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

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

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

UNIGENE LABORATORIES, INC.
CONDENSED BALANCE SHEETS

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

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

See notes to condensed financial statements.

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

Three Months Ended
March 31
--------
2002 2001
---- ----

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

See notes to condensed financial statements.

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

Three Months Ended
March 31
--------
2002 2001
---- ----

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

See notes to condensed financial statements.

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.

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.

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.

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,

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

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

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%

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,

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

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:

Contractual Obligations Total 2002 2003 2004 Thereafter
----------------------- ----- ---- ---- ---- ----------

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

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.

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.

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.

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

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

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

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.

Year of Maturity
-----------------------------------------------
Carrying
Amount 2002 2003 2004 2005 2006
------ ---- ---- ---- ---- ----

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%

(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 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.

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

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.

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)