,978 as deferred stock
option compensation.

NOTE I - LEGAL MATTERS

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

NOTE J - NEW ACCOUNTING PRONOUNCEMENT

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

The Company is required to adopt the provisions of Statement 142 effective
January 1, 2002. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 will continue to be amortized prior
to the adoption of Statement 142.

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

                                       11

<PAGE>

NOTE K - SUBSEQUENT EVENT

On July 18, 2001, the stockholders of the Company approved an amendment to the
certificate of incorporation of the Company to increase the number of authorized
shares of common stock, par value $.01 per share, from 60,000,000 shares to
100,000,000 shares.

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

RESULTS OF OPERATIONS

Revenue for the second quarter of 2001 decreased 56% to $88,000 from $201,000 in
the second quarter of 2000. Revenue for the second quarter of 2001 consisted
primarily of calcitonin sales. Revenue for the second quarter of 2000 consisted
primarily of the amortization of deferred revenue in the amount of $200,000.
Revenue for the first six months of 2001 decreased 74% to $362,000 from
$1,402,000 in the first six months of 2000. Revenue for the first half of 2001
consisted primarily of $200,000 from the amortization of deferred revenue from
Pfizer, analytical testing services provided to Pfizer, as well as calcitonin
sales. Revenue for the first half of 2000 consisted primarily of revenue from
Pfizer, including $400,000 from the amortization of deferred revenue and
$1,000,000 resulting from the achievement of a milestone in the development of
an oral Calcitonin product in the first quarter of 2000. In March 2001, Pfizer
terminated its license agreement with the Company.

Research and development, the Company's largest expense, decreased 23% to
$2,268,000 from $2,932,000 for the three months ended June 30, 2001, as compared
to the same period in 2000. The decrease was primarily attributable to decreased
development expenses related to the Company's nasal calcitonin product, as well
as decreased production expenditures. Research and development costs decreased
7% to $4,568,000 from $4,930,000 for the six months ended June 30, 2001, as
compared to the same period in 2000. The decrease was primarily attributable to
reduced expenditures for the development of the Company's nasal calcitonin
product, consulting fees and European regulatory filing fees.

General and administrative expenses decreased 38% to $627,000 from $1,018,000
for the three months ended June 30, 2001, and decreased 24% to $1,237,000 from
$1,617,000 for the six months ended June 30, 2001, as compared to the same
periods in 2000. The decreases were primarily due to the recognition of a
$350,000 expense in June 2000 to terminate the Company's former joint venture in
China.

Interest income decreased $22,000 or 91% for the three months ended June 30,
2001, and decreased $31,000 or 85% for the six months ended June 30, 2001, as
compared to the same periods in 2000, due to reduced funds available for
investments in 2001.

Interest expense increased $211,000 or 72% for the three months ended June 30,
2001 to $504,000 from $293,000 and increased $449,000 or 82% for the six months
ended June 30, 2001 to $996,000

                                       12

<PAGE>

from $547,000 from the corresponding periods in 2000. Interest expense increased
in 2001 due to increased officers' loans and higher interest rates on a portion
of these loans. Officers' loans to the Company increased $3,560,000 during the
first half of 2001. In addition, due to the fact that the Company did not make
principal and interest payments on officers' loans when due, the interest rate
on $1,100,000 of these new loans and on $2,873,323 of prior loans increased an
additional 5% per year and applied to both past due principal and interest. This
additional interest was approximately $276,000 for the first half of 2001.
Interest expense for both periods also was affected by higher interest rates on
the 5% convertible debentures. The annual interest rate on the $2,000,000 in
outstanding principal amount of the 5% Debentures increased in 2000 to 20%
resulting from the failure of the Company to make a semi-annual interest payment
that was due in January 2000. In addition, since October 1999, the Company has
been accruing additional interest expense monthly in an amount equal to 2% of
the outstanding principal amount of the 5% Debentures as a penalty for the
removal of the Company's common stock from trading on the Nasdaq Stock Market.

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

Due to decreased operating expenses, partially offset by increased interest
expense, net loss decreased $708,000 or 18% for the three months ended June 30,
2001 from the corresponding period in 2000.

