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



                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549




                                   FORM 10-QSB

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

                For the quarterly period ended December 31, 1999

                                       or

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

            For the transition period from ___________ to __________

                         Commission file number 0-22686


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


                           PALATIN TECHNOLOGIES, INC.
        (Exact name of small business issuer as specified in its charter)


            Delaware                                          95-4078884
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                          Identification No.)


    103 Carnegie Center - Suite 200
         Princeton, New Jersey                            08540
(Address of principal executive offices)               (Zip Code)

                    Issuer's telephone number: (609) 520-1911


Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

As of February 14, 2000, 7,396,718 shares of the Issuer's common stock, par
value $.01 per share, were outstanding.

Transitional Small Business Disclosure Format:    Yes  [  ]      No  [X]


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<PAGE>

                           PALATIN TECHNOLOGIES, INC.

                                Table of Contents



PART I - FINANCIAL INFORMATION

     Item 1. Financial Statements

          CONSOLIDATED BALANCE SHEETS -- As of December 31, 1999
           and June 30, 1999..............................................Page 3

          CONSOLIDATED STATEMENTS OF OPERATIONS --
           For the Three and Six Months Ended December 31, 1999 and
           December 31, 1998 and the Period from January 28, 1986
           (Commencement of Operations) through December 31, 1999.........Page 4

          CONSOLIDATED STATEMENTS OF CASH FLOWS --
           For the Six Months Ended December 31, 1999 and
           December 31, 1998 and the Period From January 28, 1986
           (Commencement of Operations) through December 31, 1999.........Page 5

          Notes to Consolidated Financial Statements......................Page 6


Item 2. Management's Discussion and Analysis of Financial Condition
           and Results of Operations......................................Page 9

PART II - OTHER INFORMATION

     Item 1.  Legal Proceedings..........................................Page 14

     Item 2.  Changes in Securities and Use of Proceeds..................Page 14

     Item 3.  Defaults Upon Senior Securities............................Page 14

     Item 4.  Submission of Matters to a Vote of Security Holders........Page 14

     Item 5.  Other Information..........................................Page 14

     Item 6.  Exhibits and Reports on Form 8-K...........................Page 14

Signatures...............................................................Page 15

                                       2

<PAGE>

PART I - FINANCIAL INFORMATION
Item 1.      Financial Statements
<TABLE>
<CAPTION>

                                                      PALATIN TECHNOLOGIES, INC.
                                                   (A Development Stage Enterprise)
                                                      Consolidated Balance Sheets
                                                              (unaudited)
<S>                                                                            <C>                      <C>
                                                                                   December 31, 1999          June 30, 1999
                                                                                 ----------------------   ----------------------
ASSETS
Current assets:
  Cash, cash equivalents and investments                                       $            8,280,818   $            2,788,628
  Accounts receivable                                                                       2,141,900                        -
  Prepaid expenses and other                                                                  597,595                  147,780
                                                                                ----------------------   ----------------------
      Total current assets                                                                 11,020,313                2,936,408

Fixed assets, net of accumulated depreciation and amortization
  of  $789,698 and $676,362, respectively                                                   1,449,446                1,457,605
Restricted cash                                                                               185,000                  185,000
Other                                                                                          60,028                  144,032
                                                                                ----------------------   ----------------------
                                                                               $           12,714,787   $            4,723,045
                                                                                ======================   ======================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                             $            1,347,120   $            1,116,894
  Accrued expenses                                                                          1,135,590                1,264,893
                                                                                ----------------------   ----------------------
      Total current liabilities                                                             2,482,710                2,381,787
                                                                                ----------------------   ----------------------

Long term debt                                                                                      -                2,000,000
                                                                                ----------------------   ----------------------

Commitments and contingencies (Note 4)

Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 38,936 and 42,484 shares issued and outstanding
      as of December 31, 1999 and June 30, 1999, respectively;                                    389                      425
    Series B Convertible; 12,875 and 13,575 shares issued and outstanding
      as of December 31, 1999 and June 30, 1999; respectively;                                    129                      136
    Series C Convertible; 700,000 shares issued and outstanding
      as of December 31, 1999;                                                                  7,000                        -
  Common stock of $.01 par value - authorized 75,000,000 shares;
    Issued and outstanding 7,243,839 and 7,137,595 shares as of
      December 31, 1999 and June 30, 1999, respectively;                                       72,438                   71,376
  Additional paid-in capital                                                               49,684,332               35,610,243
  Unamortized deferred compensation                                                                 -                 (18,558)
  Deficit accumulated during development stage                                           (39,532,211)             (35,322,364)
                                                                                ----------------------   ----------------------
      Total stockholder's equity                                                           10,232,077                 341,258
                                                                                ----------------------   ----------------------

                                                                               $           12,714,787   $            4,723,045
                                                                                ======================   ======================


          The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>

                                                                 3
<PAGE>

<TABLE>
<CAPTION>
                                                      PALATIN TECHNOLOGIES, INC.
                                                   (A Development Stage Enterprise)
                                                 Consolidated Statements of Operations
                                                              (unaudited)
                                                                                                                       Inception
                                                                                                                  (January 28, 1986)
                                             Three Months Ended December 31,      Six Months Ended December 31,         through
                                                  1999             1998              1999               1998       December 31, 1999
                                            ---------------  ----------------   ---------------   ---------------  -----------------
<S>                                          <C>                <C>              <C>               <C>               <C>
REVENUES:
     Grants and contracts                    $   1,009,591      $          -     $   2,259,591     $           -     $    5,564,220
     License fees and royalties                          -           550,000           500,000           550,000          1,734,296
     Other                                               -                 -                 -                 -            318,917
                                            ---------------  ----------------   ---------------   ---------------   ----------------
          Total revenues                         1,009,591           550,000         2,759,591           550,000          7,617,433
                                            ---------------  ----------------   ---------------   ---------------   ----------------

OPERATING EXPENSES:
     Research and development                    2,375,659         2,205,272         4,824,282         4,342,863         28,461,951
     General and administrative                  1,536,250           543,174         2,305,684         1,389,464         17,090,685
     Net intangibles write down                          -                 -                 -                 -            259,334
                                            ---------------  ----------------   ---------------   ---------------   ----------------
          Total operating expenses               3,911,909         2,748,446         7,129,966         5,732,327         45,811,970
                                            ---------------  ----------------   ---------------   ---------------   ----------------

OTHER INCOME (EXPENSES):
     Interest income                               115,074            25,004           186,389            85,220          1,134,789
     Interest expense                                 (625)          (23,601)          (25,861)          (57,600)        (1,947,463)
     Merger costs                                        -                 -                 -                 -           (525,000)
                                            ---------------  ----------------   ---------------   ---------------   ----------------
          Total other income (expenses)            114,449             1,403           160,528            27,620         (1,337,674)
                                            ---------------  ----------------   ---------------   ---------------   ----------------

NET LOSS                                        (2,787,869)       (2,197,043)       (4,209,847)       (5,154,707)       (39,532,211)

PREFERRED STOCK DIVIDEND                                 -                 -                 -                 -         (3,121,525)
                                            ---------------  ----------------   ---------------   ---------------   ----------------

NET LOSS ATTRIBUTABLE TO COMMON
 STOCKHOLDERS                                $  (2,787,869)    $  (2,197,043)    $  (4,209,847)    $  (5,154,707)    $  (42,653,736)
                                            ===============  ================   ===============   ===============   ================

Basic and diluted net loss per common share  $       (0.38)    $       (0.46)    $       (0.58)    $       (1.11)    $       (29.15)
                                            ===============  ================   ===============   ===============   ================

Weighted average number of common shares
   outstanding used in computing basic and
   diluted net loss per common share             7,242,544         4,745,953         7,223,073          4,624,021         1,463,497
                                            ===============  ================   ===============   ================   ===============

