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, 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--59,184,848 shares as of August 1, 2002




<PAGE>


                                     INDEX

                           UNIGENE LABORATORIES, INC.




PART I.  FINANCIAL INFORMATION                                             PAGE
                                                                           ----

Item 1. Financial Statements (Unaudited)

Condensed Balance Sheets-
    June 30, 2002 and December 31, 2001                                      3

Condensed Statements of Operations-
    Three months and six months ended June 30, 2002 and 2001                 4

Condensed Statements of Cash Flows-
    Six months ended June 30, 2002 and 2001                                  5

Notes to Condensed Financial Statements-
    June 30, 2002                                                            6

Item 2. Management's Discussion and Analysis of Financial
    Condition and Results of Operations                                     12

Item 3. Quantitative and Qualitative Disclosures About
    Market Risk                                                             21

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                  22

Item 2.  Changes in Securities and Use of Proceeds                          22

Item 3.  Defaults Upon Senior Securities                                    22

Item 4.  Submission of Matters to a Vote of Security Holders                23

Item 6.  Exhibits and Reports on Form 8-K                                   24

SIGNATURES                                                                  25

                                       2


<PAGE>


PART I.  FINANCIAL INFORMATION
Item 1.   Financial Statements

                           UNIGENE LABORATORIES, INC.
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 June 30, 2002   December 31, 2001
                                                                                 -------------   -----------------
ASSETS                                                                            (Unaudited)
------
<S>                                                                              <C>                <C>
Current assets:
    Cash and cash equivalents                                                    $    911,827       $    405,040
    Receivables                                                                       454,372                 --
    Prepaid expenses                                                                  139,771             72,701
    Inventory                                                                         541,733            283,328
                                                                                 ------------       ------------
                  Total current assets                                              2,047,703            761,069

Property, plant and equipment - net                                                 3,428,333          4,109,312
Investment in joint venture                                                           900,000            900,000
Patents and other intangibles, net                                                  1,377,107          1,375,062
Other assets                                                                          259,738            373,811
                                                                                 ------------       ------------
                                                                                 $  8,012,881       $  7,519,254
                                                                                 ============       ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------

Current liabilities:
    Accounts payable                                                             $  1,831,604       $  2,177,949
    Accrued expenses                                                                4,767,212          6,589,251
    Notes payable - stockholders                                                    9,503,323          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
    Current portion - capital lease obligations                                        19,972             29,677
    Deferred revenue                                                                  200,000                 --
                                                                                 ------------       ------------
                  Total current liabilities                                        18,992,111         22,850,200

Note payable - Tail Wind                                                              985,662                 --
Joint venture obligation,  excluding current portion                                  495,000            495,000
Capital lease obligations, excluding current portion                                    6,976             14,131
Deferred revenue, excluding current portion                                         2,750,000                 --

Commitments and contingencies
Stockholders' deficit:
    Common Stock - par value $.01 per share, authorized 100,000,000 shares,
       issued 59,127,138 shares in 2002 and
       51,456,715 shares in 2001                                                      591,271            514,567
    Additional paid-in capital                                                     74,769,783         71,271,610
    Common stock to be issued                                                              --            225,000
    Accumulated deficit                                                           (90,576,891)       (87,850,223)
    Less: Treasury stock, at cost, 7,290 shares                                        (1,031)            (1,031)
                                                                                 ------------       ------------
                  Total stockholders' deficit                                     (15,216,868)       (15,840,077)
                                                                                 ------------       ------------
                                                                                 $  8,012,881       $  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                    Six Months Ended
                                                         June 30                              June 30
                                            -------------------------------       -------------------------------
                                                2002               2001               2002               2001
                                                ----               ----               ----               ----

<S>                                         <C>                <C>                <C>                <C>
Licensing and other revenue                 $    556,700       $     88,042       $    636,671       $    361,817
                                            ------------       ------------       ------------       ------------
Operating expenses:
    Research and development                   1,931,740          2,267,546          3,753,669          4,568,016

    General and administrative                   953,521            627,458          1,501,107          1,236,973
                                            ------------       ------------       ------------       ------------
                                               2,885,261          2,895,004          5,254,776          5,804,989
                                            ------------       ------------       ------------       ------------

