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 March 31, 2002
                               --------------
                         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--57,159,105 shares as of May 1, 2002

                                       1

<PAGE>

                                                                 INDEX


                                                      UNIGENE LABORATORIES, INC.




PART I.  FINANCIAL INFORMATION                                   PAGE
                                                                 ----
Item 1. Financial Statements (Unaudited)

Condensed Balance Sheets-
    March 31, 2002 and December 31, 2001                          3

Condensed Statements of Operations-
    Three months ended March 31, 2002 and 2001                    4

Condensed Statements of Cash Flows-
    Three months ended March 31, 2002 and 2001                    5

Notes to Condensed Financial Statements-
    March 31, 2002                                                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                                                   19

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                          21

Item 6.  Exhibits and Reports on Form 8-K                         21

SIGNATURES                                                        22



<PAGE>

                                      2

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
         --------------------

                           UNIGENE LABORATORIES, INC.
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                            March 31, 2002      December 31, 2001
                                                            --------------      -----------------
<S>                                                         <C>                  <C>
ASSETS                                                       (Unaudited)
Current assets:
    Cash and cash equivalents                               $    137,442         $    405,040
    Prepaid expenses                                              88,654               72,701
    Inventory                                                    395,715              283,328
                                                            ------------         ------------
                  Total current assets                           621,811              761,069

Property, plant and equipment - net                            3,723,061            4,109,312
Investment in joint venture                                      900,000              900,000
Patents and other intangibles, net                             1,370,886            1,375,062
Other assets                                                     301,906              373,811
                                                            ------------         ------------
                                                            $  6,917,664         $  7,519,254
                                                            ============         ============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                        $  1,901,309         $  2,177,949
    Accrued expenses                                           6,815,484            6,589,251
    Notes payable - stockholders                               9,683,323            8,983,323
    Notes payable - other                                        800,000              800,000
    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                   24,035               29,677
                                                            ------------         ------------
                  Total current liabilities                   23,494,151           22,850,200

Joint venture obligation,  excluding current portion             495,000              495,000
Capital lease obligations, excluding current portion               9,285               14,131

Commitments and contingencies
Stockholders' deficit:
    Common Stock - par value $.01 per share,
       authorized 100,000,000 shares, issued
       54,141,715 shares in 2002 and
       51,456,715 shares in 2001                                 541,417              514,567
    Additional paid-in capital                                72,568,369           71,271,610
    Common stock to be issued                                    225,000              225,000
    Accumulated deficit                                      (90,414,527)         (87,850,223)
    Less: Treasury stock, at cost, 7,290 shares                   (1,031)              (1,031)
                                                            ------------         ------------
                  Total stockholders' deficit                (17,080,772)         (15,840,077)
                                                            ------------         ------------
                                                            $  6,917,664         $  7,519,254
                                                            ============         ============

</TABLE>

See notes to condensed financial statements.

                                       3

<PAGE>

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

<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                                    March 31
                                                                    --------
                                                           2002                  2001
                                                           ----                  ----

<S>                                                    <C>                  <C>
Licensing and other revenue                            $     79,971         $    273,775
                                                       ------------         ------------
Operating expenses:
    Research and development                              1,821,929            2,300,470

    General and administrative                              547,586              609,515
                                                       ------------         ------------
                                                          2,369,515            2,909,985
                                                       ------------         ------------
Operating loss                                           (2,289,544)          (2,636,210)
                                                       ------------         ------------
Other income (expense):
   Interest income                                            1,093                3,336
   Interest expense                                        (547,978)            (492,237)
                                                       ------------         ------------
   Loss before income taxes                              (2,836,429)          (3,125,111)
   Income tax benefit                                       272,125                   --
                                                       ------------         ------------
   Net Loss                                            $ (2,564,304)        $ (3,125,111)
                                                       ============         ============

Net loss per share, basic and diluted                  $      (0.05)        $      (0.07)
                                                       ============         ============

Weighted average number of shares outstanding -
  basic and diluted                                      52,487,536           44,480,791
                                                       ============         ============
</TABLE>

See notes to condensed financial statements.

                                       4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                    Three Months Ended
                                                                          March 31
                                                                          --------
                                                                 2002                2001
                                                                 ----                ----
<S>                                                          <C>                 <C>
Net cash provided by (used for) operating activities         $(2,112,029)        $(1,659,118)
                                                             -----------         -----------
Investing activities:

    Purchase of equipment and furniture                               --              (7,639)
    Increase in patents and other intangibles                   (34,095)                  --
    Decrease in other assets                                      71,905              55,554
    Construction of leasehold improvements                            --              (2,169)
                                                             -----------         -----------
                                                                  37,810              45,746
                                                             -----------         -----------
Financing activities:

    Proceeds from sale of stock, net                           1,117,109                  --
    Issuance of stockholder notes                                700,000           1,610,000
    Exercise of stock options and warrants                            --               1,495
    Repayment of capital lease obligations                       (10,488)             (4,635)
                                                             -----------         -----------
                                                               1,806,621           1,606,860
                                                             -----------         -----------

Net increase (decrease) in cash and cash equivalents            (267,598)             (6,512)

Cash and cash equivalents at beginning of year                   405,040              17,108
                                                             -----------         -----------
Cash and cash equivalents at end of period                   $   137,442         $    10,596
                                                             ===========         ===========

SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash investing and financing activities:

Issuance of common stock in payment of accrued
  expenses                                                   $   177,000                  --
Issuance of common stock and warrants for deferred
  offering cost                                                       --         $ 1,390,000
                                                             ===========         ===========
Cash paid for interest                                       $    13,400         $    17,600
                                                             ===========         ===========

</TABLE>
See notes to condensed financial statements.

                                       5

<PAGE>

                           UNIGENE LABORATORIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                 MARCH 31, 2002
                                   (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 accounting  principles  generally accepted
in the United States of America for complete annual financial statements. In the
opinion  of  management,   all  adjustments  considered  necessary  for  a  fair
presentation have been included.  Operating  results for the three-month  period
ended March 31, 2002 are not  necessarily  indicative of the results that may be
expected for the year ending December 31, 2002. For further information,  please
refer to our financial  statements and footnotes  thereto  included in Unigene's
annual report on Form 10-K for the year ended December 31, 2001.


Unigene  adopted the provisions of Statement of Financial  Accounting  Standards
(SFAS) No. 142 "Goodwill and Other Intangible Assets" effective January 1, 2002.
SFAS No. 142 requires that goodwill and intangible assets with indefinite useful
lives no longer be  amortized,  but  instead be tested for  impairment  at least
annually.  Statement  142 also  requires  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. 144.  There was no impact of the  adoption of SFAS No. 142 on the  financial
statements   because  Unigene  has  never  entered  into  a  purchase   business
combination and has no goodwill or indefinite life intangible assets.