Due to the cumulative effect adjustment applicable to 2000, as well as a
decrease in operating expenses, partially offset by decreased revenue from
Pfizer and increased interest expense, net loss decreased $222,000 or 3% for the
six months ended June 30, 2001 from the corresponding period in 2000.

LIQUIDITY AND CAPITAL RESOURCES

The Company maintains its peptide production facility on leased premises in
Boonton, New Jersey. The Company began production under current Good
Manufacturing Practice guidelines at this facility in 1996. The current lease
expires in 2004. The Company has two consecutive ten-year renewal options under
the lease, as well as an option to purchase the facility. During 2001, the
Company invested approximately $14,000 in fixed assets and leasehold
improvements. Currently, the Company has no material commitments outstanding for
capital expenditures relating to either the Boonton facility or the office and
laboratory facility in Fairfield, New Jersey.

At June 30, 2001, the Company had cash and cash equivalents of $25,000, an
increase of $7,000 from December 31, 2000.

We do not have sufficient financial resources to continue to fund our operations
at the current level. The Company has incurred annual operating losses since its
inception and, as a result, at June 30, 2001, had an accumulated deficit of
approximately $81,812,000 and a working capital deficiency of approximately
$18,484,000. The independent auditors' report covering the Company's 2000
financial statements includes an explanatory paragraph stating that these
factors raise substantial doubt about our ability to continue as a going
concern. However, the financial statements have been prepared on a going concern
basis and as such do not include any adjustments that might result from the
outcome of this uncertainty. In October 1999, the Nasdaq Stock Market delisted
the Company's

                                       13

<PAGE>

common stock. The delisting of the common stock may have an adverse effect on
our ability to raise capital.

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

In July 1997, the Company entered into an agreement under which it granted to
Warner-Lambert Company a worldwide license to use its oral Calcitonin
technology. In June 2000, Pfizer Inc. acquired Warner-Lambert. Through March 31,
2001, the Company had received $3 million for an equity investment, $3 million
for a licensing fee and recognized an aggregate of $16.5 million in milestone
revenue under the agreement. Pfizer conducted a Phase I/II human study which was
completed in December 2000. Pfizer analyzed the results of the study and
informed the Company in March 2001 that the study did not achieve Pfizer's
desired results. Pfizer terminated the license agreement citing this conclusion.
We believe that this study, in which an FDA approved product also did not work
and which produced results contrary to many published studies, was not capable
of determining the performance of our oral Calcitonin product. The Company also
believes that if subjects in the study had also received calcium
supplementation, in addition to the Calcitonin, the results would have been more
favorable. Therefore, the Company intends to continue the development of its
oral Calcitonin product as a treatment of osteoporosis, and has begun
discussions with potential licensees in the U.S. and other countries. In
addition, due to the termination of the Pfizer agreement, we no longer have
restrictions on selling bulk Calcitonin. The Company also has the right to
license the use of its technologies for injectable and nasal formulations of
Calcitonin on a worldwide basis. The Company has licensed distributors in the
United Kingdom, Ireland and in Israel for its injectable product. However, these
distribution agreements have not produced significant revenues. In June 2000,
the Company entered into a joint venture agreement in China with Shijiazhuang
Pharmaceutical Group ("SPG") to manufacture and market our injectable and nasal
products. The Company is actively seeking other licensing and/or supply
agreements with pharmaceutical companies for its injectable and nasal Calcitonin
products and for other pharmaceutical products that can be manufactured and/or
delivered using its patented technologies, and is also exploring other
opportunities including business combinations. However, we may not be successful
in our efforts to enter into any additional revenue generating agreements.

Under the terms of the joint venture with SPG, the Company is obligated to
contribute up to $405,000 in cash during 2001 and up to an additional $495,000
in cash within two years thereafter. However, these amounts may be reduced or
offset by the Company's share of joint venture profits. As of June 30, 2001, the
Company had not made any contributions to the joint venture. In addition, the
Company is obligated to pay to the Qingdao General Pharmaceutical Company an
aggregate of $350,000 in 14 monthly installment payments of $25,000 in order to
terminate its former joint venture in China, of which $80,000 had been paid as
of June 30, 2001. The Company recognized the entire $350,000 obligation as an
expense in 2000.