          The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>

                                                                 4
<PAGE>

<TABLE>
<CAPTION>
                                                      PALATIN TECHNOLOGIES, INC.
                                                   (A Development Stage Enterprise)
                                                 Consolidated Statements of Cash Flows
                                                              (unaudited)
                                                                                                        Inception
                                                                                                    (January 28, 1986)
                                                                   Six Months Ended December 31,        Through
                                                                    1999                  1998      December 31, 1999
                                                              ----------------    ----------------  ------------------
<S>                                                            <C>                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                     $     (4,209,847)   $     (5,154,707)  $   (39,532,211)
  Adjustments to reconcile net loss to net cash
    used for operating activities:
      Depreciation and amortization                                     118,340             115,223           955,619
      License fee                                                             -                   -           500,000
      Interest expense on note payable                                        -                   -            72,691
      Accrued interest on long-term financing                                 -                   -           796,038
      Accrued interest on short-term financing                                -                   -             7,936
      Intangibles and equipment write down                                    -                   -           278,318
      Common stock and notes payable issued for expenses                      -                   -           751,038
      Settlement with consultant                                              -                   -           (28,731)
      Deferred revenue                                                        -            (550,000)                -
      Amortization of deferred compensation                           1,095,058             435,984         4,521,426
      Changes in certain operating assets and liabilities:
        Accounts receivable                                          (2,141,900)                  -        (2,141,900)
        Prepaid expenses and other                                     (370,815)            (98,920)       (1,228,296)
        Accounts payable                                                230,226             249,732         1,346,220
        Accrued expenses                                               (129,303)             (6,025)          675,323
                                                                ----------------    ----------------  ----------------
            Net cash used for operating activities                   (5,408,241)         (5,008,713)      (33,026,529)
                                                                ----------------    ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                  (105,177)            (17,101)       (2,294,485)
  Purchase of investments                                            (1,679,416)                   -       (1,679,416)
                                                                ----------------    ----------------  ----------------
            Net cash used for operating activities                   (1,784,593)            (17,101)       (3,973,901)
                                                                ----------------    ----------------  ----------------

 CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable, related party                                  -                   -           302,000
  Payments on notes payable, related party                                    -                   -          (302,000)
  Proceeds from senior bridge notes payable                                   -                   -         1,850,000
  Payments on senior bridge notes payable                                     -                   -        (1,850,000)
  Proceeds from notes payable and long term debt                              -                   -         3,951,327
  Payments on notes payable and long term debt                                -            (494,047)       (1,951,327)
  Proceeds from Common stock, stock option
    and warrant issuances, net                                            5,608           3,161,940        17,393,173
  Proceeds from preferred stock, net                                 11,000,000                   -        24,210,326
  Purchase of treasury stock                                                  -                   -            (1,667)
                                                                ----------------    ----------------  ----------------
            Net cash provided by financing activities                11,005,608           2,667,893        43,601,832
                                                                ----------------    ----------------  ----------------

NET INCREASE (DECREASE) IN CASH,
   AND CASH EQUIVALENTS                                               3,812,774          (2,357,921)        6,601,402

CASH AND CASH EQUIVALENTS beginning
   of period                                                          2,788,628           4,511,187                 -
                                                                ----------------    ----------------  ----------------
CASH AND CASH EQUIVALENTS end
   of period                                                   $      6,601,402    $      2,153,266   $     6,601,402
                                                                ================    ================  ================

  The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>

                                       5

<PAGE>

                           PALATIN TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)
             Notes to Consolidated Financial Statements (Unaudited)

(1)  Organization Activities:

Nature of Business -- Palatin Technologies, Inc. ("Palatin" or the "Company") is
a development-stage, pharmaceutical company headquartered in Princeton, NJ with
its research facility in Edison, NJ. The Company is dedicated to developing and
commercializing products and technologies for diagnostic imaging and ethical
drug development utilizing peptide, monoclonal antibody, and radiopharmaceutical
technologies. The Company is concentrating on the following products and
technologies:

    (i)   LeuTech(R), an infection and inflammation imaging product ("LeuTech"),

    (ii)  PT-14, a peptide hormone product for the treatment of sexual
          dysfunction ("PT-14"), and

    (iii) Metal Ion-induced Distinctive Array of Structures ("MIDAS(TM)")
          metallopeptide technology ("MIDAS technology").