Unigene  adopted the provisions of SFAS No. 144,  "Accounting for the Impairment
or  Disposal  of  Long-Lived  Assets"  effective  January 1, 2002 . SFAS No. 144
addresses  financial  accounting and reporting for the impairment or disposal of
long-lived assets.  SFAS No. 144 requires that long-lived  assets,  exclusive of
goodwill and indefinite life  intangibles,  be reviewed for impairment  whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison  of the carrying  amount of an asset to the future  undiscounted
net cash flows expected to be generated by the asset.  If the carrying amount of
an asset exceeds its estimated future undiscounted net cash flows, an impairment
charge is  recognized  by the amount by which the  carrying  amount of the asset
exceeds  the fair  value  of the  asset.  SFAS No.  144  requires  companies  to
separately  report  discontinued  operations  and extends  that  reporting  to a
component of an entity that either has been  disposed of (by sale,  abandonment,
or in a distribution to owners) or is classified as held for sale.  Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell.  Unigene adopted SFAS No. 144 on January 1, 2002. The adoption of
SFAS No.  144 for  long-lived  assets  did not  have a  material  impact  on its
financial  statements  because the impairment  assessment  under SFAS No. 144 is
largely unchanged from SFAS No. 121. The provisions of this statement for assets
held  for  sale  or  other  disposal   generally  are  required  to  be  applied
prospectively  after the adoption date to newly  initiated  disposal  activities
and,  therefore,  will depend on future actions  initiated by  management.  As a
result, Unigene cannot determine the potential effects that adoption of SFAS No.
144 will have on its financial  statements with respect to future decisions,  if
any.

                                       6
<PAGE>

NOTE B - LIQUIDITY

Unigene has  incurred  annual  operating  losses since its  inception  and, as a
result,  at  March  31,  2002  has  an  accumulated   deficit  of  approximately
$90,400,000 and has a working capital  deficiency of approximately  $22,900,000.
These factors raise  substantial  doubt about its ability to continue as a going
concern. However, the financial statements have been prepared on a going concern
basis and as such do not  include  any  adjustments  that might  result from the
outcome of this  uncertainty.  Unigene's cash requirements are approximately $10
to $11  million  per year to operate  its  research  and  peptide  manufacturing
facilities  and develop its peptide  products.  Unigene also has  principal  and
interest  obligations under the Tail Wind note and its outstanding notes payable
to the Levys,  as well as  obligations  relating to its current and former joint
ventures in China. In addition to the GlaxoSmithKline  ("GSK") license agreement
described  in Note C,  Unigene  is  actively  seeking  licensing  and/or  supply
agreements with pharmaceutical companies for oral, nasal and injectable forms of
Calcitonin  as  well as for  other  oral  peptides.  We do not  have  sufficient
financial  resources to continue to fund our  operations  at the current  level.
Under  the  agreement  with  Fusion  Capital  Fund  II,  LLC,  Unigene  has  the
contractual right to sell to Fusion, subject to certain conditions,  at the then
current  market price,  on each trading day $43,750 of our common stock up to an
aggregate of $21,000,000 over a period of 24 months.  The Board of Directors has
authorized  the sale to Fusion of up to  21,000,000  shares  of  Unigene  common
stock.  See Note G. During the first  quarter of 2002,  Unigene  received  gross
proceeds of  $1,215,000  from the sale of  2,385,000  shares of common  stock to
Fusion.  From May 18,  2001,  through  April  30,  2002,  Unigene  has  received
approximately $3,572,000 through the sale of 8,324,910 shares of common stock to
Fusion,  before cash  expenses of  approximately  $450,000.  Our sales of common
stock to Fusion have been below the  maximum  level  permitted  due to the share
price and  trading  volume of our  common  stock as well as due to our desire to
keep  dilution  to a minimum.  As a result,  in the first  quarter  of 2002,  we
borrowed an  additional  $700,000 from Jay Levy,  the Chairman of the Board,  to
fund our operations.

The extent to which we rely on Fusion as a source of financing  will depend on a
number of factors,  including the prevailing  market price and trading volume of
our common stock and the extent to which we are able to secure  working  capital
from other  sources,  such as through the  achievement  of milestones in the GSK
license  agreement  and through the entry into new  licensing  agreements or the
sale of calcitonin, both of which we are actively exploring. If we are unable to
achieve  milestones on the GSK license agreement on a timely basis or are unable
to enter into a significant new revenue  generating license or other arrangement
in the near term,  or if the GSK license is  terminated,  we may need to utilize
Fusion to a greater  extent or to secure  another  source of funding in order to
satisfy our working capital needs or we might need to significantly  curtail our
operations.  We also  could  consider  a sale or merger of  Unigene.  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  parathyroid  hormone  ("PTH")
product, our oral or nasal calcitonin products and/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.

                                       7

<PAGE>

NOTE C- GLAXOSMITHKLINE AGREEMENT

On April 13,  2002,  we completed a licensing  agreement  with GSK to develop an
oral  formulation of an analog of PTH currently in preclinical  development  for
the  treatment  of  osteoporosis.  Under  the terms of the  agreement,  GSK will
receive an exclusive worldwide license to develop and commercialize the product.
In return, GSK made a $2 million up-front licensing fee payment and a $1 million
milestone  payment to us and could make  subsequent  milestone  payments  in the
aggregate  amount of $147  million,  subject  to the  progress  of the  compound
through clinical  development and through to the market.  In addition,  GSK will
fund  all  development  activities  during  the  program,   including  Unigene's
activities  in the  production  of raw  material  for  development  and clinical
supplies,  and will pay Unigene a royalty on its worldwide sales of the product.
The royalty rate will be increased if certain  sales  milestones  are  achieved.
This agreement is subject to certain termination provisions.

NOTE D - NOTES PAYABLE - STOCKHOLDERS

During the first  quarter of 2002,  Jay Levy,  the  Chairman of the Board and an
officer of Unigene, loaned to Unigene $700,000 evidenced by demand notes bearing
interest at the Merrill  Lynch  Margin Loan Rate plus .25% (6.0% as of March 31,
2002).

In 2001,  due to the fact that we did not make  principal and interest  payments
when due, the interest rate on $3,465,000, $260,000 and $248,323 of prior demand
loans made to Unigene by Jay Levy,  Warren Levy and Ronald  Levy,  respectively,
increased an  additional  5% per year to the Merrill Lynch Margin Loan Rate plus
5.25% (11.0% as of March 31, 2002) and the interest  rate on  $1,870,000 of term
notes  evidencing  loans made by Jay Levy to Unigene  increased an additional 5%
per year  from 6% to 11%.  The  increased  rate is  calculated  on both past due
principal and interest.

