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U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549  FORM 10-Q  [X]
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       [  ]
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          PALATIN TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)   Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)4C Cedar Brook DriveCranbury, New Jersey
     08512(Address of principal executive
     offices)
     (Zip Code)  (609) 495-2200


Check whether the Registrant (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 Registrant was required to file such reports), and (2) has been
subject
to such filing requirements for the past 90 days.    Yes [X]   No [  ]

Check whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
   Yes [  ]   No [X]

As of February 12, 2004, 52,583,344 shares of the issuer's common stock, par value $.01 per share, were
outstanding.

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PALATIN TECHNOLOGIES, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                                 |        
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                                  |        
|        | CONSOLIDATED BALANCE SHEETS -- As of December 31, 2003
     and June 30, 2003                                                                                                                                    | Page 3 
|        |                                                                                                                                                                                                                  |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --
      For the Three and Six Months Ended December 31, 2003 and
      December 31, 2002 and the Period from Inception
      (January 28, 1986) through December 31, 2003 | Page 4 
|        |                                                                                                                                                                                                                  |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --
      For the Six Months Ended December 31, 2003 and
     December 31, 2002 and the Period from January 28, 1986
     (inception) through December 31, 2003             | Page 5 
|        |                                                                                                                                                                                                                  |        
|        | Notes to Consolidated Financial Statements                                                                                                                                                                       | Page 6 
|        |                                                                                                                                                                                                                  |        
|Item 2. | Management's Discussion and Analysis of Financial Condition
     and Results of Operations                                                                                                                       | Page 13
|        |                                                                                                                                                                                                                  |        
|Item 3. | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                                       | Page 20
|        |                                                                                                                                                                                                                  |        
|Item 4. | Controls and Procedures                                                                                                                                                                                          | Page 20
|        |                                                                                                                                                                                                                  |        

PART II - OTHER INFORMATION

|Item 1. | Legal Proceedings                                        | Page 22
|------- | -------------------------------------------------------- | -------
|        |                                                          |        
|Item 2. | Changes in Securities and Use of
     Proceeds           | Page 22
|        |                                                          |        
|Item 3. | Defaults Upon Senior Securities                          | Page 22
|        |                                                          |        
|Item 4. | Submission of Matters to a Vote of
     Security Holders | Page 22
|        |                                                          |        
|Item 5. | Other Information                                        | Page 23
|        |                                                          |        
|Item 6. | Exhibits and Reports on Form 8-K                         | Page 23
|        |                                                          |        
|        | Signatures                                               | Page 24
|        |                                                          |        

2

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# PART I - FINANCIAL INFORMATION

## Item 1. Financial Statements

PALATIN TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)Consolidated Balance Sheets
                                 (unaudited)

`December 31, 2003  June 30, 2003
                                                                        -----------------  -------------
ASSETS
Current assets:
  Cash and cash equivalents                                              $    7,367,092    $ 14,294,603
  Available for sale investments                                              3,916,657       4,088,384
  Contracts receivable                                                          250,000               -
  Prepaid expenses and other                                                    228,640         347,510
                                                                         ---------------   -------------
      Total current assets                                                   11,762,389      18,730,497

Property and equipment, net                                                   3,163,014       3,399,181
Restricted cash                                                                 428,075         428,075
Other                                                                           172,862         163,381
                                                                         ---------------   -------------
                                                                         $   15,526,340    $ 22,721,134
                                                                         ===============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long term debt, including capital leases            $      121,711    $    188,015
  Accounts payable                                                            1,117,865       1,344,789
  Accrued expenses                                                            1,233,000       1,619,382
  Accrued compensation                                                                -         428,500
  Deferred revenue                                                              283,355         407,420
                                                                         ---------------   -------------
      Total current liabilities                                               2,755,931       3,988,106
                                                                         ---------------   -------------

Long term debt, including capital leases                                         35,466          76,432
                                                                         ---------------   -------------

Commitments and contingencies (Note 5)

Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 12,447 and 14,867 shares issued and outstanding
      as of December 31, 2003 and June 30, 2003, respectively                       124             149
  Common stock of $.01 par value - authorized 75,000,000 shares;
    issued and outstanding 45,409,364 and 42,994,050 shares as of
      December 31, 2003 and June 30, 2003, respectively                         454,094         429,941
  Additional paid-in capital                                                114,644,686     109,085,115
  Deferred compensation                                                        (111,832)        (37,977)
  Accumulated other comprehensive income                                       (133,483)        (11,805)
  Deficit accumulated during development stage                             (102,118,646)    (90,808,827)
                                                                         ---------------   -------------
                                                                             12,734,943      18,656,596
                                                                         ---------------   -------------
                                                                         $   15,526,340    $ 22,721,134
                                                                         ===============   =============`

The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.

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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
                                                  2003            2002            2003           2002     December 31, 2003
                                             ---------------  ----------   -----------------------------  ------------------
REVENUES:
  Grants and contracts                       $   250,000    $    35,000    $  2,000,000    $   460,000    $  12,265,511
  License fees                                    41,354        198,505         124,065        397,009        2,854,052
  Other                                                -              -               -              -          318,917
                                             ------------   ------------   -------------   ------------   --------------
    Total revenues                               291,354        233,505       2,124,065        857,009       15,438,480
                                             ------------   ------------   -------------   ------------   --------------
OPERATING EXPENSES:
  Research and development                     3,814,355      3,683,007      10,832,717      7,271,531       83,245,220
  General and administrative                   1,388,657      1,191,806       3,003,329      2,371,433       35,251,229
  Net intangibles write down                           -              -               -              -          259,334
                                             ------------   ------------   -------------   ------------   --------------
    Total operating expenses                   5,203,012      4,874,813      13,836,046      9,642,964      118,755,783
                                             ------------   ------------   -------------   ------------   --------------
OTHER INCOME (EXPENSES):
  Interest income                                 86,573         50,455         173,091         96,959        2,874,223
  Interest expense                                (6,216)        (6,189)        (11,767)        (7,152)      (1,992,946)
  Merger costs                                         -              -               -              -         (525,000)
                                             ------------   ------------   -------------   ------------   --------------
    Total other income                            80,357         44,266         161,324         89,807          356,277
                                             ------------   ------------   -------------   ------------   --------------