In June 1998, the Company completed a private placement of $4,000,000 in
principal amount of 5% convertible debentures from which the Company realized
net proceeds of approximately $3,750,000. The 5% debentures were convertible
into shares of the Company's common stock. The interest on the debentures, at
the Company's option, was payable in shares of common stock. Upon conversion,
the holder of a 5% debenture was entitled to receive warrants to purchase a
number of shares of common stock equal to 4% of the number of shares issued as a
result of the conversion. However, the number of shares of common stock that the
Company was obligated to issue, in the aggregate, upon conversion, when combined
with the shares issued in payment of interest and upon

                                       14

<PAGE>

the exercise of the warrants, was limited to 3,852,500 shares. After this share
limit was reached, the Company became obligated to redeem all 5% debentures
tendered for conversion at a redemption price equal to 120% of the principal
amount, plus accrued interest. In December 1999, the Company was unable to
convert $200,000 in principal of the 5% debentures tendered for conversion
because the conversion would have exceeded the share limit. As a result, the
Company accrued, as of December 31, 1999, an amount equal to $400,000
representing the 20% premium on the outstanding $2,000,000 in principal amount
of 5% debentures that had not been converted. As of June 30, 2001, all of the
$2,000,000 in principal amount of 5% debentures were tendered for conversion and
therefore are classified as a current liability in the amount of $2,400,000.

Through June 30, 2001, the Company issued a total of 3,703,362 shares of common
stock upon conversion of $2,000,000 in principal amount of the 5% debentures and
in payment of interest on the 5% debentures. Also, the Company issued an
additional 103,032 shares of common stock upon the cashless exercise of all of
the 141,123 warrants issued upon conversion of the 5% debentures.

On January 5, 2000, the Company failed to make the required semi-annual interest
payment on the outstanding 5% debentures. As a result, the interest rate on the
outstanding 5% debentures has increased to 20% per year. The semi-annual
interest payments due July 5, 2000, January 5, 2001 and July 5, 2001 also have
not been made. As of August 1, 2001, the accrued and unpaid interest on the 5%
debentures totaled approximately $700,000. In addition, due to the delisting of
the Company's common stock from the Nasdaq National Market in October 1999, the
Company became obligated under a separate agreement to pay the holder of the 5%
debentures an amount equal to 2% of the outstanding principal amount of the
debentures per month. The Company has not made any of these payments to date,
but has accrued the amounts as additional interest expense. As of August 1,
2001, the accrued and unpaid amount of this penalty totaled approximately
$897,000.

The holder of the 5% debentures has commenced an arbitration proceeding in which
the holder claims that it is entitled, as of June 30, 2000, to payments in
respect of the 5% debentures in the amount of approximately $3,400,000. See Part
II, Item 1 - Legal Proceedings.

To satisfy the Company 's short-term liquidity needs, Jay Levy, the Chairman of
the Board and an officer of Unigene, and Warren Levy and Ronald Levy, directors
and officers of the Company, and another Levy family member from time to time
have made loans to the Company. During the first quarter of 2001, Jay Levy
loaned the Company $1,600,000 and Warren Levy and Ronald Levy each made demand
loans to the Company of $5,000 . During the second quarter of 2001, Jay Levy
made demand loans to the Company of $1,950,000 . From July 1, 2001 through
August 1, 2001, Jay Levy made demand loans to the Company of an additional
$525,000 . Due to the fact that Unigene did not make principal and interest
payments on certain loans when due, interest on certain of these loans increased
an additional 5% per year and is calculated on both past due principal and
interest. This additional interest was approximately $276,000, and total
interest expense on these loans was approximately $523,000 for the first half of
2001. The Levys have waived all default provisions including additional interest
penalties due under these loans through December 31, 2000. As of August 1, 2001,
total accrued interest on these loans was approximately $1,521,000 and the
outstanding loans by these individuals to the Company, classified as short-term
debt, totaled $8,828,323 and consists of:

o    Loans from Jay Levy in the aggregate principal amount of $3,465,000, which
     are evidenced by demand notes bearing a floating interest rate equal to the
     Merrill Lynch Margin Loan Rate plus 5.25% (12.625% at August 1, 2001) that
     are classified as short-term debt. These loans were originally at the
     Merrill Lynch Margin Loan Rate plus .25%. These loans are secured by a
     security