NOTE E - CONVERTIBLE DEBENTURES

In June 1998,  Unigene  completed a private placement of $4,000,000 in principal
amount of 5% convertible  debentures from which Unigene realized net proceeds of
approximately  $3,750,000.  The 5% debentures  were  convertible  into shares of
Unigene's  common  stock.  The interest on the  debentures,  at our option,  was
payable in shares of common stock. Upon conversion, the holder of a 5% debenture
was entitled to receive  warrants to purchase a number of shares of common stock
equal to 4% of the  number  of  shares  issued  as a result  of the  conversion.
However,  the number of shares of common  stock that  Unigene was  obligated  to
issue, in the aggregate,  upon conversion,  when combined with the shares issued
in payment of interest  and upon the  exercise of the  warrants,  was limited to
3,852,500  shares.  After this share limit was reached,  we became  obligated to
redeem all 5% debentures  tendered for conversion at a redemption price equal to
120% of the principal amount,  plus accrued interest.  In December 1999, Unigene
was unable to convert  $200,000 in principal of the 5%  debentures  tendered for
conversion  because the  conversion  would have  exceeded the share limit.  As a
result,  Unigene  accrued,  as of December 31, 1999, an amount equal to $400,000
representing  the 20% premium on the outstanding  $2,000,000 in principal amount
of 5% debentures that had not been  converted.  As of March 31, 2002, 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  March 31, 2002,  Unigene  issued a total of 3,703,362  shares of common
stock upon conversion of $2,000,000 in principal amount of the 5% debentures and
in payment of interest on the 5% debentures.  Also, Unigene issued an additional
103,032 shares of common stock upon the cashless  exercise of all of the 141,123
warrants issued upon conversion of the 5% debentures.

                                       8


<PAGE>

On January 5, 2000,  Unigene  failed to make the required  semi-annual  interest
payment on the outstanding 5% debentures.  As a result, the interest rate on the
outstanding 5% debentures  increased to 20% per year. The  semi-annual  interest
payments  due July 5, 2000,  January 5, 2001,  July 5, 2001 and  January 5, 2002
were not made. As of March 31, 2002,  the accrued and unpaid  interest on the 5%
debentures totaled approximately  $966,000. In addition, due to the delisting of
Unigene's  common  stock from the Nasdaq  National  Market in October  1999,  we
became  obligated  under  a  separate  agreement  to pay  the  holder  of the 5%
debentures  an amount  equal to 2% of the  outstanding  principal  amount of the
debentures  per  month.  Unigene  had not made any of  these  payments,  but had
accrued the amounts as additional  interest  expense.  As of March 31, 2002, the
accrued and unpaid amount of this penalty totaled approximately $1,217,000.

Because of our failure to make cash payments to the holder of the debentures, an
event  of  default  occurred.  As a  result,  the  holder  filed  a  demand  for
arbitration  against  Unigene in July 2000. In June 2001,  the  arbitration  was
postponed to allow Tail Wind and Unigene to engage in settlement discussions. On
April 9,  2002,  Unigene  and Tail Wind  entered  into a  settlement  agreement.
Pursuant to the terms of the  settlement  agreement,  Tail Wind  surrendered  to
Unigene  the $2 million  in  principal  amount of  convertible  debentures  that
remained  outstanding and released all claims against  Unigene  relating to Tail
Wind's  purchase of the convertible  debentures,  including all issues raised in
the  arbitration,  which  aggregated  approximately  $4.5 million.  In exchange,
Unigene issued to Tail Wind a $1 million  promissory  note with a first security
interest in Unigene's Fairfield,  New Jersey plant and equipment and two million
shares of Unigene common stock,  which were placed in escrow as described below.
The note bears interest at a rate of 6% per annum and principal and interest are
due in February  2005.  The shares are valued at $1.1 million in the  aggregate,
based on Unigene's closing stock price on April 9, 2002.  Unigene will therefore
recognize a gain for accounting  purposes of  approximately  $2.4 million on the
extinguishment of debt and related interest in the second quarter of 2002. Under
the terms of the settlement agreement,  Unigene deposited the two million shares
of common stock with an escrow agent and filed a registration statement covering
the resale of the shares with the SEC.  Beginning May 13, 2002, the escrow agent
will release the shares to Tail Wind at a rate of 50,000  shares per week over a
40-week period, depending on trading volume.

NOTE F- INVENTORY

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

                       March 31, 2002            December 31, 2001
                       --------------            -----------------

Finished goods....        $100,000                    $100,000
Raw materials.....         295,715                     183,328
                          --------                    --------
     Total........        $395,715                    $283,328
                          ========                    ========


NOTE G - FUSION CAPITAL FINANCING

On May 9, 2001,  Unigene  entered into a common stock  purchase  agreement  with
Fusion Capital Fund II, LLC,  under which Fusion has agreed,  subject to certain
conditions,  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,

                                       9


<PAGE>


providing  that the  closing  sale price of our stock  remains  at least  $4.00.
Fusion is not  obligated  to  purchase  any  shares of our  common  stock if the
purchase  price is less than $0.25 per share.  Under the agreement  with Fusion,
Unigene  must  satisfy  the  requirements  that  are  a  condition  to  Fusion's
obligation, including: the continued effectiveness of the registration statement
for the resale of the shares by Fusion, no default on, or acceleration  prior to
maturity  of, any payment  obligations  of Unigene in excess of  $1,000,000,  no
insolvency  or  bankruptcy  of Unigene,  our transfer  agent's  failure for five
trading  days to issue to Fusion  shares of our  common  stock  which  Fusion is
entitled to under the common stock purchase  agreement,  any material  breach of
the  representations  or warranties  or covenants  contained in the common stock
purchase  agreement  or any related  agreements  which has or which could have a
material  adverse  affect on us subject to a cure  period of ten  trading  days,
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
OTC Bulletin Board for a period of 10 consecutive  trading days or for more than
an  aggregate of 30 trading days in any 365-day  period.  The 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,  which was charged to additional paid-in-capital.  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 21,000,000  shares of Unigene common stock. From May 18, 2001
through March 31, 2002, we have received  approximately  $3,096,000  through the
sale of  7,397,485  shares of common  stock to Fusion,  before cash  expenses of
approximately $410,000.

In December  2000, we issued a five-year  warrant to purchase  373,002 shares of
Unigene  common stock at $1.126 per share to our  investment  banker as a fee in
connection with the Fusion financing agreement.