    Loss before income taxes and cumulative
      effect of accounting change             (4,831,301)    (4,597,042)    (11,550,657)    (8,696,148)    (102,961,026)
  Income tax benefit                             240,836        245,093         240,836        245,093        1,203,491
                                             ------------   ------------   -------------   ------------   --------------

    Loss before cumulative effect of
      accounting change                       (4,590,465)    (4,351,949)    (11,309,821)    (8,451,055)    (101,757,535)
  Cumulative effect of accounting change               -              -               -              -         (361,111)
                                             ------------   ------------   -------------   ------------   --------------

NET LOSS                                      (4,590,465)    (4,351,949)    (11,309,821)    (8,451,055)    (102,118,646)
PREFERRED STOCK DIVIDEND                               -        (98,340)              -       (115,799)      (3,511,765)
                                             ------------   ------------   -------------   ------------   --------------
NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS                                 $(4,590,465)   $(4,450,289)   $(11,309,821)   $(8,566,854)   $(105,630,411)
                                             ============   ============   =============   ============   ==============

Basic and diluted net loss per common share  $     (0.10)   $     (0.18)   $      (0.26)   $     (0.38)
                                             ============   ============   =============   ============
Weighted average number of common shares
     outstanding used in computing basic
     and diluted net loss per common share    44,531,302     24,871,723      43,846,291     22,376,419
                                             ============   ============   =============   ============`

The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.

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PALATIN TECHNOLOGIES, INC.
                        (A Development Stage Enterprise)Consolidated Statements of Cash Flows
                                 (unaudited)

`Inception
                                                        Six Months Ended December 31,   (January 28, 1986)
                                                        -----------------------------         Through
                                                              2003            2002      December 31, 2003
                                                        ---------------  ------------   -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                              $(11,309,821)    $(8,451,055)     $(102,118,646)
  Adjustments to reconcile net loss to net cash
   used for operating activities:
    Cumulative effect of accounting change                         -              -             361,111
    Depreciation and amortization                            317,597         291,397          3,427,585
    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)
    Acceleration of options previously granted                     -              -           1,505,315
    Stock based compensation                                 761,379          10,110          5,216,753
    Deferred revenue                                        (124,065)       (111,009)           (77,756)
    Changes in certain operating assets andliabilities:

     Contracts receivable                                   (250,000)              -           (250,000)
     Prepaid expenses and other                              109,389          60,647         (1,133,822)
     Accounts payable                                       (226,924)        (41,710)         1,117,865
     Accrued expenses and other                             (814,880)       (436,266)           771,833
                                                        -------------    ------------     --------------
       Net cash used for operating activities            (11,537,325)     (8,677,886)       (88,802,472)
                                                        -------------    ------------     --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sale/(Purchases) of short-term investments, net             50,049      (1,959,498)        (4,092,411)
  Purchases of property and equipment                        (81,431)       (993,672)        (6,023,181)
                                                        -------------    ------------     --------------
     Net cash used for investing activities                  (31,382)     (2,953,170)       (10,115,592)
                                                        -------------    ------------     --------------

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)
  Payments on capital lease obligations                     (107,270)       (123,576)          (260,743)
  Proceeds from notes payable and long-term debt                   -               -          3,951,327
  Payments on notes payable and long-term debt                     -               -         (1,951,327)
  Proceeds from Common stock, stock option
   and warrant issuances, net                              4,748,466      12,377,131         80,337,240
  Proceeds from Preferred stock, net                               -               -         24,210,326
  Purchase of treasury stock                                       -               -             (1,667)
                                                        -------------    ------------     --------------
        Net cash provided by financing activities          4,641,196      12,253,555        106,285,156
                                                        -------------    ------------     --------------

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                    (6,927,511)        622,499          7,367,092

CASH AND CASH EQUIVALENTS, beginning
   of period                                              14,294,603       7,944,264                  -
                                                        -------------    ------------     --------------

CASH AND CASH EQUIVALENTS, end of period               $   7,367,092    $  8,566,763     $    7,367,092
                                                       ==============   =============    ===============`

The accompanying notes to the consolidated financial statements are an integral part of these financial
statements.

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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 biopharmaceutical company. The Company does
not currently offer any products for sale. The Company is primarily focused on developing
melanocortin (MC)-based therapeutics, which the Company believes is one of the fastest
growing areas of pharmaceutical research and development. The MC family of receptors has
been identified with a variety of conditions and diseases, including sexual dysfunction,
obesity, anorexia, cachexia (extreme wasting, generally secondary to a chronic disease),
inflammation and drug abuse. The Companys objective is to become a worldwide leader
in MC-based therapeutics by pursuing a strategy based on commercializing the
Companys products under development and identifying new product targets through the
utilization of the Companys patented drug discovery platform.

PT-141,
the Companys lead therapeutic drug candidate, is a patented, nasally administered peptide
in clinical development for the treatment of both male and female sexual
dysfunction. The Company completed various Phase 1 safety studies and Phase 2A efficacy
studies in male subjects and patients. The Company completed a Phase 2B at-home
dose-ranging study with PT-141 in male patients. The Company also completed a Phase 1
safety study in female subjects. LeuTech® is the Companys proprietary
radiolabeled monoclonal antibody for imaging and diagnosing infections. The Company
commenced the biologics license application (BLA) amendment filings for equivocal
appendicitis to the Food and Drug Administration (FDA) in the first half of calendar year
2003, filed a majority of the responses to the FDA in September 2003 and anticipate
remitting the final BLA amendment filing to the FDA in the first quarter of calendar year
2004. The Company expects to receive a complete response from the FDA regarding its BLA
amendment filings in the first half of calendar year 2004. The Company is also conducting
additional clinical trials with LeuTech to expand its market potential as an imaging agent
for other indications such as osteomyelitis (infection deep inside a bone), fever of
unknown origin, post-surgical abscess, inflammatory bowel disease and pulmonary imaging.
In addition, the Company has several preclinical drug candidates under investigation based
on the MC family of receptors for various therapeutic indications including sexual
dysfunction, obesity, cachexia and inflammation utilizing its patented drug discovery
platform.