                                       15

<PAGE>

     interest in the Company 's equipment and real property. Accrued interest on
     these loans at August 1, 2001 was approximately $857,000.

o    Loans from Jay Levy in the aggregate principal amount of $1,870,000
     evidenced by term notes maturing January 2002, and bearing interest at the
     fixed rate of 11% per year. These loans were originally at 6%. These loans
     are secured by a security interest in all of Unigene's equipment and a
     mortgage on Unigene's real property. The terms of the notes require Unigene
     to make installment payments of principal and interest beginning in October
     1999 and ending in January 2002 in an aggregate amount of $72,426 per
     month. No installment payments have been made to date. Accrued interest on
     these loans at August 1, 2001 was approximately $297,000.

o    Loans from Jay Levy in the aggregate principal amount of $2,975,000 which
     are evidenced by demand notes bearing a floating interest rate equal to the
     Merrill Lynch Margin Loan Rate plus .25%, (7.625% at August 1, 2001) and
     are classified as short-term debt and which are secured by a security
     interest in certain of our patents. Accrued interest on these loans at
     August 1, 2001 was approximately $50,000.

o    Loans from Warren Levy in the aggregate principal amount of $260,000 which
     are evidenced by demand notes bearing a floating interest rate equal to the
     Merrill Lynch Margin Loan Rate plus 5.25% (12.625% at August 1, 2001) that
     are classified as short-term debt. These loans were originally at the
     Merrill Lynch Margin Loan Rate plus .25%. An additional loan in the amount
     of $5,000 bears interest at the Merrill Lynch Loan Rate plus .25% (7.625%
     at August 1, 2001) and is classified as short-term debt. These loans are
     secured by a secondary security interest in the Company's equipment and
     real property. Accrued interest on these loans at August 1, 2001 was
     approximately $159,000.

o    Loans from Ronald Levy in the aggregate principal amount of $248,323 which
     are evidenced by demand notes bearing a floating interest rate equal to the
     Merrill Lynch Margin Loan Rate plus 5.25% (12.625% at August 1, 2001) that
     are classified as short-term debt. These loans were originally at the
     Merrill Lynch Margin Loan Rate plus .25%. An additional loan in the amount
     of $5,000 bears interest at the Merrill Lynch Margin Loan Rate plus .25%
     (7.625% at August 1, 2001) and is classified as short-term debt. These
     loans are secured by a secondary security interest in the Company's
     equipment and real property. Accrued interest on these loans at August 1,
     2001 was approximately $158,000.

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

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

Under the agreement with Fusion Capital, the Company may elect to sell to
Fusion, at the then current market price, on each trading day during the term of
the agreement $43,750 of our common stock up to an aggregate of $21,000,000,
provided that the Company continues to satisfy the requirements that are a
condition to Fusion's obligation. See Notes B and F to our June 30, 2001
unaudited condensed financial statements. The Board of Directors has authorized
the sale to Fusion

                                       16

<PAGE>

of up to 6,000,000 shares of Unigene common stock. From May 18, 2001, through
August 1, 2001, the Company has received approximately $783,000 through the sale
of 1,936,000 shares to Fusion. Due to the fact that the Company has not been
selling shares to Fusion on an every day basis, it is still borrowing from the
Levys to supplement the funding of its operations. Assuming the Company stays in
compliance with the agreement, and depending on the price at which shares are
sold, Fusion could provide the Company with sufficient funding to sustain its
operations for up to two years, beginning in the second quarter of 2001.
However, the Company cannot predict if it will be able to meet the continuing
requirements of the Fusion agreement.