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

NOTE H - CHINA JOINT VENTURE

In June 2000, we entered into a joint venture with  Shijiazhuang  Pharmaceutical
Group ("SPG"),  a pharmaceutical  company in the People's Republic of China. The
joint venture will  manufacture and distribute  injectable and nasal  calcitonin
products in China (and possibly  other selected Asian markets) for the treatment
of osteoporosis. We own 45% of the joint venture and will have a 45% interest in
the joint venture profits and losses.  In the first phase of the  collaboration,
SPG will  contribute  its existing  injectable  calcitonin  license to the joint
venture,  which will allow the joint  venture to sell our product in China.  The
joint venture is now preparing a new drug  application  ("NDA") in China for its
injectable  and nasal  products  which is expected to be filed in late-2002.  In
addition, the joint venture may be required to conduct brief local human trials.
If the product is  successful,  the joint  venture  may  establish a facility in
China to fill  injectable and nasal  calcitonin  products using bulk  calcitonin
produced at our Boonton,  New Jersey  plant.  Eventually  the joint  venture may
manufacture bulk calcitonin in China at a new facility that would be constructed
by it.  This would  require  local  financing  by the joint  venture.  The joint
venture  commenced  operations  in

                                       10


<PAGE>

March 2002, but was immaterial to our first quarter 2002  operations.  Under the
terms of the joint  venture with SPG,  Unigene is obligated to  contribute up to
$405,000 in cash during 2002 and up to an additional $495,000 in cash within two
years thereafter.  However,  these amounts may be reduced or offset by our share
of joint venture profits.  As of March 31, 2002 we invested $37,500 in the joint
venture.  In  addition,  Unigene  is  obligated  to pay to the  Qingdao  General
Pharmaceutical  Company an  aggregate  of  $350,000  in 14  monthly  installment
payments of $25,000 in order to terminate its former joint venture in China,  of
which  $110,000 had been paid as of March 31,  2002.  We  recognized  the entire
$350,000 obligation as an expense in 2000.

NOTE I - LEGAL MATTERS

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

NOTE J - INCOME TAXES

The income tax benefit in 2002 of $272,000 consists of proceeds received for the
sale of a portion of Unigene's  state tax net operating loss  carryforwards  and
research  credits under a New Jersey  Economic  Development  Authority  program,
which  allows  certain New Jersey  taxpayers to sell their state tax benefits to
third parties.

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

Revenue for the first quarter of 2002  decreased 71% to $80,000 from $274,000 in
the first quarter of 2001.  Revenue for 2002  consisted  primarily of calcitonin
sales.  Revenue for 2001 consisted  primarily of revenue from Pfizer,  including
$200,000 from the  amortization  of deferred  revenue and $54,000 for analytical
testing  services.  In March 2001,  Pfizer terminated its license agreement with
Unigene.

Research and development, Unigene's largest expense, decreased 21% to $1,822,000
from  $2,300,000  for the three months ended March 31, 2002,  as compared to the
same period in 2001.  The  decrease  was  primarily  attributable  to  decreased
development  expenses related to Unigene's nasal calcitonin product, a reduction
in the number of  employees,  reduced  laboratory  and  production  supplies and
non-renewal of an outside research collaboration.

General and administrative  expenses decreased 10% to $548,000 from $610,000 for
the three months  ended March 31, 2002,  as compared to the same period in 2001.
The decrease was primarily due to the elimination of investment banking fees and
deferred  stock  option  compensation  from 2001 and a favorable  settlement  of
amounts owed to a vendor in exchange for Unigene common stock in 2002.

Interest  income  decreased  $2,000 or 67% for the three  months ended March 31,
2002, as compared to the same period in 2001, due to reduced funds available for
investments in 2002.

Interest  expense  increased  $56,000  or 11% in the  first  quarter  of 2002 to
$548,000 from $492,000 in the first quarter of 2001.  Interest expense increased
in 2002 due to increased  officers' loans.  Officers' loans to Unigene increased
$700,000  during the first  quarter of 2002.  Both periods were  affected by the
fact that in 2001  Unigene  did not make  principal  and  interest  payments  on
certain officers' loans when due. Therefore,  the interest rate on $3,973,323 of
prior loans  increased  an  additional  5% per year and applied to both past due
principal and interest.  This additional interest was approximately $131,000 for
the first quarter of 2002 and $134,000 for the first  quarter 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%

                                       11

<PAGE>

debentures  increased  in 2000 to 20%  resulting  from the failure of Unigene to
make a semi-annual  interest  payment that was due in January 2000. In addition,
since  October  1999,  Unigene has been  accruing  additional  interest  expense
monthly in an amount equal to 2% of the outstanding  principal  amount of the 5%
debentures  as a penalty for the removal of Unigene's  common stock from trading
on the Nasdaq Stock Market.

The income tax benefit in 2002 of $272,000 consists of proceeds received for the
sale of a portion of Unigene's  state tax net operating loss  carryforwards  and
research  credits under a New Jersey  Economic  Development  Authority  program,
which  allows  certain New Jersey  taxpayers to sell their state tax benefits to
third  parties.  The purpose of the New Jersey  program is to provide  financial
assistance to high-technology and biotechnology companies in order to facilitate
future growth and job creation.

Due to the  decrease  in  operating  expenses  and the  increase  in income  tax
benefit,  partially  offset by the  decrease in revenue,  net loss for the three
months  ended  March 31, 2002  decreased  18% or  $561,000  to  $2,564,000  from
$3,125,000 for the corresponding period in 2001.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2002, Unigene had cash and cash equivalents of $137,000, a decrease
of $268,000 from December 31, 2001.

We do not have sufficient financial resources to continue to fund our operations
at the current level.  Unigene has incurred  annual  operating  losses since its
inception and, as a result,  at March 31, 2002,  had an  accumulated  deficit of
approximately  $90,400,000  and a working  capital  deficiency of  approximately
$22,900,000.  The independent auditors' report covering Unigene's 2001 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.

Unigene's cash  requirements  to operate its research and peptide  manufacturing
facilities  and develop its  products are  approximately  $10 to $11 million per
year. In addition, Unigene has principal and interest obligations under the Tail
Wind note and its outstanding notes payable to the Levys, as well as obligations
relating to its current and former joint ventures in China.

Our future ability to generate cash from operations  will depend  primarily upon
signing research or licensing  agreements,  achieving defined benchmarks in such
agreements  that entitle  Unigene to receive  milestone  payments and  receiving
royalties  from the  sale of its  licensed  products.  We are  actively  seeking
licensing and/or supply agreements with pharmaceutical companies for oral, nasal
and injectable forms of calcitonin as well as for other oral peptides.