Business Risk and Liquidity -- As shown in the accompanying financial
statements, the Company incurred net losses of $4,209,847 for the six months
ended December 31, 1999 and has a deficit accumulated during development stage
of $39,532,211. The Company anticipates incurring additional losses over the
next several years, as it begins to manufacture and market LeuTech, expand
clinical trials for LeuTech's other indications and for PT-14, and to continue
research and development of PT-14 and MIDAS technology. To achieve
profitability, the Company, alone or with others, must successfully develop and
commercialize its technologies and proposed products, conduct pre-clinical
studies and clinical trials, obtain required regulatory approvals and
successfully manufacture and market such technologies and proposed products. The
time required to reach profitability is highly uncertain, and there can be no
assurance that the Company will be able to achieve profitability on a sustained
basis, if at all.

Pursuant to its Strategic Collaboration Agreement with Mallinckrodt, Inc, the
Company recognized $2,141,900 as contract revenue during the six months ended
December 31, 1999, of which approximately $1,945,000 was related to the shared
development costs and $196,900 was related to product direct costs of LeuTech.

On November 12, 1999 the Company announced that the Board of Directors of
Molecular Biosystems, Inc. ("MBI") and the Company have unanimously approved a
merger agreement which provides for a merger of a wholly owned subsidiary of the
Company into MBI, in which MBI will become a wholly owned subsidiary of the
Company (Note 5). The merger is contingent upon stockholder approval. The
Company anticipates the voting by the stockholders to take place in late March
or April of 2000.

Management plans to continue to refine its operations, control expenses,
evaluate alternative methods to conduct its business, and seek available and
attractive sources of financing and sharing of development costs. Management
believes that through one or a combination of such factors the Company will be
able to obtain adequate financing to fund its operations through March 31, 2001
based on current expenditure levels. There can be no assurance that the
Company's efforts will be successful.

                                       6

<PAGE>

(2)  Basis of Presentation:

The accompanying financial statements have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission (the "Commission"). Certain information and footnote disclosures
normally included in the Company's audited annual financial statements have been
condensed or omitted in the Company's interim financial statements. In the
opinion of management, these financial statements contain all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the financial position of the Company as of December 31, 1999 and the results of
operations for the three and six month periods ended December 31, 1999 and 1998
and for the period from inception (January 28, 1986) to December 31, 1999 and
cash flows for the six months ended December 31, 1999 and 1998, and for the
period from inception (January 28, 1986) to December 31, 1999. The results of
operations for the interim period may not necessarily be indicative of the
results of operations expected for the full year, except that the Company
expects to incur a significant loss for the fiscal year ended June 30, 2000.

The accompanying financial statements and the related notes should be read in
conjunction with the Company's audited financial statements for the fiscal years
ended June 30, 1999 and 1998 filed with the Company's Form 10-KSB/A for the year
ended June 30, 1999.

(3) Summary of Significant Accounting Policies:

Principles of Consolidation -- The consolidated financial statements include the
accounts of Palatin and its wholly owned inactive subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

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

Cash, Cash Equivalents and Investments -- For purposes of presenting cash flows,
the Company considers cash and cash equivalents as amounts on hand, on deposit
in financial institutions and liquid investments purchased with an original
maturity of three months or less. The Company accounts for its investments in
accordance with Statement of Financial Accounting Standards No. 115 "Accounting
For Certain Investments in Debt and Equity Securities." The Company classifies
such investments as available for sale investments and as such all investments
are recorded at fair value. The investments consist of certificates of deposit.
Realized gains and losses are recorded in the statement of operations in the
period the transaction occurs. Unrealized gains and losses are classified as a
separate component of stockholders' equity. As of December 31, 1999 the
unrealized gain on investments was immaterial.

Fixed Assets -- Fixed assets consist of equipment, office furniture and
leasehold improvements. Fixed assets are stated at cost. Depreciation is
recognized using the straight-line method over the estimated useful lives of 5
years for equipment, 7 years for office furniture and over the term of the lease
for leasehold improvements. Maintenance and repairs are expensed as incurred
while expenditures that extend the useful life of an asset are capitalized.

Impairment of Long-Lived Assets -- The Company complies with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company
reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. To determine recoverability of its long-lived assets, the Company
evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets.

                                       7

<PAGE>


Impairment is measured at fair value. Fair value is determined by an evaluation
of available price information at which assets could be bought or sold including
quoted market prices, if available, or the present value of the estimated
discounted cash flows based on reasonable and supportable assumptions.