The extent to which we intend to utilize Fusion as a source of financing will
depend on a number of factors, including the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources, such as through the entry into licensing agreements or the sale
of calcitonin, both of which we are actively exploring. If obtaining sufficient
funding from Fusion were to prove prohibitively expensive and if we are unable
to enter into a significant revenue generating license or other arrangement in
the near term, we would need either to secure another source of funding in order
to satisfy our working capital needs or significantly curtail our operations. We
also could consider a sale or merger of the company. Should the funding we
require to sustain our working capital needs be unavailable or prohibitively
expensive when we require it, the consequence would be a material adverse effect
on our business, operating results, financial condition and prospects. The
Company believes that satisfying its capital requirements over the long term
will require the successful commercialization of its Calcitonin product or
another peptide product in the United States and abroad. However, it is
uncertain whether or not any of its products will be approved or will be
commercially successful. In addition, the commercialization of its oral
Calcitonin product may require it to incur additional capital expenditures to
expand or upgrade its manufacturing operations. The Company cannot determine
either the cost or the timing of such capital expenditures at this time.

As of December 31, 2000, the Company had available for federal income tax
reporting purposes net operating loss carryforwards in the approximate amount of
$68,000,000, expiring from 2001 through 2020, which are available to reduce
future earnings which would otherwise be subject to federal income taxes. For
the six months ended June 30, 2001, the Company accumulated additional losses of
approximately $6,434,000. In addition, as of December 31, 2000, the Company has
research and development credits in the approximate amount of $2,750,000, which
are available to reduce the amount of future federal income taxes. These credits
expire from 2001 through 2020. The Company has New Jersey operating loss
carryforwards in the approximate amount of $23,300,000, expiring from 2003
through 2007, which are available to reduce future earnings, which would
otherwise be subject to state income tax. As of December 31, 2000, approximately
$11,400,000 of these New Jersey loss carryforwards has been approved for future
sale under a program of the New Jersey Economic Development Authority (the
"NJEDA"). In order to realize these benefits, the Company must apply to the
NJEDA each year and must meet various requirements for continuing eligibility.
In addition, the program must continue to be funded by the State of New Jersey,
and there are limitations based on the level of participation by other
companies. As a result, future tax benefits will be recognized in the financial
statements as specific sales are approved.

The Company follows Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Given the Company's past history of incurring
operating losses, any deferred tax assets that are recognizable under SFAS No.
109 were fully reserved. As of December 31, 2000 and 1999, under SFAS No. 109,
the Company had deferred tax assets of approximately $29,000,000 and
$26,000,000,

                                       17

<PAGE>

respectively, subject to valuation allowances of $29,000,000 and $26,000,000,
respectively. The deferred tax assets are primarily a result of the Company's
net operating losses and tax credits. For the six-month period ended June 30,
2001, the Company's deferred tax assets and valuation allowances each increased
by approximately $2,400,000.

OTHER

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

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

The information below summarizes the Company's market risks associated with debt
obligations as of June 30, 2001. The table below presents principal cash flows
and related interest rates by year of maturity based on the terms of the debt.

Under the terms of the 5% debentures, no additional shares may be issued to
convert the remaining principal balance. Therefore, the information presented as
to the debentures is without consideration as to conversion features. Variable
interest rates disclosed represent the rates at June 30, 2001. Given the
Company's financial condition described in "Liquidity and Capital Resources" it
is not practicable to estimate the fair value of the Company's debt instruments
at June 30, 2001.

                                       18

<PAGE>

<TABLE>
<CAPTION>
                                                                                  Year of Maturity
                                      Carrying          -------------------------------------------------------------------
                                       Amount                2001           2002         2003         2004        2005
                                       ------                ----           ----         ----         ----        ----

<S>                                   <C>                  <C>               <C>          <C>          <C>         <C>
Notes payable - stockholders          $3,973,323           3,973,323          --           --          --          --

Variable interest rate (1)                                     12.75%         --           --          --          --

Notes payable - stockholders          $2,460,000           2,460,000          --           --          --          --

Variable interest rate                                          7.75%         --           --          --          --

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

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

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

Fixed interest rate (3)                                           20%
</TABLE>


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

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

(3)   As a result of the Company's failure to make the semi-annual interest
      payment that was due January 5, 2000, the interest rate on the 5%
      debentures has increased from 7% at December 31, 1999, to 20% beginning
      January 5, 2000. In addition, due to the delisting of the Company's common
      stock from the Nasdaq National Market in 1999, the Company became
      obligated to pay the holder of the 5% debentures an amount equal to 2% of
      the outstanding principal amount of the debentures per month.