On April 13,  2002,  we completed a licensing  agreement  with GSK to develop an
oral  formulation of an analog of PTH currently in preclinical  development  for
the  treatment  of  osteoporosis.  Under  the terms of the  agreement,  GSK will
receive an exclusive worldwide license to develop and commercialize the product.
In return, GSK made a $2 million up-front licensing fee payment and a $1 million
milestone  payment to us and could make  additional  milestone  payments  in the
aggregate  amount of $147  million,  subject  to the  progress  of the  compound
through clinical  development and through to the market.  In addition,  GSK will
fund  all  development  activities  during  the  program,   including  Unigene's
activities  in the  production  of raw  material  for  development  and clinical
supplies,

                                       12


<PAGE>

and will pay  Unigene a  royalty  on its  worldwide  sales of the  product.  The
royalty rate will be increased if certain sales  milestones  are achieved.  This
agreement is subject to certain termination provisions.

In July  1997,  Unigene  entered  into an  agreement  under  which it granted to
Warner-Lambert   Company  a  worldwide   license  to  use  its  oral  calcitonin
technology. In June 2000, Pfizer Inc. acquired Warner-Lambert. Through March 31,
2001,  we had  received a total of $22.9  million from Pfizer  consisting  of $3
million for an equity  investment,  $3 million for a licensing fee, $400,000 for
analytical  testing  services and  recognized  an aggregate of $16.5  million in
milestone revenue. Pfizer conducted a Phase I/II human study which was completed
in December 2000.  Pfizer analyzed the results of the study and informed Unigene
in March 2001 that the study did not achieve Pfizer's  desired  results.  Pfizer
terminated  the license  agreement  citing this  conclusion.  As a result of the
termination,  Pfizer  was no  longer  obligated  to  make  additional  milestone
payments or royalty payments to us (previously achieved milestones had been paid
in full prior to December 31, 2000).  At the time the agreement was  terminated,
there were remaining  milestone payments in the aggregate amount of $32 million.
Of this total,  $16 million was related to  commencement  of clinical  trials or
regulatory  submissions  and $16 million was related to regulatory  approvals in
the U.S. and overseas.  We believe that this study,  in which a U.S. Food & Drug
Administration  ("FDA")  approved  product also did not work and which  produced
results contrary to many published  studies,  was not capable of determining the
performance  of our oral  calcitonin  product.  Unigene also  believes  that the
results  would have been more  favorable  if subjects in the study had  received
calcium  supplementation  in  addition  to the  calcitonin.  Therefore,  Unigene
intends  to  continue  the  development  of its  oral  calcitonin  product  as a
treatment of osteoporosis,  and is seeking  potential  licensees in the U.S. and
other countries.

As a result of the  termination  of the  Pfizer  agreement,  we no  longer  have
restrictions on selling bulk calcitonin. During 2001 and in the first quarter of
2002, we sold a total of $339,000 and $49,000, respectively, of bulk calcitonin.
Unigene also has the right to license the use of its technologies for injectable
and nasal formulations of calcitonin on a worldwide basis.  Unigene has licensed
distributors  in the United  Kingdom,  Ireland  and  Israel  for its  injectable
product.  However,  these distribution  agreements have not produced significant
revenues.  In June 2000, we entered into a joint venture agreement in China with
SPG, to  manufacture  and market our injectable  and nasal  products.  The joint
venture  commenced  operations  in March 2002,  but was  immaterial to our first
quarter 2002  operations.  Unigene is actively  seeking other  licensing  and/or
supply  agreements  with  pharmaceutical  companies for its injectable and nasal
calcitonin  products  and  for  other   pharmaceutical   products  that  can  be
manufactured  and/or  delivered  using its  patented  technologies,  and is also
exploring other opportunities  including business combinations.  However, we may
not be successful in our efforts to enter into any additional revenue generating
agreements.

We are engaged in the research, production and delivery of peptide products. Our
primary focus has been on the  development  of various  forms of calcitonin  and
other peptide  products for the treatment of  osteoporosis,  including nasal and
oral calcitonin,  and,  beginning in 2001, PTH. In each case, we seek to develop
the basic product and then license the product to an established  pharmaceutical
company to complete the development,  clinical trials and regulatory process. As
a  result,  we will not  control  the  nature,  timing or cost of  bringing  our
products to market. Prior to our agreement with GSK, we did not track costs on a
per project basis,  and therefore were unable to allocate our total research and
development  costs  incurred  to date to our  various  products.  Each of  these
products is in various stages of completion.  For nasal calcitonin,  we filed an
Investigational  New  Drug  Application  with  the  FDA  in  February  2000  and
successfully  completed human studies using our product.  The remaining steps to
commercialize   this  product   would  include  the  signing  of  a  license  or


                                       13


<PAGE>

distribution  agreement  and the  filing  of an NDA  with  the FDA in the  third
quarter  of  2002.  The  remaining  cost for  preparing  and  filing  the NDA is
approximately $175,000. Unigene is seeking a licensing partner or contract sales
organization  which could proceed to market nasal calcitonin after FDA approval.
We believe  that this product  could be on the market as soon as 2003.  For oral
calcitonin,  Pfizer  terminated its license agreement with Unigene in March 2001
and as a result we will require a new  licensee to repeat a Phase I/II  clinical
trial and also to conduct a Phase III clinical  trial.  We expect that the costs
of  these  trials  would  be borne by our  future  licensee  due to our  limited
financial  resources.  Because multiple  clinical trials are still necessary for
our oral  calcitonin  product,  the product  launch would take at least  several
years.  PTH is in very early stages of development and therefore it is too early
to speculate on a marketable  product.  However,  GSK will fund all  development
activities during the program,  including Unigene's activities in the production
of raw  material for  development  and clinical  supplies.  Typically,  we would
expect cash inflows  prior to  commercialization  from any license  agreement we
sign in the form of up-front payments and milestone payments. Due to our limited
financial resources, the delay in signing license or distribution agreements for
our products,  the delay in achieving  milestones,  the  termination  of the GSK
agreement, or the delay in obtaining regulatory approvals for our products would
have an adverse effect on our operations and our cash flow.