Revenue Recognition -- Grant and contract revenues are recognized as the Company
provides the services stipulated in the underlying grants and/or contracts based
on the time and materials incurred. License revenues are recognized when
received and the Company has no future obligations.

In December 1999, the Securities and Exchange Commission issued the Staff
Accounting Bulletin No. 101 - Revenue Recognition in Financial Statements (SAB
101). The bulletin draws on existing accounting rules and provides specific
guidance on how those accounting rules should be applied and specifically
addresses revenue recognition for non-refundable technology access fees in the
biotechnology industry. SAB 101 is effective for fiscal years beginning after
December 15, 1999. The Company is currently in the process of evaluating SAB 101
and the effect that it may have on the Company's financial statements.
Accordingly, the Company has not determined whether SAB 101 will have a material
impact on the financial position or results of operations of the Company.

Research and Development Costs -- The costs of research and development
activities are expensed as incurred.

Stock Options and Warrants -- Warrants and the majority of common stock options
have been issued at exercise prices greater than, or equal to, their fair market
value at the date granted. Accordingly, no value has been assigned to these
instruments.

Income Taxes -- The Company and its subsidiaries intend to file consolidated
federal and combined state income tax returns. The Company accounts for income
taxes in accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes." SFAS 109 requires, among other
things, the use of the liability method in computing deferred income taxes.

The Company provides for deferred income taxes relating to timing differences in
the recognition of income and expense items (primarily relating to depreciation,
amortization and certain leases) for financial and tax reporting purposes. Such
amounts are measured using current tax laws and regulations in accordance with
the provisions of SFAS 109.

In accordance with SFAS 109, the Company has recorded a valuation allowance
against the realization of its deferred tax assets. The valuation allowance is
based on management's estimates and analysis, which includes tax laws which may
limit the Company's ability to utilize its tax loss carryforwards.

Net Loss per Common Share -- Effective December 31, 1997 the Company adopted
SFAS No. 128, "Earnings per Share" ("SFAS 128"), which supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS 128 requires dual
presentation of basic and diluted earnings per share ("EPS") for complex capital
structures on the face of the statement of operations. Basic EPS is computed by
dividing the income (loss) by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock options.
For the six months ended December 31, 1999 and 1998 and for the period from
inception (January 28, 1986) through December 31, 1999, there were no dilutive
effects of stock options or warrants as the Company incurred a net loss in each
period. Options and warrants to purchase 5,440,856 shares of common stock at
prices ranging from $0.20 to $306 per share were outstanding at December 31,
1999.

Reclassifications -- Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.

Fair Value of Financial Instruments -- Statement of Financial Accounting
Standards No. 107 ("SFAS 107"), "Disclosures about Fair Value of Financial
Instruments," requires disclosures of fair value

                                       8
<PAGE>

information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate the value. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. These techniques are significantly
affected by the assumptions used, including discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could not
be realized in immediate settlement of the instrument. SFAS 107 excludes certain
financial instruments and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments: the carrying amount reported
on the balance sheet approximates the fair value for cash, short-term borrowings
and current maturities of long-term debt; and the fair value for the Company's
fixed rate long-term debt is estimated based on the current rates offered to the
Company for debt of the same remaining maturities. Based on the above, the
amount reported on the balance sheet approximates the fair value.

New Accounting Pronouncements - Effective July 1, 1998, the Company adopted SFAS
No. 130, "Reporting Comprehensive Income"("SFAS 130"). This statement requires
companies to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a statement of financial position. For the three and six month
periods ended December 31, 1999 and 1998, the Company's comprehensive income
consists only of its net loss.

Effective July 1, 1998 the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information" ("SFAS 131"). This statement
establishes additional standards for segment reporting in the financial
statements. The Company operates in one industry segment and, accordingly, the
adoption of SFAS 131 had no effect on the Company.

(4)     Commitments and Contingencies:

Consulting Agreements - The Company is obligated under three consulting
agreements to make payments totaling $112,800 in fiscal 2000. License Agreements
- The Company has four license agreements that require minimum yearly payments.
Future minimum payments under the license agreements are: 2000 - $200,000, 2001
- $150,000, 2002 - $200,000, 2003 - $200,000 and 2004 - $200,000.