Key
elements of the Companys business strategy include: entering into alliances and
partnerships with pharmaceutical companies to facilitate the development, manufacture,
marketing, sale and distribution of the Companys product candidates under
investigation, expansion of the Companys pipeline through the utilization of its MC
expertise and patented drug discovery platform, opportunistic acquisition of synergistic
products and technologies and partial funding of the Companys development programs
with the cash flow from our LeuTech collaboration agreement.

Business
Risk and Liquidity  As shown in the accompanying financial statements, the Company
incurred a substantial net loss of $11,309,821 for the six months ended December 31,

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2003
and has a deficit accumulated during development stage of $102,118,646, cash and cash
equivalents of $7,367,092 and investments of $3,916,657 as of December 31, 2003. The
Company anticipates incurring additional losses in the future as it continues development
of LeuTech for diagnosis of appendicitis and expands clinical trials for other indications
of LeuTech and continues research and development of PT-141 and its MIDAS (Metal
Ion-induced Distinctive Array of Structures) technology. To achieve profitability, the
Company, alone or with others, must successfully develop and commercialize its
technologies and proposed products, by conducting pre-clinical studies and clinical
trials, obtaining 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.

The
Company has incurred negative cash flows from operations since its inception; the Company
has expended and expects to continue to expend in the future, substantial funds to
complete its planned product development efforts. The Company believes its existing
capital resources, including the funds received in January 2004 (see Note 7), will be
adequate to fund its projected operations through the fiscal year ending June 30, 2005,
based on current and projected expenditure levels. No assurance can be given that the
Company will not consume a significant amount of its available resources before that time.
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 through strategic collaboration agreements or
other resources. Should appropriate sources of financing not be available, management
would delay certain clinical trials and research activities until such time as appropriate
financing was available. There can be no assurance that the Companys financing
efforts will be successful. If adequate funds are not available, the Companys
financial condition and results of operations will be materially and adversely affected.

(2)    
          Basis of Presentation:

The
accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q. Accordingly, they do not include all
of the information and footnote disclosures required to be presented for complete
financial statements. In the opinion of management, these financial statements contain all
adjustments (consisting of only normal recurring adjustments) considered necessary to
present fairly the financial position as of December 31, 2003 and the results of
operations and cash flows for the three and six month periods ended December 31, 2003 and
2002 and for the period from January 28, 1986 (inception) to December 31, 2003. The
results of operations for the six month period ended December 31, 2003 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 ending June 30, 2004.

The
accompanying financial statements should be read in conjunction with the audited financial
statements and notes thereto included in our annual report on Form 10-K, filed with the
Securities and Exchange Commission, which includes financial statements as of June 30,
2003 and 2002 and for each of the three fiscal years ended June 30, 2003.

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(3)    
          Summary of Significant Accounting Policies:

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

Use
of Estimates  The preparation of consolidated 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 amount of assets and
liabilities and disclosure of 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.

Statements
of Cash Flows  Cash and cash equivalents include cash on hand, cash in banks and all
highly liquid investments with an original maturity of less than three months. As of
December 31, 2003 and June 30, 2003, approximately $428,000 of cash was restricted to
secure letters of credit for security deposits on leases.

Investments
 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 principally of corporate debt securities and mutual funds. Unrealized holding
gains and losses, net of the related tax effect, if any, are excluded from earnings and
are reported in other comprehensive income and as a separate component of
stockholders equity until realized. Interest on securities classified as available
for sale is included in interest income. Realized gains and losses are recorded in the
statement of operations in the period that the transaction occurs.

The following is a summary of
available for sale investments as of December 31, 2003:

`Gross           Gross
                                         Unrealized       Unrealized
                             Cost           Gains           Losses       Fair Value
                          ----------     ----------       ----------     ----------
Corporate debt
securities                $   50,000     $    1,013       $        -     $   51,013
                          ----------     ----------       ----------     ----------

Mutual funds              $4,000,140              -       $  134,496     $3,865,736
                          ----------     ----------       ----------     ----------

Total                     $4,050,140     $    1,013       $  134,496     $3,916,657
                          ==========     ==========       ==========     ==========`

The following is a summary of available
for sale investments as of June 30, 2003:

`Gross           Gross
                                         Unrealized       Unrealized
                             Cost           Gains           Losses       Fair Value
                          ----------     ----------       ----------     ----------
Corporate debt
securities                $  100,000     $    2,243                -     $  102,243

Mutual funds               4,000,189              -           14,048      3,986,141
                          ----------     ----------       ----------     ----------

Total                     $4,100,189    $     2,243       $   14,048     $4,088,384
                          ==========     ==========       ==========     ==========`

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Impairment
of Long-Lived Assets  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,
management evaluates the probability that future undiscounted net cash flows, without
interest charges, will be less than the carrying amount of the assets. 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 future 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. Revenue from corporate collaborations and licensing agreements
consists of up-front fees, research and development funding, and milestone payments.
Non-refundable up-front fees are deferred and amortized to revenue over the related
performance period. The Company estimates the performance period as the initial research
term. The actual performance period may vary. The Company will adjust the performance
period estimate based upon available facts and circumstances. Periodic payments for
research and development activities and government grants are recognized over the period
that the Company performs the related activities under the terms of the agreements.
Revenue resulting from the achievement of milestone events stipulated in the agreements is
recognized when the milestone is achieved. Milestones are based on the occurrence of a
substantive element specified in the contract or as a measure of substantive progress
towards completion under the contract.