We have a number of future payment  obligations under various  agreements.  They
are summarized at March 31, 2002, except as to the Tail Wind note which is as of
April 9, 2002, as follows:

<TABLE>
<CAPTION>
           Contractual Obligations                  Total            2002              2003              2004        Thereafter
           -----------------------                  -----            ----              ----              ----        ----------

<S>                                             <C>                  <C>                               <C>
Chinese joint ventures                          $ 1,102,500          607,500               --          495,000               --
Tail Wind Note                                    1,178,335               --               --               --        1,178,335
Short-term notes payable - stockholders           9,683,323        9,683,323               --               --               --
Long-term notes payable - stockholders            1,870,000        1,870,000               --               --               --
Capital leases                                       33,320           24,035            9,285               --               --
Operating leases                                    482,070          183,081          227,010           39,676           32,303
Executive compensation                              251,250          251,250               --               --               --
                                                -----------       ----------          -------          -------        ---------
   Total Contractual Obligations                $14,600,798       12,619,189          236,295          534,676        1,210,638
                                                ===========       ==========          =======          =======        =========

</TABLE>

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

Under  the  terms of the  joint  venture  with  SPG,  Unigene  is  obligated  to
contribute up to $405,000 in cash during 2002 and up to an  additional  $495,000
in cash within two years  thereafter.  However,  these amounts may be reduced or
offset by  Unigene's  share of joint  venture  profits.  As of March  31,  2002,
Unigene had  contributed  $37,500 to the joint venture.  The joint venture began
operations  in March  2002.  In  addition,  Unigene is  obligated  to pay to the
Qingdao  General  Pharmaceutical  Company an aggregate of $350,000 in 14 monthly
installment  payments of $25,000 in order to terminate  its former joint venture
in China,  of which  $110,000 had been paid as of March 31, 2002.  We recognized
the entire $350,000 obligation as an expense in 2000.

                                       14


<PAGE>

In June 1998,  Unigene  completed a private placement of $4,000,000 in principal
amount of 5% convertible debentures to Tail Wind from which Unigene realized net
proceeds of  approximately  $3,750,000.  The 5% debentures were convertible into
shares of Unigene's common stock. The interest on the debentures, at our option,
was  payable  in shares of common  stock.  Upon  conversion,  the holder of a 5%
debenture  was  entitled  to receive  warrants to purchase a number of shares of
common  stock  equal to 4% of the  number  of  shares  issued as a result of the
conversion.  However,  the  number of shares of common  stock that  Unigene  was
obligated to issue, in the aggregate,  upon  conversion,  when combined with the
shares issued in payment of interest and upon the exercise of the warrants,  was
limited to  3,852,500  shares.  After this share  limit was  reached,  we became
obligated to redeem all 5%  debentures  tendered for  conversion at a redemption
price equal to 120% of the principal amount, plus accrued interest.  In December
1999,  Unigene was unable to convert  $200,000 in principal of the 5% debentures
tendered for  conversion  because the  conversion  would have exceeded the share
limit. As a result, Unigene accrued, as of December 31, 1999, an amount equal to
$400,000 representing the 20% premium on the outstanding $2,000,000 in principal
amount of 5% debentures that had not been  converted.  As of March 31, 2002, 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 March 31, 2002,  Unigene issued a total of 3,703,362 shares
of common stock upon  conversion  of  $2,000,000  in principal  amount of the 5%
debentures and in payment of interest on the 5% debentures. Also, Unigene issued
an additional  103,032 shares of common stock upon the cashless  exercise of all
of the 141,123 warrants issued upon conversion of the 5% debentures.

On January 5, 2000,  Unigene  failed to make the required  semi-annual  interest
payment on the outstanding 5% debentures.  As a result, the interest rate on the
outstanding 5% debentures  increased to 20% per year. The  semi-annual  interest
payments  due July 5, 2000,  January 5, 2001,  July 5, 2001 and  January 5, 2002
were not made. As of March 31, 2002,  the accrued and unpaid  interest on the 5%
debentures totaled approximately  $966,000. In addition, due to the delisting of
Unigene's  common  stock from the Nasdaq  National  Market in October  1999,  we
became  obligated  under  a  separate  agreement  to pay  the  holder  of the 5%
debentures  an amount  equal to 2% of the  outstanding  principal  amount of the
debentures  per  month.  Unigene  had not made any of  these  payments,  but had
accrued the amounts as additional  interest  expense.  As of March 31, 2002, the
accrued and unpaid amount of this penalty totaled approximately $1,217,000.

Because of our failure to make cash payments to the holder of the debentures, an
event  of  default  occurred.  As a  result,  the  holder  filed  a  demand  for
arbitration  against  Unigene in July 2000. In June 2001,  the  arbitration  was
postponed to allow Tail Wind and Unigene to engage in settlement discussions. On
April 9,  2002,  Unigene  and Tail Wind  entered  into a  settlement  agreement.
Pursuant to the terms of the  settlement  agreement,  Tail Wind  surrendered  to
Unigene  the $2 million  in  principal  amount of  convertible  debentures  that
remained  outstanding and released all claims against  Unigene  relating to Tail
Wind's  purchase of the convertible  debentures,  including all issues raised in
the  arbitration,  which  aggregated  approximately  $4.5 million.  In exchange,
Unigene issued to Tail Wind a $1 million secured promissory note and two million
shares of Unigene  common  stock.  The note bears  interest  at a rate of 6% per
annum and principal and interest are due in February 2005. The shares are valued
at $1.1  million in the  aggregate,  based on Unigene's  closing  stock price on
April 9, 2002. Unigene will therefore  recognize a gain for accounting  purposes
of  approximately  $2.4  million  on the  extinguishment  of  debt  and  related
interest. Under the terms of the settlement agreement, Unigene deposited the two
million  shares of common  stock with an escrow  agent and filed a  registration
statement  covering  the resale of the shares  with the SEC.  Beginning  May 13,
2002,  the escrow agent will release the shares to Tail Wind at a rate of 50,000
shares per week over a 40-week period, depending on trading volume.

                                       15


<PAGE>

To satisfy Unigene's  short-term  liquidity needs, Jay Levy, the Chairman of the
Board and an officer of Unigene,  and Warren Levy and Ronald Levy, directors and
officers of Unigene,  and another Levy family member from time to time have made
loans to Unigene. From January 1, 2002 through May 1, 2002, Jay Levy made demand
loans to Unigene of $700,000. During 2001, Jay Levy made demand loans to Unigene
of $6,100,000  and Warren Levy and Ronald Levy each made demand loans to Unigene
of $5,000. Unigene has not made principal and interest payments on certain loans
when due. However,  the Levys waived all default provisions including additional
interest  penalties due under these loans through  December 31, 2000.  Beginning
January 1, 2001, interest on loans originated through March 4, 2001 increased an
additional  5% per  year  and is  calculated  on both  past  due  principal  and
interest.  This  additional  interest  was  approximately  $131,000,  and  total
interest  expense on all Levy  loans was  approximately  $295,000  for the three
months ended March 31, 2002. As of May 1, 2002,  total  accrued  interest on all
Levy  loans was  approximately  $2,406,000  and the  outstanding  loans by these
individuals to Unigene,  classified as short-term debt, totaled  $11,553,323 and
consist of:

Loans from Jay Levy in the aggregate  principal amount of $3,465,000,  which are
evidenced by demand notes bearing a floating  interest rate equal to the Merrill
Lynch Margin Loan Rate plus 5.25% (11.00% at May 1, 2002) that are classified as
short-term  debt.  These loans were  originally at the Merrill Lynch Margin Loan
Rate plus .25%.  These  loans are secured by a security  interest  in  Unigene's
equipment and real property.  Accrued interest on these loans at May 1, 2002 was
approximately $1,261,000.