Legal Proceedings - The Company is subject to various claims and litigation in
the ordinary course of its business. Management believes that the outcome of
such legal proceedings will not have a material adverse effect on the Company.

(5) Stockholders' Equity:

On November 12, 1999, the Company announced that the Board of Directors of both
Palatin and Molecular Biosystems, Inc. ("MBI"), have approved a definitive
agreement to merge the two companies. The combined company will keep the Palatin
name and be headquartered in Princeton, New Jersey. The definitive agreement
specifies that the merger is subject to approval of the stockholders of both
companies. Under the agreement, stockholders of MBI will receive 0.525 shares of
Palatin Common stock for each share of MBI Common stock. The stock swap will be
accounted for using the purchase method of accounting.

                                       9

<PAGE>


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

General

The following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto filed as part of this
report. Unless otherwise indicated herein, all references to the Company include
Palatin and its wholly owned inactive subsidiary, RhoMed. We make
forward-looking statements in this report. Sometimes these statements contain
words such as "anticipates," "plans," "intends," "expects" and similar
expressions to identify forward-looking statements. These statements are not
guarantees of our future performance. Our business involves known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from what we say in this
report. We describe a number of these factors in our annual report on Form
10-KSB for the year ended June 30, 1999. Given these uncertainties, you should
not place undue reliance on these forward-looking statements, which speak only
as of the date of this report. We will not revise these forward-looking
statements to reflect events or circumstances after the date of this report or
to reflect the occurrence of unanticipated events.

We expect to incur substantial operating losses over the next several years due
to continuing expenses associated with our research and development programs,
including pre-clinical testing, clinical trials and manufacturing. Operating
losses may fluctuate from quarter to quarter as a result of differences in the
timing of when we incur expenses.

Results of Operations

Three and Six Month Periods Ended December 31, 1999 Compared to Three and Six
Month Periods Ended December 31, 1998.

Cash and cash equivalents - Cash, cash equivalents and short term investments
increased to $8,280,818 at December 31, 1999 from $2,788,628 at December 31,
1998. The increase was due to the receipt of funds, approximately $11,450,000
net, from the collaboration agreement signed with Mallinckrodt, Inc. on August
17, 1999. Pursuant to the agreement we:

o    Received $500,000 from a one-time, non-refundable exclusive worldwide
     license (excluding Europe) for sales, marketing and distribution of
     LeuTech.

o    Received $13,000,000 from the sale of 700,000 restricted shares of our
     non-voting Series C convertible preferred stock.

o    Paid $2,000,000 in principle as repayment of a Subordinated Non-negotiable
     Promissory Note from Mallinckrodt plus $46,489 in interest.

Accounts receivable - accounts receivable increased to $2,141,900 at December
31, 1999 from nothing at December 31, 1998. The increase was due to the
recognition of contract revenue pursuant to our collaboration agreement with
Mallinckrodt, see below.

Grants and contracts - We recorded $891,900 and $2,141,900, respectively, as
contract revenue during the three and six month period ended December 31, 1999
related to the shared development costs and product direct costs of LeuTech,
pursuant to our strategic collaboration agreement with Mallinckrodt. We also
recorded $117,691 as grant revenue for the three and six months ended December
31, 1999. We completed two Phase I grants, previously awarded, under the Small
Business Innovative Research program with the National Institutes of Health of
the Department of Health and Human Services. We had no revenues from grants and
contracts during the three and six month period ending December 31, 1998.

License Fees and Royalties - We recorded $500,000 in license fees as revenue
during the six month period ended December 31, 1999. We received these fees as a
one-time, non-refundable payment

                                       10

<PAGE>

pursuant to our strategic collaboration agreement with Mallinckrodt, Inc. We
recognized $550,000 in license fees as revenue during the three and six month
period ended December 31, 1998 related to the Company's license option agreement
with Nihon Medi-Physics ("Nihon"). This $550,000 was recognized pursuant to a
determination by both Nihon and the Company to change the development emphasis
and termination of the original agreement. The Company is not required to
perform any future services under this agreement.