Operating loss                                (2,328,561)        (2,806,962)        (4,618,105)        (5,443,172)

Other income (expense):
    Gain on the extinguishment of debt
       and related interest                    2,506,146                 --          2,506,146                 --
    Interest income                                4,934              2,157              6,027              5,493
    Interest expense                            (344,883)          (503,924)          (892,861)          (996,161)
                                            ------------       ------------       ------------       ------------
   Loss before income taxes                     (162,364)        (3,308,729)        (2,998,793)        (6,433,840)
   Income tax benefit                                 --                 --            272,125                 --
                                            ------------       ------------       ------------       ------------
   Net loss                                 $   (162,364)      $ (3,308,729)      $ (2,726,668)      $ (6,433,840)
                                            ============       ============       ============       ============

Net loss per share, basic and diluted       $       0.00       $      (0.07)      $       (.05)      $       (.14)
                                            ============       ============       ============       ============


Weighted average number of shares
outstanding -  basic and diluted              57,220,630         46,767,154         54,867,158         45,630,289
                                            ============       ============       ============       ============

</TABLE>

See notes to condensed financial statements.

                                       4

<PAGE>


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

<TABLE>
<CAPTION>

                                                                       Six Months Ended
                                                                           June 30
                                                                    ----------------------
                                                                    2002              2001
                                                                    ----              ----

<S>                                                              <C>               <C>
Net cash provided by (used for) operating activities             $(1,783,193)      $(3,754,870)
                                                                 -----------       -----------
Investing activities:
    Purchase of equipment and furniture                              (44,771)          (12,166)
    Increase in patents and other intangibles                        (78,587)          (91,174)
    Decrease in other assets                                         114,073            57,105
    Construction of leasehold and building improvements              (49,800)           (2,169)
                                                                 -----------       -----------
                                                                     (59,085)          (48,404)
                                                                 -----------       -----------
Financing activities:
    Proceeds from sale of stock, net                               1,859,552           262,829
    Issuance of stockholder notes                                    700,000         3,560,000
    Exercise of stock options and warrants                               711             1,495
    Repayment of capital lease obligations                           (16,860)          (13,637)
    Repayment of stockholder notes                                  (180,000)               --
    Repayment of note payable - Tail Wind                            (14,338)               --
                                                                 -----------       -----------
                                                                   2,349,065         3,810,687
                                                                 -----------       -----------

Net increase (decrease) in cash and cash equivalents                 506,787             7,413

Cash and cash equivalents at beginning of year                       405,040            17,108
                                                                 -----------       -----------
Cash and cash equivalents at end of period                       $   911,827       $    24,521
                                                                 ===========       ===========

SUPPLEMENTAL CASH FLOW INFORMATION:

Non-cash investing and financing activities:

Issuance of note payable for settlement of 5%
   convertible debentures                                        $ 1,000,000                --
                                                                 ===========       ===========
Issuance of common stock in payment of 5% convertible
   debentures, accounts payable  and accrued expenses            $ 1,431,200                --
                                                                 ===========       ===========

Cash paid for interest                                           $    17,151       $    30,896
                                                                 ===========       ===========
</TABLE>

See notes to condensed financial statements

                                       5

<PAGE>


                           UNIGENE LABORATORIES, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                  JUNE 30, 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  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, 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 the financial  statements  and footnotes  included in Unigene's  annual
report  on Form  10-K  for the year  ended  December  31,  2001  filed  with the
Securities and Exchange Commission.

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 June 30, 2002 has an accumulated deficit of approximately $90,577,000
and has a working capital deficiency of approximately $16,944,000. 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
six months of 2002,  Unigene received gross proceeds of $2,047,635 from the sale
of  4,553,602  shares  of  common  stock  to  Fusion  before  cash  expenses  of
approximately  $188,000.  From May 18, 2001,  through June 30, 2002, Unigene has
received approximately $3,928,000 through the sale of 9,566,087 shares of common
stock to Fusion,  before cash expenses of approximately  $480,000.  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. In addition, during the first quarter of 2002, we
borrowed $700,000 from Jay Levy, the Chairman of the Board, to fund a portion of
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 entering 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.