The
Company recognized $250,000 and $2,000,000, respectively, for the three and six months
ended December 31, 2003 in contract revenue related to the attainment of certain
milestones related to LeuTech pursuant to our collaboration agreement, as amended, with
Mallinckrodt, Inc., a division of Tyco International, Ltd., described below, compared to
$35,000 and $460,000, respectively, for the three and six months ended December 31, 2002.

In
August 1999, the Company entered into a strategic collaboration agreement with
Mallinckrodt, Inc. to jointly develop and market one of its proposed products. Under the
terms of the agreement, the Company granted a worldwide license, excluding Europe, for
sales, marketing and distribution and received a non-refundable licensing fee of $500,000.
The licensing fee was recognized as revenue in the period that such non-refundable fees
were received.

In
fiscal 2001, the Company adopted U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101 Revenue Recognition in Financial Statements (SAB
101) which requires up front, non-refundable license fees to be deferred and
recognized over the performance period. The cumulative effect of adopting SAB 101 resulted
in a one-time, non-cash charge of $361,111 or $0.04 per share, which reflects the deferral
of the $500,000 up-front license fee received from Mallinckrodt in August 1999. Under SAB
101, this payment has been recorded as deferred revenue to be recognized as license
revenue over the remaining development term of this agreement. For the three and six
months ended December 31, 2003, the Company recognized $2,893 and $8,681, respectively, in
license revenue that was included in the cumulative effect adjustment as of July 1, 2000,
compared to $13,891 and $27,781, respectively, for the three and six months ended December
31, 2002

In
May 2002, the Company entered into an agreement with Mallinckrodt to amend the original
agreement. Under the terms of this amended agreement, Mallinckrodt committed,

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among other
things, up to an additional $3.2 million, subject to certain conditions and attainment of
certain milestones, to cover half of the Companys estimated expenses associated with
completing the FDA review process of LeuTech. Pursuant to, and upon execution of this
amendment, $800,000 was received. Under SAB 101, this payment has been recorded as
deferred revenue to be recognized as license revenue over the remaining development term
of this agreement. For the three and six months ended December 31, 2003, the Company
recognized $38,461 and $115,384, respectively, in license revenue under this agreement,
compared to $184,614 and $369,228, respectively, for the three and six months ended
December 31, 2002.

Research and Development Costs 
The costs of research and development activities are charged to expense as incurred.

Stock
Options  The Company applies the intrinsic-value-based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25), and related interpretations, to account
for its fixed-plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock exceeded the
exercise price. Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation (SFAS 123), established accounting and
disclosure requirements using a fair-value-based method of accounting for stock-based
employee compensation plans. As permitted by SFAS 123, as amended in Statement of
Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure, an Amendment of FASB Statement No. 123 (SFAS
148), the Company has elected to continue to apply the intrinsic-value-based method
of accounting described above, and has adopted only the disclosure requirements of SFAS
123.

The
Company applies APB 25 and the related interpretations in accounting for its stock option
plans. Had compensation cost for the Companys common stock options been determined
based upon the fair value of the options at the date of grant, as prescribed under SFAS
123, as amended by SFAS 148, the Companys net loss attributable to common
stockholders and net loss per common share would have been equal to the following pro
forma amounts:

`Three Months Ended December 31, Six Months Ended December 31,
                                                 --------------- --------------- ------------------- ---------
                                                      2003            2002             2003            2002
                                                 ------------------------------- -----------------------------
Net loss attributable to common stockholders:
  As reported                                    $(4,590,465)    $(4,450,289)    $(11,309,821)    $(8,566,854)
  Stock based employee compensation
    expense included in the determination
    of net loss as reported                          308,415               -          778,815               -
  Impact of total stock-based compensation
    expense determined under fair-value
    based method                                    (724,009)       (439,826)      (1,490,469)       (807,780)
                                                 ------------    ------------    -------------    ------------

  Pro forma                                      $(5,006,059)    $(4,890,115)    $(12,021,475)    $(9,374,634)
                                                 ============    ============    =============    ============
Basic and diluted net loss per common share:
  As reported                                    $     (0.10)    $     (0.18)    $      (0.26)    $     (0.38)
  Impact of stock based compensation, net of tax       (0.01)          (0.02)           (0.01)          (0.04)
                                                 ------------    ------------    -------------    ------------
  Pro forma                                      $     (0.11)    $     (0.20)    $      (0.27)    $     (0.42)
                                                 ============    ============    =============    ============`

The assumptions used in the
Black-Scholes option-pricing model are as follows: dividend yield of 0%, weighted average
risk-free interest rate of 3.30% in 2003 and 3.05 % in 2002, expected volatility of 92.7%
in 2003 and 101% in 2002, and an expected option life of 7 years.

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Income
Taxes  The Company and its subsidiaries 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, Accounting for Income Taxes
(SFAS 109). 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 temporary 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 carry-forwards.

Net
Loss per Common Share  The Company applies Statement of Financial Accounting
Standards No. 128, Earnings per Share (SFAS 128). 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 net income (loss) attributable to common stockholders 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 and warrants. For the three and six months ended December 31, 2003
and 2002, 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 13,372,779 shares of
Common Stock at prices ranging from $0.01 to $21.70 per share were outstanding as of
December 31, 2003.