Research and development - Research and development expenses increased to
$2,375,659 for the three month period ended December 31, 1999 compared to
$2,205,272 for the three month period ended December 31, 1998, and increased to
$4,824,282 for the six month period ended December 31, 1999 compared to
$4,342,863 for the six month period ended December 31, 1998. The increase in R &
D spending is primarily related to development of LeuTech, including increased
expenses for manufacturing scale-up, consulting and clinical trials. The Company
expects research and development expenses to continue to increase in future
quarters as the Company expands clinical trials and manufacturing efforts on the
LeuTech product and expands efforts to develop PT-14 and MIDAS technology.

General and administrative - General and administrative expenses increased to
$1,536,250 for the three month period ended December 31, 1999 compared to
$543,175 for the three month period ended December 31, 1998 and expenses
increased to $2,305,684 for the six month period ended December 31, 1999
compared to $1,389,464 for the six month period ended December 31, 1998. The
increase in general and administrative expenses was mainly attributable to the
payment of performance bonuses and increase in salaries and increases to the
Company's liability limits on various insurance policies as well as increases in
consulting fees related to investor relations, human resources and information
systems.

Interest income - Interest income increased to $115,074 for the three month
period ended December 31, 1999 compared to $25,004 for the three month period
ended December 31, 1998 and interest income increased to $186,389 for the six
month period ended December 31, 1999 compared to $85,220 for the six month
period ended December 31, 1998. The increase in interest income is primarily the
result of the receipt of funds pursuant to the strategic collaboration agreement
with Mallinckrodt, which increased funds available for investment purposes.

Interest expense - Interest expense decreased to $625 for the three month period
ended December 31, 1999 compared to $23,601 for the three month period ended
December 31, 1998 and interest expense decreased to $25,861 for the six month
period ended December 31, 1999 compared to $57,600 for the six month period
ended December 31, 1998. The decrease in interest expense is due to the
repayment of notes payable and long term debt.

Net loss - Net loss increased to $2,787,869 for the three months ended December
31, 1999 compared to $2,197,043 for the three months period ended December 31,
1998. This increase is due to timing differences in recording expenses incurred
and revenues earned. Overall, the net loss decreased to $4,209,847 for the six
month period ended December 31, 1999 compared to $5,154,707 for the six month
period ended December 31, 1998. The decrease is attributable to revenues earned
related to cost sharing provisions pursuant to the strategic collaboration
agreement with Mallickrodt.

Liquidity and Capital Resources

Since inception, we have incurred net operating losses. As of December 31, 1999,
we had a deficit accumulated during development stage of $39,532,211. We have
financed our net operating losses through December 31, 1999 by a series of debt
and equity financings. At December 31, 1999, we had cash, cash equivalents and
short term investments of $8,280,818.

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<PAGE>


For the six months ended December 31, 1999, the net increase in cash was
$3,812,774. Net cash used for operating activities was $5,408,241, net cash used
for investing activities was $1,784,593 and net cash provided by financing
activities was $11,005,608.

On November 12, 1999, the Company announced that the Board of Directors of both
Palatin and MBI have approved a definitive agreement to merge the two companies.
The combined company will keep the Palatin name and be headquartered in
Princeton, New Jersey. The definitive agreement specifies that the merger is
subject to approval of the stockholders of both companies. Under the agreement,
stockholders of MBI will receive 0.525 shares of Palatin Common stock for each
share of MBI Common stock. The stock swap will be accounted for using the
purchase method of accounting. Upon completion of the transaction, stockholders
of Palatin and the former stockholders of MBI will each own approximately 50% of
the combined company calculated on a diluted basis using the treasury method.

As of August 17, 1999, we entered into a strategic collaboration agreement with
Mallinckrodt, a large international healthcare products company, to jointly
develop, manufacture, market and sell LeuTech. Under the terms of the agreement,
Mallinckrodt:

     o    received an exclusive worldwide license (excluding Europe) for sales,
          marketing and distribution of LeuTech and paid a licensing fee of
          $500,000;

     o    agreed to make milestone payments totaling $10,000,000 upon FDA
          approval of the first LeuTech indication and upon the attainment of
          certain sales goals following product launch;

     o    agreed to reimburse Palatin for 50% of all ongoing LeuTech development
          costs, subject to a cap, which can be amended;

     o    agreed to pay to Palatin a transfer price for each LeuTech product
          unit delivered to Mallinckrodt and a quarterly royalty on
          Mallinckrodt's future net sales of LeuTech;

     o    purchased 700,000 restricted shares of Palatin's non-voting Series C
          convertible preferred stock for $13,000,000;

     o    agreed that the Series C convertible preferred stock purchased by them
          would be convertible after five years, or earlier upon the occurrence
          of a change in control in Palatin (as defined in the agreement), into
          700,000 shares of our common stock with certain registration rights
          and anti-dilution rights.