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 received 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
licensing-related  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.
Through June 30, 2002,  Unigene has  recognized an aggregate of $488,000 for its
GSK development activities.  The royalty rate will be increased if certain sales
milestones  are  achieved.  This  agreement  is subject  to certain  termination
provisions.  Either party may terminate the license agreement if the other party
(i) materially breaches the license agreement,  which breach is not cured within
60 days (or 30 days for a  payment  default),  (ii)  voluntarily  files,  or has
served against it involuntarily,  a petition in bankruptcy or insolvency, which,
in the case of  involuntary  proceedings,  remains  undismissed  for 60 days, or
(iii) makes an assignment  for the benefit of creditors.  Additionally,  GSK may
terminate  the license  agreement  (i) any time after 1 year from the  effective
date for various articulated reasons related to a substantial  diminution of the
perceived  business  opportunity  from the development or  commercialization  of
product,  or (ii) if Unigene  fails to  fulfill  certain  obligations  by a date
certain,  which  obligations  require the cooperation of third parties.  Revenue
recognition of the up front licensing fee and first  milestone  payment has been
deferred over the estimated  performance  period of the license  agreement of 15
years.  Revenue for both of the three and six month  periods ended June 30, 2002
includes $50,000 of deferred licensing revenue.


NOTE D - NOTES PAYABLE - STOCKHOLDERS


During the second  quarter of 2002,  Unigene repaid to Jay Levy, the Chairman of
the Board and an officer of Unigene,  $180,000 of demand notes bearing  interest
at the Merrill  Lynch Margin Loan Rate plus 5.25%  (11.0% as of June 30,  2002).
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 June 30,
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 (currently  $3,285,000),  $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 June 30, 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

                                       8

<PAGE>

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  were  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. In addition,  due to the delisting of Unigene's common stock from
the Nasdaq  National  Market in October  1999,  we became  obligated  to pay the
holder of the 5% debentures an amount equal to 2% of the  outstanding  principal
amount of the debentures per month.  Unigene had not made any of these payments,
but had accrued the amounts as additional interest expense.


Because of our failure to make cash payments to the holder of the debentures, an
event of default occurred.  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 $4,583,000. 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.  Under the terms of the  settlement,  if any
repayments  are made on the Levy debt, a  proportionate  payment must be made on
the Tail  Wind  note  based on the  ratio of Tail Wind debt and Levy debt at the
time of payment.  During the second  quarter of 2002,  $180,000  was paid on the
Levy debt and therefore  $14,338 was paid on the Tail Wind note. The shares were
valued at $1.1 million in the aggregate,  based on Unigene's closing stock price
on April 9, 2002. Unigene therefore recognized a gain for accounting purposes of
approximately  $2,443,000 on the  extinguishment of debt and related interest in
the second  quarter of 2002. In accordance  with recently  adopted SFAS No. 145,
the gain on  extinguishment  of debt is classified  with other income  (expense)
items  on the  statement  of  operations.  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 has released the
shares to Tail Wind at a rate of 50,000 shares per week with additional  monthly
releases depending on prior month trading volume. Through June 30, 2002, 350,000
shares of common stock have been released. In addition, in July and August 2002,
the

                                       9


<PAGE>

escrow  agent  released  an  additional  750,000  shares to Tail Wind based upon
Unigene's stock trading volume in June and July 2002.


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:

                                        June 30, 2002         December 31, 2001
                                        -------------         -----------------

             Finished goods..........     $195,000               $    100,000
             Raw materials...........      346,733                    183,328
                                          --------               ------------
                  Total..............     $541,733               $    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,  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 June 30, 2002, we have
received approximately $3,928,000 through the sale of 9,566,087 shares of common
stock to Fusion, before cash expenses of approximately $480,000.


                                       10

<PAGE>

In December  2000, we issued a five-year  warrant to purchase  373,002 shares of
Unigene  common  stock at $1.126 per share to an  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 March 2002.  Initial sales will be used by the
joint venture to offset startup costs.  Therefore,  the joint venture's  initial
net income or loss will be immaterial to Unigene's results of 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 June 30, 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 monthly installment payments
of $5,000  (reduced  from  $25,000 per month) in order to  terminate  its former
joint venture in China,  of which $120,000 has been paid as of June 30, 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.