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 May 1,  2002 was  approximately
$481,000.

Loans from Jay Levy in the aggregate  principal  amount of $5,700,000  which are
evidenced by demand notes bearing a floating  interest rate equal to the Merrill
Lynch Margin Loan Rate plus .25%,  (6.00% at May 1, 2002) 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 May 1,  2002 was  approximately
$268,000.

Loans from Warren Levy in the aggregate  principal  amount of $260,000 which are
evidenced by demand notes bearing a floating  interest rate equal to the Merrill
Lynch Margin Loan Rate plus 5.25% (11.00% at May 1, 2002) that are classified as
short-term  debt.  These loans were  originally at the Merrill Lynch Margin Loan
Rate plus .25%. An additional loan in the amount of $5,000 bears interest at the
Merrill  Lynch Loan Rate plus .25% (6.00% at May 1, 2002) and is  classified  as
short-term  debt.  These loans are secured by a secondary  security  interest in
Unigene's equipment and real property. Accrued interest on these loans at May 1,
2002 was approximately $199,000.

Loans from Ronald Levy in the aggregate  principal  amount of $248,323 which are
evidenced by demand notes bearing a floating  interest rate equal to the Merrill
Lynch Margin Loan Rate plus 5.25% (11.00% at May 1, 2002) 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

                                       16


<PAGE>

at the  Merrill  Lynch  Margin Loan Rate plus .25% (6.00% at May 1, 2002) and is
classified as short-term debt.  These loans are secured by a secondary  security
interest in Unigene's  equipment and real  property.  Accrued  interest on these
loans at May 1, 2002 was approximately $197,000.

Under the agreement with Fusion,  Unigene has the  contractual  right to sell to
Fusion, subject to certain conditions, at the then current market price, on each
trading day during the term of the  agreement  $43,750 of its common stock up to
an aggregate of  $21,000,000.  See Note G. The Board of Directors has authorized
the sale to Fusion of up to 21,000,000  shares of Unigene common stock. From May
18, 2001 through May 1, 2002,  Unigene has received  $3,572,310 through the sale
of 8,324,910 shares to Fusion,  before cash expenses of approximately  $450,000.
Our sales of common stock to Fusion have been below the maximum level due to the
share price and trading  volume of our common stock as well as due to our desire
to keep dilution to a minimum.  As a result,  we were still  borrowing  from the
Levys in the first quarter of 2002 to supplement the funding of our  operations.
Depending  on the future price at which  shares are sold,  Fusion could  provide
Unigene with  sufficient  funding to sustain its operations for up to two years.
The ability of Unigene to realize these funds will also depend on its continuing
compliance with 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 achievement of milestones in the GSK license
agreement  and through the entry into new  licensing  agreements  or the sale of
calcitonin, both of which we are actively exploring. If we are unable to achieve
milestones in the GSK license agreement on a timely basis or are unable to enter
into a significant new revenue  generating  license or other  arrangement in the
near term, or if the GSK license is terminated, we may need to utilize Fusion to
a greater  extent or to secure another source of funding in order to satisfy our
working capital needs or we might need to significantly  curtail our operations.
We also  could  consider  a sale or merger of  Unigene.  Should  the  funding we
require to sustain our working  capital needs be  unavailable  or  prohibitively
expensive when we require it, the consequence would be a material adverse effect
on our business,  operating results, financial condition and prospects.  Unigene
believes  that  satisfying  its  capital  requirements  over the long  term will
require the successful  commercialization  of its PTH product, its oral or nasal
calcitonin  products or another peptide product in the United States and abroad.
However,  it is uncertain whether or not any of its products will be approved or
will be  commercially  successful.  In addition,  the  commercialization  of its
peptide products may require Unigene to incur additional capital expenditures to
expand or upgrade its manufacturing operations.  Unigene cannot determine either
the cost or the timing of such capital expenditures at this time.

As of December 31, 2001,  Unigene had available for federal income tax reporting
purposes  net  operating  loss   carryforwards  in  the  approximate  amount  of
$80,000,000,  expiring  from 2002 through  2021,  which are  available to reduce
future  earnings which would  otherwise be subject to federal  income taxes.  In
addition,  as of December 31, 2001, Unigene had research and development credits
in the  approximate  amount of  $3,000,000,  which are  available  to reduce the
amount of future  federal  income taxes.  These credits expire from 2002 through
2021.  Unigene has New Jersey  operating loss  carryforwards  in the approximate
amount of $26,700,000,  expiring from 2005 through 2008,  which are available to
reduce future taxable  income,  which would otherwise be subject to state income
tax. As of March 31, 2002,  approximately  $14,700,000  of these New Jersey loss
carryforwards  has been  approved  for  future  sale  under a program of the New
Jersey  Economic  Development  Authority,  ("NJEDA").  In order to realize these
benefits,  Unigene  must  apply to the NJEDA  each  year and must  meet  various
requirements for continuing eligibility.  In addition, the program must continue
to be funded by

                                       17

<PAGE>

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.  We sold
tax benefits and realized a total of $272,000 in January 2002.

Unigene  follows  Statement of Financial  Accounting  Standards  (SFAS) No. 109,
"Accounting  for Income  Taxes."  Given our past history of incurring  operating
losses,  any deferred tax assets that are  recognizable  under SFAS No. 109 were
fully reserved. As of December 31, 2001 and 2000 under SFAS No. 109, Unigene had
deferred tax assets of approximately $34,000,000 and $29,000,000,  respectively,
subject to valuation  allowances of $34,000,000 and  $29,000,000,  respectively.
The deferred tax assets are primarily a result of Unigene's net operating losses
and tax credits.  For the three-month period ended March 31, 2002, the Unigene's
deferred tax assets and valuation  allowances  each  increased by  approximately
$1,000,000.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The Securities and Exchange Commission defines "critical accounting policies" as
those  that  are  both  important  to the  portrayal  of a  company's  financial
condition and results,  and require  management's most difficult,  subjective or
complex  judgments,  often as a result of the need to make  estimates  about the
effect of matters that are inherently uncertain.