(4)    
          Accrued Expenses:

Accrued expenses consist of the following:

`December 31, 2003     June 30, 2003
                                 -----------------     -------------
      Product development costs     $  540,200           $  784,007

      Accrued rent                     325,263              397,872

      Other                            367,537              437,503
                                    ----------           ----------
                                    $1,233,000           $1,619,382
                                    ==========           ==========`

(5)    
          Commitments and Contingencies:

Leases
 The Company currently leases two facilities in New Jersey under non-cancelable
operating leases and is seeking to terminate one of those leases, for the Companys
former corporate offices in Princeton. In July 2002, the Company moved into a new facility
in Cranbury, New Jersey that combined both the research and development facility in
Edison, New Jersey and the corporate offices in Princeton, New Jersey.

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As
of December 31, 2003, the Company has accrued approximately $45,200 related to the
Companys share of estimated costs until termination of the Princeton lease, which is
currently being subleased.

Capital
Leases  In September 2002, the Company acquired $417,920 of equipment under capital
leases. The term of these leases range from 24 to 60 months. As of December 31, 2003,
$157,177 of principal payments remains outstanding pursuant to these lease obligations.

License
Agreements  The Company has three license agreements that require minimum yearly
payments. The cost to maintain these license agreements for the fiscal year ending June
30, 2004 amounts to $250,000, of which $50,000 was paid during the three months ended
December 31, 2003 under these agreements.

(6)    
          Income Tax Benefit:

In
December 2003 and December 2002, the Company sold New Jersey net operating losses pursuant
to the New Jersey Economic Development Authoritys Tax Transfer Program. As a result,
the Company received $240,836 and $245,093, respectively, which is reflected as an income
tax benefit in the statement of operations.

(7)    
          Subsequent Event:

On
January 28, 2004, the Company concluded a private placement of its common stock and
warrants, which yielded gross proceeds of approximately $22.7 million. Pursuant to the
private placement, investors purchased 6,992,500 million shares of common stock at $3.25
per share. The 1,048,875 of five year warrants was equivalent to 15% of the total number
of shares of common stock sold, at an exercise price of $4.06. The net proceeds of
approximately $21.0 million will be used for the continued development of PT-141, LeuTech,
drug discovery efforts and general corporate purposes.

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

The
following discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes filed as part of this report.

Statements
in this quarterly report on Form 10-Q, as well as oral statements that may be made by
Palatin or by officers, directors, or employees of Palatin acting on Palatins
behalf, that are not historical facts constitute forward-looking statements
which are made pursuant to the safe harbor provisions of Section 21E of the Securities
Exchange Act of 1934. The forward-looking statements in this quarterly report on Form 10-Q
do not constitute guarantees of future performance. Investors are cautioned that
statements which are not strictly historical statements contained in this quarterly report
on Form 10-Q including, without limitation, current or future financial performance,
managements plans and objectives for future operations, clinical trials and results,
product plans and performance, managements assessment of market factors, as well as
statements regarding the strategy and plans of the company and its strategic partners,
constitute forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the actual results of the
Company to be materially different from the historical results or from any results
expressed or implied by such forward-looking statements. The Companys future
operating results are subject to risks and uncertainties and are dependent upon many
factors, including, without limitation, the risks identified in our annual report on Form
10-K for the year ended June 30, 2003, as well as in our other Securities and Exchange
Commission filings.

We
expect to incur additional losses in the future as we continue development of LeuTech for
diagnosis of appendicitis and expand clinical trials for other indications of LeuTech and
continue research and development of PT-141 and our MIDAS technology. Operating losses may
fluctuate from quarter to quarter as a result of differences in the timing of when we
incur expenses.

Critical Accounting
Policies

Our
significant accounting policies are described in Note 3 to the consolidated financial
statements included in this report. We believe our most critical accounting policy is
revenue recognition. Revenue from corporate collaborations and licensing agreements
consists of up-front fees, research and development funding, and milestone payments.
Non-refundable up-front fees are deferred and amortized to revenue over the related
performance period. We estimate our performance period as the initial research term. The
actual performance period may vary. We will adjust the performance period estimate based
upon available facts and circumstances. Periodic payments for research and development
activities and government grants are recognized over the period that we perform the
related activities under the terms of the agreements. Revenue resulting from the
achievement of milestone events stipulated in the agreements is recognized when the
milestone is achieved. Milestones are based on the occurrence of a substantive element
specified in the contract or as a measure of substantive progress towards completion under
the contract.

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Overview

We are a development stage
biopharmaceutical company primarily focused on developing melanocortin (MC)-based
therapeutics, which we believe is one of the fastest growing areas of pharmaceutical
research and development. The MC family of receptors has been identified with a variety of
conditions and diseases, including sexual dysfunction, obesity, anorexia, cachexia
(extreme wasting, generally secondary to a chronic disease), inflammation and drug abuse.
Our objective is to become a worldwide leader in MC-based therapeutics by pursuing a
strategy based on commercializing our products under development and identifying new
product targets through the utilization of our patented drug discovery platform.

PT-141,
our lead therapeutic drug candidate, is a novel, patented, nasally administered peptide
that is in clinical development for the treatment of both male and female sexual
dysfunction. We have completed various Phase 1 safety studies and Phase 2A efficacy
studies in male subjects and patients. We have completed a Phase 2B at-home dose-ranging
study with PT-141 in male patients. We have also completed a Phase 1 safety study in
female subjects. LeuTech® is our proprietary radiolabeled monoclonal antibody for
imaging and diagnosing infections. We commenced the biologics license application (BLA)
amendment filings for equivocal appendicitis to the Food and Drug Administration (FDA) in
the first half of calendar year 2003, filed a majority of the responses to the FDA in
September 2003 and anticipate remitting the final BLA amendment filing to the FDA in the
first quarter of calendar year 2004. We expect to receive a complete response from the FDA
regarding our BLA amendment filings in the first half of calendar year 2004. We are also
conducting additional clinical trials with LeuTech to expand its market potential as an
imaging agent for other indications such as osteomyelitis (infection deep inside a bone),
fever of unknown origin, post-surgical abscess, inflammatory bowel disease and pulmonary
imaging. In addition, we have several preclinical drug candidates under investigation
based on the MC family of receptors for various therapeutic indications including sexual
dysfunction, obesity, cachexia and inflammation utilizing our patented drug discovery
platform.