                                       11


<PAGE>

NOTE K - OTHER

For the  three  month  and six  month  periods  ended  June  30,  2002,  Unigene
recognized additional gains in the amount of $15,000 and $63,000,  respectively.
These gains were due to a favorable  settlement  of amounts  owed to a vendor in
exchange for Unigene common stock.


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

RESULTS OF OPERATIONS


Revenue  increased 533% to $557,000 from $88,000 for the three months ended June
30, 2002,  and  increased 76% to $637,000 from $362,000 for the six months ended
June 30,  2002,  as  compared  to the same  periods  in 2001.  Revenue  for 2002
consisted primarily of revenue from GlaxoSmithKline  ("GSK") for an aggregate of
$488,000 for its GSK development  activities.  In April 2002, Unigene received a
$2,000,000  up-front payment under an agreement for an oral PTH product licensed
to GSK. Unigene also received a $1,000,000  licensing-related  milestone payment
from  GSK.  These  payments  are being  deferred  in  accordance  with SEC Staff
Accounting Bulletin No. 101 ("SAB 101") and recognized as revenue over a 15-year
period  which is our  estimated  performance  period of the  license  agreement.
Therefore,   $50,000  of  the  deferred  up-front  and  milestone  payments  was
recognized as revenue during the second  quarter of 2002.  Revenue for the three
months ended June 30, 2001 consisted primarily of calcitonin sales.  Revenue for
the six months ended June 30, 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 15% to $1,932,000
from  $2,268,000  for the three months ended June 30, 2002, and decreased 18% to
$3,754,000  from  $4,568,000 for the six months ended June 30, 2002, as compared
to the  same  periods  in 2001.  The  decrease  was  primarily  attributable  to
decreased  development expenses related to Unigene's nasal calcitonin product, a
reduction in utility costs and non-renewal of an outside research collaboration.

General and administrative  expenses increased 52% to $954,000 from $627,000 for
the three months ended June 30,  2002,  and  increased  21% to  $1,501,000  from
$1,237,000  for the six months  ended June 30,  2002,  as  compared  to the same
periods in 2001.  The  increases  were  primarily  due to  increased  legal fees
related to the GSK license agreement and to the Tail Wind settlement.

Gain on the  extinguishment  of debt and related interest results primarily from
the April 9, 2002 settlement  agreement between Unigene and Tail Wind.  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 $4,583,000.  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 were valued at $1.1 million in the aggregate, based on
Unigene's closing stock price on April 9, 2002.  Unigene therefore  recognized a
gain for  accounting  purposes of $2,443,000 on the  extinguishment  of debt and
related interest in the second quarter of 2002. In addition, for the three month
and six month periods ended June 30, 2002, Unigene  recognized  additional gains
in the

                                       12

<PAGE>

amount of $15,000 and $63,000, respectively. These gains were due to a favorable
settlement of amounts owed to a vendor in exchange for Unigene common stock.


Interest  income  increased  $3,000 or 129% for the three  months ended June 30,
2002,  and  increased  $500 or 10% for the six months  ended June 30,  2002,  as
compared to the same periods in 2001,  due to  additional  funds  available  for
investments in 2002, partially offset by lower prevailing interest rates.

Interest expense  decreased  $159,000 or 32% for the three months ended June 30,
2002 to $345,000 from $504,000 and decreased  $103,000 or 10% for the six months
ended June 30, 2002 to $893,000 from $996,000 as compared to the same periods in
2001.  Interest  expense for the three months and six months ended June 30, 2002
was reduced by the  settlement  with Tail Wind in April 2002.  Unigene  issued a
$1,000,000  note accruing  interest at 6% per annum in connection  with the Tail
Wind settlement.  Previously,  Unigene was accruing interest on its Tail Wind 5%
convertible   debentures.   The  annual  interest  rate  on  the  $2,000,000  in
outstanding principal amount of the 5% debentures was 20%. In addition,  Unigene
had 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.
Officers' loans to Unigene  increased  $700,000 during the first quarter of 2002
and  decreased  $180,000  during the second  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
certain prior loans increased an additional 5% per year and applied to both past
due principal and interest.  This additional interest was approximately $317,000
for the first half of 2002 and $276,000 for the first half of 2001.