Effective December 7, 1999, we entered into a five-year lease on administrative
offices in Princeton, New Jersey. Minimum future lease payments are range from
approximately $187,374 in year one to approximately $202,070 in year five.

In March 1997, we entered into a ten-year lease on research and development
facilities in Edison, New Jersey, which commenced August 1, 1997. Minimum future
lease payments escalate from approximately $116,000 per year to $200,000 per
year after the fifth year of the lease term. The lease will expire in fiscal
year 2007.

We have entered into four license agreements, which require minimum yearly
payments. Future minimum fiscal year payments under the license agreements are
as follows: 2000 - $200,000, 2001 - $150,000, 2002 - $200,000, 2003 - $200,000
and 2004 - $200,000.

We are and expect to continue actively searching for certain products and
technologies to license or acquire, now or in the future. If we are successful
in identifying a product or technology for acquisition, we may require
substantial funds for such an acquisition and subsequent development or
commercialization. We do not know whether any acquisition will be consummated in
the future.

We have incurred negative cash flows from operations since our inception, and
have expended, and expect to continue to expend in the future, substantial funds
to complete our planned product development

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<PAGE>


efforts. We expect that our existing capital resources will be adequate to fund
our projected operations through March 31, 2001, based on current expenditure
levels.

We anticipate incurring additional losses over at least the next several years,
and we expect our losses to increase as we expand our research and development
activities relating to LeuTech, PT-14 and our MIDAS technology. To achieve
profitability, we, alone or with others, must successfully develop and
commercialize our technologies and proposed products, conduct pre-clinical
studies and clinical trials, obtain required regulatory approvals and
successfully manufacture and market such technologies and proposed products. The
time required to reach profitability is highly uncertain, and we do not know
whether we will be able to achieve profitability on a sustained basis, if at
all.

Year 2000 Compatibility

The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including among others, a temporary inability
to process transactions and information or engage in similar normal business
activities.

The Company believes that it does not have significant year 2000 issues related
to its computerized information systems. It is possible that certain computer
systems or software products of its suppliers and contractors may not be year
2000 compatible. Since the Company is not heavily dependent on any particular
software package or vendor in our operations, its assessment of these year 2000
issues related to its suppliers and contractors is minimal. As of the date
hereof, the Company has not experienced any material year 2000 problems, either
related to its own systems or software products or those of third party
providers.

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<PAGE>

                           PART II - OTHER INFORMATION

Item 1.     Legal Proceedings.

None.


Item 2.     Changes in Securities and Use of Proceeds.

None.


Item 3.     Defaults Upon Senior Securities.

None.


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

None.


Item 5.     Other Information.

None.


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

     (a)  Exhibits

               27 Financial Data Schedule

     (b)  Reports on Form 8-K

               During the quarter ended December 31, 1999, we filed one report
               on Form 8-K. On November 30, 1999, we filed a report dated
               November 12, 1999, containing Item 5, Other Information, and Item
               7, Exhibits. Item 5 reported our announcement of a merger
               agreement with Molecular Biosystems, Inc. The Item 7 exhibits
               were our press release concerning the merger and the agreement
               and plan of merger.



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                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                               Palatin Technologies, Inc.
                                               (Registrant)



                                           /s/  Edward J. Quilty
                                        -----------------------------
Date: February 14, 2000                 Edward J. Quilty
                                        Chairman of the Board
                                        and Chief Executive Officer



                                           /s/  Stephen T. Wills
                                        -----------------------------
Date: February 14, 2000                 Stephen T. Wills
                                        Vice President and Chief Financial
                                        Officer (Principal Financial and
                                        Accounting Officer)


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