Products and Technologies
in Research and Development

We
do not currently offer any products for sale. We are concentrating our efforts on the
following proposed products and indications:

PT-141.
          PT-141, our lead therapeutic drug candidate, is a novel, patented, nasally
          administered peptide that is under investigation for the treatment of both male
          erectile dysfunction (MED) and female sexual arousal disorders (FSAD). We have
          completed various Phase 1 safety studies and Phase 2A efficacy studies in male
          subjects and patients. We have completed a Phase 2B at-home dose-ranging study
          with PT-141 in male patients. We have also completed a Phase 1 safety study in
          female subjects. PT-141 is a synthetic analog of the naturally occurring hormone
          alpha-MSH (melanocyte-stimulating hormone). It is an MC receptor-based
          therapeutic. The MSH class of hormones, are potent regulators of a variety of
          physiological and behavioral functions, including the natural physiological
          sexual response. Our research suggests that PT-141 works through activation of
          MC receptors in the central nervous system rather than acting directly on the
          vascular system, which is a different mechanism of action from currently
          marketed MED therapies. As a result, it may offer significant safety and
          therapeutic benefits over currently marketed products.

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MED
is defined as the consistent inability to attain and maintain an erection sufficient for
sexual intercourse. The condition is correlated with increasing age, cardiovascular
disease, hypertension, diabetes, hyperlipidemia and smoking. In addition, certain
prescription drugs and psychogenetic issues may contribute to MED. According to the
Massachusetts Male Aging Study, more than 50% of men aged 40-70 report episodes of MED and
more than 30 million men in the United States may be afflicted with some form of MED, with
less than 20% seeking treatment. The current market size for MED is estimated to be more
than $2 billion per year. FSAD is a multifactorial condition that has anatomical,
physiological, medical, psychological and social components. Studies estimate FSAD is
prevalent in approximately 50% of women over the age of 30 and that greater than 35
million women in the United States may be afflicted with some form of FSAD. Female sexual
dysfunction includes disorders associated with desire, arousal, orgasm and pain. There is
tremendous competition to develop, market and sell drugs for the treatment of MED and
FSAD.

LeuTech®.
          LeuTech is a proprietary, radiolabeled monoclonal antibody under investigation
          for imaging and diagnosing infections. When injected into the blood stream,
          LeuTech binds to white blood cells present at the infection site, labeling these
          cells with a radioactive tracer. As a result, physicians can rapidly image and
          detect an infection using a gamma camera, a common piece of hospital equipment
          that records radioactivity. LeuTech offers the advantage of direct injection and
          in-vivo labeling of white blood cells leading to a rapid and highly specific
          functional image of an infection in less than an hour, whereas the current
          standard of care, ex-vivo labeled white blood cells, requires a blood sample to
          be taken from the patient, processed by a nuclear pharmacy and then re-injected
          into the patient, with diagnostic images not available until 12-24 hours later.

In
December 1999, the FDA accepted our LeuTech BLA for the diagnosis of appendicitis in
patients with equivocal signs and symptoms. In July 2000, the FDA Medical Imaging Drugs
Advisory Committee (MIDAC) unanimously voted that LeuTech is safe and effective for use in
the diagnosis of appendicitis in patients with equivocal signs and symptoms and that the
data presented support the clinical utility of LeuTech in managing these patients. In
September 2000, we received a complete response letter from the FDA where they determined
that the efficacy and safety data were complete, yet additional manufacturing and process
validation data were required prior to final approval. We are working to resolve the
outstanding issues. We commenced the BLA amendment filings to the FDA in the first half of
calendar year 2003 and anticipate remitting the final BLA amendment filing to the FDA in
the first quarter of 2004. We expect to receive a complete response from the FDA regarding
our BLA amendment filings in the first half of calendar year 2004.

We
are currently conducting Phase 2 studies with LeuTech for detection of other infections,
including osteomyelitis, fever of unknown origin, post-surgical abscess, inflammatory
bowel disease and pulmonary imaging.

Each
year, more than 250,000 Americans are diagnosed with the infection, acute appendicitis. A
timely and accurate diagnosis of this infection is crucial to ensure timely treatment and
to prevent complications for the patient. A delay can entail hospital observation,
outpatient treatment or surgery and can lead to increased risk of peritonitis, sepsis and
other complications. Conversely, a mis-diagnosed patient may experience unneeded hospital
observation or unneeded surgery, which is expensive, inconvenient and utilizes limited
resources. Every year, more than 350,000 patients present with equivocal appendicitis.
This is when a specific diagnosis is uncertain and further testing is needed. In this
situation, it is not

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always clear if the patient has appendicitis or another medical
problem; nor is it exactly clear where the site of infection is located.

We
believe that LeuTech may improve patient diagnosis for appendicitis and that it has the
potential to improve diagnosis of other acute and chronic infections, such as
osteomyelitis, fever of unknown origin, post-surgical abscess, inflammatory bowel disease
and pulmonary imaging.

Strategic
Collaboration Agreement with Mallinckrodt. On May 13, 2002, we entered into an agreement
with Mallinckrodt, Inc., a division of Tyco International, Ltd., to amend our Strategic
Collaboration Agreement dated as of August 17, 1999. Under the terms of the original
agreement, in addition to other provisions, Mallinckrodt paid us a licensing fee of
$500,000 and an additional $13 million to purchase 700,000 restricted unregistered shares
of our preferred stock. We shared LeuTech development expenses prior to FDA approval
equally with Mallinckrodt. Mallinckrodt agreed to pay us milestone payments of an
additional $10 million on FDA approval of the first LeuTech indication and on attainment
of certain sales goals following product launch. We agreed to be responsible for the
manufacture of LeuTech and Mallinckrodt agreed to pay us a transfer price on each product
unit transferred to Mallinckrodt and a royalty on the net sales of LeuTech.