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 gain on the  extinguishment  of debt  and  related  interest  and the
increase in revenue, net loss for the three months ended June 30, 2002 decreased
95% or $3,146,000 to $162,000 from  $3,309,000 for the  corresponding  period in
2001.

Due to the gain on the extinguishment of debt and related interest, the increase
in revenue,  the decrease in  operating  expenses and the increase in income tax
benefit,  net loss for the six  months  ended  June 30,  2002  decreased  58% or
$3,707,000 to $2,727,000 from $6,434,000 for the corresponding period in 2001.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2002, Unigene had cash and cash equivalents of $912,000, an increase
of $507,000 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 June 30, 2002,  had an  accumulated  deficit of
approximately  $90,577,000  and a working  capital  deficiency of

                                       13

<PAGE>

approximately  $16,944,000.  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 received 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
licensing-related  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,  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 for osteoporosis,  and is seeking potential  licensees in the U.S. and
other countries.

                                       14


<PAGE>

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 half 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 calcitonin products. The
joint venture commenced  operations in March 2002. Initial sales will be used by
the joint  venture  to offset  startup  costs.  Therefore,  the joint  venture's
initial  net  income  or  loss  will  be  immaterial  to  Unigene's  results  of
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
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 $130,000. 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 June 30, 2002, as follows:

                                       15

<PAGE>


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


<S>                                                <C>                <C>             <C>           <C>             <C>
Chinese joint ventures                             $ 1,092,500        402,500         60,000        555,000         75,000
Tail Wind note and accrued interest                  1,161,506             --             --             --      1,161,506
Short-term notes payable - stockholders              9,503,323      9,503,323             --             --             --
Long-term notes payable - stockholders               1,870,000      1,870,000             --             --             --

Capital leases                                          26,948         15,850         11,098             --             --
Operating leases                                       419,971        120,982        227,010         39,676         32,303
Executive compensation                                 167,500        167,500             --             --             --

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

   Total Contractual Obligations                   $14,241,748     12,080,155        298,108        594,676      1,268,809
                                                   -----------    -----------    -----------    -----------    -----------
</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 June 30, 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 monthly installment payments
of $5,000  (reduced  from  $25,000 per month) in order to  terminate  its former
joint venture in China,  of which $120,000 had been paid as of June 30, 2002. We
recognized the entire $350,000 obligation as an expense in 2000.

In June 1998,  Unigene  completed a private placement of $4,000,000 in principal
amount of 5% convertible debentures 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 December 31, 2001,
all of the  $2,000,000 in principal  amount of 5%  debentures  were tendered for
conversion and therefore were classified as a current liability in the amount of
$2,400,000.  Through  December  31,  2001,  Unigene  issued a total of

                                       16

<PAGE>

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. In addition,  due to the delisting of Unigene's common stock from
the Nasdaq  National  Market in October  1999,  we became  obligated  to pay the
holder of the 5% debentures an amount equal to 2% of the  outstanding  principal
amount of the debentures per month.  Unigene had not made any of these payments,
but had accrued the amounts as additional interest expense.


Because of our failure to make cash payments to the holder of the debentures, an
event of default occurred.  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;
however, payments of principal may be required prior to the note's maturity date
if repayments of the Levy debt are made.  The shares are valued at $1.1 million
in the  aggregate,  based on  Unigene's  closing  stock  price on April 9, 2002.
Unigene  therefore  recognized 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 has
released  the  shares  to Tail  Wind at a rate of 50,000  shares  per  week.  In
addition,  in July and August  2002,  the escrow  agent  released an  additional
750,000  shares to Tail Wind based upon  Unigene's  stock trading volume in June
and July 2002.