The following  discussion of critical accounting policies represents our attempt
to bring  to the  attention  of the  readers  of this  report  those  accounting
policies  which we believe are critical to our  financial  statements  and other
financial  disclosure.  It is not intended to be a comprehensive  list of all of
our significant  accounting policies which are more fully described in Note 3 of
the Notes to the Financial Statements included in our Annual Report on Form 10-K
for the year ended December 31, 2001. In many cases, the accounting treatment of
a  particular   transaction  is  specifically  dictated  by  generally  accepted
accounting  principles,   with  no  need  for  management's  judgment  in  their
application.  There are also areas in which the selection of an available policy
would not produce a materially different result.

Revenue  Recognition:  Revenue  from  the sale of  product  is  recognized  upon
shipment to the customer.  Revenue from grants is recognized  when earned.  Such
revenues  generally do not involve  difficult,  subjective or complex judgments.
Non-refundable  milestone  payments that  represent the completion of a separate
earnings process and a significant step in the research and development  process
are  recognized as revenue when earned.  This sometimes  requires  management to
judge  whether or not a milestone has been met, and when it should be recognized
in the financial statements. Non-refundable license fees received upon execution
of license agreements where Unigene has continuing  involvement are deferred and
recognized as revenue over the life of the agreement.  This requires  management
to estimate the expected term of the agreement or, if applicable,  the estimated
life of its licensed patents.

Inventory  Valuation:  Inventories  are  stated at the lower of cost  (using the
first-in,  first-out method) or market. This requires management to estimate the
marketability of its products.  Currently,  Unigene has no approved products for
sale in the United States.  However,  we do sell calcitonin  overseas and in the
U.S. for research  purposes.  We therefore  capitalize and recognize in finished
goods inventory the estimated value of saleable calcitonin.

Accounting for Stock Options:  We account for stock options granted to employees
and directors in accordance with the provisions of Accounting  Principles  Board
(APB) Opinion No. 25,  "Accounting  for Stock Issued to Employees,"  and related
interpretations. As such, compensation expense is recorded on fixed stock option
grants  only if the  current  fair value of the  underlying  stock  exceeds  the
exercise  price of the  option  at the date of grant and it is  recognized  on a
straight-line  basis  over the

                                       18


<PAGE>

vesting period.  We account for stock options granted to non-employees on a fair
value  basis in  accordance  with  SFAS No.  123,  "Accounting  for  Stock-Based
Compensation",  and Emerging Issues Task Force Issue No. 96-18,  "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring,  or in
Conjunction with Selling,  Goods or Services." As a result,  the non-cash charge
to  operations  for  non-employee  options  with  vesting  or other  performance
criteria is affected each  reporting  period by changes in the fair value of our
common  stock.  Had  compensation  cost for  options  granted to  employees  and
directors been determined consistent with SFAS No. 123, Unigene's net loss would
have  increased  for the  years  ended  December  31,  2001,  2000  and  1999 by
approximately $780,000, $175,000 and $605,000, respectively.

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

The information  below  summarizes  Unigene's  market risks associated with debt
obligations as of March 31, 2002, except as to the Tail Wind note which is as of
April 9,  2002.  The table  below  presents  principal  cash  flows and  related
interest rates by year of maturity based on the terms of the debt.

Variable  interest rates disclosed  represent the rates at March 31, 2002. Given
Unigene's  financial condition described in "Liquidity and Capital Resources" it
is not practicable to estimate the fair value of our debt instruments.


<TABLE>
<CAPTION>
                                                           Year of Maturity
                                                      -----------------------------------------------
                                   Carrying
                                    Amount            2002        2003    2004            2005   2006
                                    ------            ----        ----    ----            ----   ----

<S>                               <C>               <C>            <C>     <C>             <C>     <C>
Notes payable - stockholders      $4,673,323        4,673,323      --      --              --      --
Variable interest rate (1)                               11.0%     --      --              --      --
Notes payable - stockholders      $5,010,000        5,010,000      --      --              --      --
Variable interest rate                                    6.0%     --      --              --      --
Notes payable - stockholders      $1,870,000        1,870,000      --      --              --      --
Fixed interest rate (2)                                    11%     --      --              --      --
Tail Wind note                    $1,000,000               --      --      --      $1,000,000      --
Fixed interest rate - 6%

</TABLE>

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

                                       19


<PAGE>

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


                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Various  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"). These forward-looking statements involve known and unknown risks,
uncertainties  and other factors that may cause the actual results,  performance
or activities of our business,  or industry results, to be materially  different
from any future results,  performance or activities expressed or implied by such
forward-looking statements. These factors include: general economic and business
conditions,  our  financial  condition,  competition,  our  dependence  on other
companies  to   commercialize,   manufacture   and  sell   products   using  our
technologies,  the uncertainty of results of animal and human testing,  the risk
of product liability and liability for human clinical trials,  our dependence on
patents and other proprietary  rights,  dependence on key management  officials,
the availability and cost of capital,  the availability of qualified  personnel,
changes in, or the failure to comply with, governmental regulations, the failure
to obtain  regulatory  approvals for our products,  litigation and other factors
discussed in our various filings with the SEC, including Unigene's Annual Report
on Form 10-K for the year ended December 31, 2001.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
        -----------------

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 quarter  ended March 31, 2002,  Unigene sold  2,385,000  shares of common
stock to Fusion Capital Fund II, LLC for gross  proceeds of  $1,214,930.  All of
such  shares  were  issued by Unigene  without  registration  in  reliance on an
exemption  under Section 4(2) of the Securities  Act of 1933,  because the offer
and sale was made to a limited number of investors in a private transaction.

In the quarter ended March 31, 2002, Unigene sold 300,000 shares of common stock
to Rutgers University in exchange for cancellation of indebtedness in the amount
of $225,000.  All of such shares were issued by Unigene without  registration in
reliance on an  exemption  under  Section  4(2) of

                                       20


<PAGE>

the  Securities  Act of 1933,  because  the offer and sale was made to a limited
number of investors in a private transaction.

(d)      Not applicable.

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

See   description  of  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".

Item 6.           Exhibits and Reports on Form 8-K
                  --------------------------------
         (a)      Exhibits:  None.

         (b)      Reports on Form 8-K:

Unigene did not file any reports on Form 8-K during the three months ended March
31, 2002.

                                       21


<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.
May 15, 2002                                     -------------------------------
                                                 (Registrant)

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


                                                 /s/ Jay Levy
May 15, 2002                                     -------------------------------
                                                 Jay Levy, Treasurer
                                                 (Chief Financial Officer and
                                                  Chief Accounting Officer)


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