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"). Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or activities of the Company, or industry results, to be materially different
from any future results, performance or activities expressed or implied by such
forward-looking statements. Such factors include: general economic and business
conditions, the financial condition of the Company, including the Company's need
for and success in securing additional financing, competition, the Company's
dependence on other companies to commercialize, manufacture and sell products
using the Company's technologies, the uncertainty of results of animal and human
testing, the risk of product liability and liability for human clinical trials,
the Company's dependence on patents and other proprietary rights, dependence
on key management officials, the availability and cost of capital, the
availability of qualified personnel, changes in, or the failure to comply with,
governmental regulations, the failure to obtain regulatory approvals of the
Company's products, litigation and other factors discussed in the Company's
various filings with the Securities and Exchange Commission, including the
Company's Annual Report or Form 10-K for the year ended December 31, 2000.

                                       19

<PAGE>

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

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

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

Item 2.  Changes in Securities and Use of Proceeds
         -----------------------------------------

     (a)  Not applicable.

     (b)  Not applicable.

     (c)  Recent Sales of Unregistered Securities.

In the second quarter of 2001, the Company sold 1,041,500 shares of common stock
to Fusion Capital Fund II, LLC for gross proceeds of $455,290. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." All of such shares were issued by the Company
without registration in reliance on an exemption under Section 4 (2) of the
Securities Act of 1933, as amended.

     (d)  Not applicable.

Item 3.  Defaults Upon Senior Securities
         -------------------------------

See description of 5% debenture and notes payable to stockholders in Part I,
Item 2: "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources".

                                       20

<PAGE>

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

          (a) The matters described under item 4(c) below were submitted to a
          vote of security holders at the Annual Meeting of Stockholders held on
          July 18, 2001 (the "Annual Meeting") in connection with which proxies
          were solicited pursuant to Regulation 14A under the Securities
          Exchange Act.

          (b) Not applicable

          (c) The following describes the matters voted upon at the Annual
          Meeting and sets forth the number of votes cast for and against or
          withheld and, as applicable, the number of abstentions as to each such
          matter:

               (i)  Election of directors:

          Nominee                     For                 Withheld
          -------                     ---                 --------

          Jay Levy                  33,191,797            437,830
          Ronald S. Levy            33,201,047            428,580
          Warren P. Levy            33,201,647            427,980
          Allen Bloom               33,208,147            421,480
          J. Thomas August          33,203,502            426,125
          Bruce Morra               33,194,152            435,475

               (ii) Proposal to approve the increase in the number of authorized
          shares of common stock:

          For                      Against                   Abstain
          ---                      -------                   -------

          32,818,466               729,446                   81,715


               (iii) Proposal to ratify the appointment of KPMG LLP as
          independent auditors of the Company for 2001:

          For                      Against                   Abstain
          ---                      -------                   -------

          33,424,956               129,412                   75,259

          (d)  Not applicable.


                                       21


<PAGE>


Item 6. Exhibits and Reports on Form 8-K
        --------------------------------

          (a)  Exhibits: None.

          (b)  Reports on Form 8-K:

The Company did not file any reports on Form 8-K during the three months ended
June 30, 2001.


                                       22

<PAGE>

                                   SIGNATURES

Pursuant to the requirements 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.


                                       UNIGENE LABORATORIES, INC.
                                       --------------------------
                                       (Registrant)


                                       /s/ Warren P. Levy
August 14, 2001                        -------------------------
                                       Warren P. Levy, President
                                       (Chief Executive Officer)


                                       /s/ Jay Levy
August 14, 2001                        ----------------------------
                                       Jay Levy, Treasurer
                                       (Chief Financial Officer and
                                       Chief Accounting Officer)


                                       23