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  August 1, 2002,  Jay Levy made
demand loans to Unigene of  $700,000.  Unigene  repaid  $180,000 in loans to Jay
Levy in May  2002.  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  $269,000,  and  total
interest expense on all Levy loans was approximately $604,000 for the six months
ended June 30, 2002. As of August 1, 2002,  total  accrued  interest on all Levy
loans  was   approximately   $2,718,000  and  the  outstanding  loans  by  these
individuals to Unigene,  classified as short-term debt, totaled  $11,373,323 and
consist of:

Loans from Jay Levy in the aggregate  principal amount of $3,285,000,  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 August 1, 2002) that are classified
as short-term debt. These loans were originally at the

                                       17


<PAGE>

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 August 1, 2002 was approximately $1,394,000.

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 required 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,  2002  was
approximately $547,000.

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 August 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 August 1, 2002 was approximately
$354,000.

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 August 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 August 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 August
1, 2002 was approximately $213,000.

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 August 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  Margin  Loan  Rate plus  .25%  (6.00% at August 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 August 1, 2002 was approximately $210,000.


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 July 15, 2002, Unigene has received $3,943,430 through the sale
of 9,621,087 shares to Fusion,  before cash expenses of approximately  $480,000.
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. Depending on the future price at which shares are
sold,  Fusion  could  provide  Unigene  with  sufficient  funding to sustain its
operations through the fourth quarter of 2003. 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  entering  into new  licensing  agreements or the sale of

                                       18
<PAGE>

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 $26,000,000,  expiring from 2005 through 2008,  which are available to
reduce future taxable  income,  which would otherwise be subject to state income
tax. As of July 31,  2002,  approximately  $26,000,000  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 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  six-month  period ended June 30, 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.


                                       19
<PAGE>

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  performance  period or 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 peptides overseas and in the U.S.
for research purposes.  We therefore  capitalize and recognize in finished goods
inventory the estimated value of saleable peptides.

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  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


                                       20

<PAGE>

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 June 30, 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 June 30, 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>
Notes payable - stockholders     $3,793,323        3,793,323         --            --           --            --
Variable interest rate (1)                           11.0%           --            --           --            --
Notes payable - stockholders     $5,710,000        5,710,000         --            --           --            --
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%.

(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

                                       21

<PAGE>

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
State of New York. The plaintiff,  which  purchased from a third party a warrant
to purchase one million  shares of Unigene  common  stock,  alleges that Unigene
breached a verbal agreement with the plaintiff to extend the term of the warrant
beyond its expiration  date. 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 June 30, 2002,  Unigene sold 257,378 shares of common stock
to Rutgers University in exchange for cancellation of indebtedness in the amount
of $129,155.  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 June 30, 2002, Unigene exchanged 2,000,000 shares of common
stock to The Tail Wind Fund,  Ltd.  along with a $1,000,000  secured  promissory
note in exchange for  cancellation  of indebtedness in the amount of $4,583,191.
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.


         (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 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 June
          11, 2002 (the "Annual  Meeting") in connection with which proxies were
          solicited  pursuant to Regulation  14A under the  Securities  Exchange
          Act.

     (b)  Not applicable

                                       22

<PAGE>

(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                     46,373,907                     651,671
         Ronald S. Levy               46,377,902                     647,676
         Warren P. Levy               46,378,502                     647,076
         Allen Bloom                  46,314,302                     711,276
         J. Thomas August             46,383,032                     642,546
         Bruce Morra                  46,314,302                     711,276

     (ii) Proposal to ratify the appointment of KPMG LLP as independent auditors
          of the Company for 2002:

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

         46,504,055                    482,958                       38,565

(d)  Not applicable.

                                       23

<PAGE>



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

         (b)      Reports on Form 8-K:

April  13,  2002  (announcement  of a  worldwide  licensing  agreement  for oral
parathyroid  hormone with  SmithKline  Beecham  Corporation,  a  GlaxoSmithKline
company).


                                       24

<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, 2002                                 --------------------------------
                                                Warren P. Levy, President
                                                (Chief Executive Officer)


                                            /s/ Jay Levy
August 14, 2002                                 --------------------------------
                                                Jay Levy, Treasurer
                                                (Chief Financial Officer and
                                                Chief Accounting Officer)


                                       25