Under
the terms of the amended agreement, Mallinckrodt has committed up to an additional $3.2
million, subject to certain conditions and attaining certain milestones, to offset a
portion of the estimated expenses associated with completing the FDA review process.
Additionally, timing of the original $10 million in milestone payments has been revised to
coincide with LeuTechs anticipated FDA approval and achievement of future sales
goals. Of the $3.2 million, $2.95 million has been paid to date. We expect to receive the
remaining $0.25 million in the first quarter of calendar year 2004.

MIDAS
(Metal Ion-induced Distinctive Array of Structures). MIDAS is a proprietary platform
technology that allows us to routinely design and synthesize novel pharmaceuticals that
mimic the activity of peptides, but which we believe offer significant advantages to
conventional protein or peptide-based drugs. MIDAS uses metal ions to fix the
three-dimensional shape of peptides, forming conformationally rigid molecules that remain
folded specifically in their active forms. These MIDAS molecules are simple to synthesize,
are chemically and proteolytically stable, and have the potential to be orally
bioavailable. Moreover, unlike most other drug discovery approaches, we believe that MIDAS
is unique in that it can be used to generate either receptor antagonists (drugs that block
a particular metabolic response) or agonists (drugs that promote a particular metabolic
response). In addition, MIDAS molecules are information-rich and provide data on
structure-activity relationships that can be used to design traditional small molecule
drugs.

We
have initiated a MIDAS program to discover and develop compounds that interact with the MC
family of receptors. MC receptors regulate a diverse array of functions such as
pigmentation, adrenocortical function, immune modulation, sexual arousal and energy
maintenance. Based on this effort, we have identified several MIDAS molecules that are now
in preclinical development as potential treatments for sexual dysfunction, obesity,
cachexia and inflammation. We expect to file an IND for at least one of these preclinical
compounds and initiate clinical testing in the first half of calendar year 2004.

Generation
of commercially viable protein and peptide drug molecules with desirable properties
continues to be arduous, expensive and labor-intensive. We believe that our MIDAS

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technology simplifies the development process by eliminating many of the inherent
limitations associated with peptides and proteins. We intend to seek to enter into
strategic alliances or collaborative arrangements to provide additional financial and
technical resources for MIDAS development.

Results of Operations

Three and Six Month Periods Ended
December 31, 2003 Compared to Three and Six Month Periods Ended December 31, 2002.

Grants
and Contracts  For the three and six months ended December 31, 2003, we recognized
$250,000 and $2,000,000, respectively, in contract revenue related to LeuTech pursuant to
our collaboration agreement with Mallinckrodt, Inc., a division of Tyco International,
Ltd., compared to $35,000 and $460,000 for the three and six months ended December 31,
2002. The increase in contract revenue was attributable to the achievement of milestone
events stipulated in the collaboration agreement. We had no revenue from grants recorded
for the three and six months ended December 31, 2003 and December 31, 2002.

License
Fees and Royalties  During the fiscal year ended June 30, 2001, we adopted U.S.
Securities and Exchange Commission Staff Accounting Bulletin No. 101 Revenue
Recognition in Financial Statements (SAB 101), which requires up-front,
non-refundable license fees to be deferred and recognized over the performance period. The
cumulative effect of adopting SAB 101 resulted in a one-time, non-cash charge of $361,111
in fiscal 2001, which reflects the deferral portion of an up-front license fee received
from Mallinkrodt, Inc. related to licensing of LeuTech recognized in the fiscal year ended
June 30, 2000. Previously we had recognized up-front license fees when they were received
and we had no obligations to return the fees under any circumstances. Under SAB 101 these
payments are recorded as deferred revenue to be recognized over the remaining term of the
related agreements. For the three and six months ended December 31, 2003, we recorded
$41,354 and $124,065, respectively, of license revenue compared to $198,505 and $397,009,
respectively, for the three and six months ended December 31, 2002. For the three and six
months ended December 31, 2003, $2,893 and $8,681, respectively, of the license revenue
recorded was included in the cumulative effect adjustment as of July 1, 2000 and $38,461
and $115,384, respectively, was recorded as a result of the initial $800,000 payment
received from Mallinckrodt pursuant to our amended collaboration agreement in May 2002.
For the three and six months ended December 31, 2002, $13,891 and $27,781, respectively,
of license revenue recorded was included in the cumulative effect adjustment as of July 1,
2000 and $184,614 and $369,228, respectively, was recorded as a result of the initial
$800,000 payment received from Mallinckrodt.

Research
and Development Research and development expenses (R&D) increased
overall to $3,814,355 and $10,832,717 for the three and six months ended December 31, 2003
compared to $3,683,007 and $7,271,531, respectively, for the three and six months ended
December 31, 2002. The increase in R&D is primarily related to our increased
development efforts and expanding clinical trials of PT-141 and LeuTech. Our R&D
efforts, and their respective allocated costs, are currently concentrated on the
following:

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| |  | PT-141: As of December 31, 2003, we have incurred approximately $26.6 million
in allocated R&D expenses. For the three and six
months ended December 31, 2003, approximately $1.6 million and $4.5 million, respectively,
of R&D expense was allocated to PT-141 compared to approximately $1.6 million and $3.5
million, respectively, for the three and six months ended December 31, 2002. We anticipate
incurring approximately $10 million over the next 12 months as we progress with our
clinical trials and product development programs. We will seek to enter into a strategic
collaboration agreement, which we anticipate will offset a portion of the estimated costs.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | LeuTech: As of December 31, 2003, we have incurred approximately $45.4 million in
allocated R&D expenses. For the three and six months ended December 31, 2003,
approximately $1.4 million and $4.8 million, respectively, of R&D expense was
allocated to LeuTech compared to approximately $1.3 million and $2.4 million,
respectively, for the three and six months ended December 31, 2002. We anticipate
incurring approximately $4 million of expenses over the next 12 months.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | MIDAS: As of December 31, 2003, we have incurred approximately $11.2 million in allocated
R&D expenses. For the three and six months ended December 31, 2003, approximately $0.8
million and $1.5 million, respectively, of R&D expense was allocated to MIDAS compared
to approximately $0.8 million and $1.4 million, respectively, for the three and six months
ended December 31, 2002. Based on this effort, we have identified several molecules that
are now in preclinical development as potential treatments for obesity, sexual dysfunction
and inflammation. We expect to file an Investigational New Drug Application
(IND) with the FDA for at least one of these preclinical compounds and
initiate clinical testing in the first half of calendar year 2004. We anticipate incurring
approximately $4 million of expenses over the next 12 months.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

General
and Administrative  General and administrative expenses increased to $1,388,657 and
$3,003,329, respectively, for the three and six months ended December 31, 2003 compared to
$1,191,806 and $2,371,433, respectively, for the three and six months ended December 31,
2002. The increase in general and administrative expenses is mainly attributable to an
increase in salaries and other stock based compensation and related personnel expenses.

Interest
Income  Interest income increased to $86,573 and $173,091 for the three and six
months ended December 31, 2003 compared to $50,455 and $96,959 for the three and six
months ended December 31, 2002. The increase in interest income is due to higher amounts
of cash, cash equivalents and investments available to be invested.

Net
Loss  Net loss increased overall to $4,590,465 and $11,309,821 for the three and six
months ended December 31, 2003 compared to $4,351,949 and $8,451,055 for the three and six
months ended December 31, 2002. The increase was attributable to the increase in expenses
explained above.

Liquidity and Capital
Resources

Since
inception, we have incurred net operating losses. As of December 31, 2003, we had a
deficit accumulated during development stage of $102,118,646. We have financed our net
operating losses through December 31, 2003 by a series of debt and equity financings. As
of December 31, 2003, we had cash and cash equivalents of $7,367,092 and investments of

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$3,916,657. On January 28, 2004, we concluded a private placement of our common stock and
warrants, which yielded gross proceeds of approximately $22.7 million. Pursuant to the
private placement, investors purchased 6,992,500 million shares of common stock at $3.25
per share. The 1,048,875 of five year warrants was equivalent to 15% of the total number
of shares of common stock sold, at an exercise price of $4.06. The net proceeds of
approximately $21.0 million will be used for the continued development of PT-141, LeuTech,
drug discovery efforts and general corporate purposes.

Our
product candidates are at various stages of research and development and may never be
successfully developed or commercialized. We will need regulatory approval to market and
sell LeuTech for diagnosis of appendicitis, as well as for PT-141, MIDAS and LeuTech for
other indications. PT-141, MIDAS and LeuTech for other indications will require
significant further research, development and testing. We may experience uncertainties,
delays, difficulties and expenses commonly experienced by development stage
bio-pharmaceutical companies, which may include unanticipated problems and additional
costs relating to:

| | the development and testing of
     products in animals and humans;
|- | -------------------------------------------------------------------
|  |                                                                    
| | product approval or clearance;                                     
|  |                                                                    
| | regulatory compliance;                                             
|  |                                                                    
| | good manufacturing practices;                                      
|  |                                                                    
| | intellectual property rights;                                      
|  |                                                                    
| | product introduction; and                                          
|  |                                                                    
| | marketing and competition.                                         

Failure to obtain regulatory approval
of LeuTech, or delays in obtaining regulatory approval of LeuTech for the diagnosis of
appendicitis, would eliminate or delay our potential revenues from sales of LeuTech. This
could make it more difficult to attract investment capital for the continued funding of
LeuTech or our other research and development projects. Any of these possibilities could
materially and adversely affect our operations.

During
the six months ended December 31, 2003, our operating activities used net cash of
approximately $11.5 million and during the six months ended December 31, 2002 our
operating activities used net cash of approximately $8.7 million. The increase resulted
primarily from increased R&D spending on both PT-141 and LeuTech.

During
the six months ended December 31, 2003, we used cash in investing activities of $31,382
consisting of $81,431 in capital expenditures partially offset by $50,049 received
pursuant to the maturity of a bond. During the six months ended December 31, 2002, we used
cash in investing activities of approximately $3.0 million, consisting of approximately
$2.0 million for purchases of investment securities and approximately $1.0 million of
capital expenditures.

During
the six months ended December 31, 2003, net cash provided by financing activities was
approximately $4.6 million, consisting of approximately $4.7 million from the exercise of
common stock options and warrants, partially offset by approximately $107,000 for payments
on capital lease obligations. During the six months ended December 31, 2002, net cash
provided by financing activities was approximately $12.3 million, consisting of

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approximately $12.4 million from the proceeds of the sale of common stock and warrants,
partially offset by approximately $124,000 for payments on capital lease obligations.

We
have three license agreements that require minimum yearly payments. Future minimum
payments under the license agreements are: 2004  $250,000, 2005  $200,000,
2006  $200,000, 2007  $200,000 and 2008  $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 efforts. We expect that our existing capital resources, including the
funds we received in January 2004, will be adequate to fund our projected operations
through the fiscal year ending June 30, 2005, based on current and projected expenditure
levels. No assurance can be given that we will not consume a significant amount of our
available resources before that time. We plan to continue to refine our operations,
control expenses, evaluate alternative methods to conduct our business and seek available
and attractive sources of financing and sharing of development costs through strategic
collaboration agreements or other resources. Should appropriate sources of financing not
be available, we would delay certain trials and research activities until such time as
appropriate financing was available.

We
anticipate incurring additional losses over at least the next few years. 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,
obtaining required regulatory approvals and successfully manufacturing 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.

Item 3. Quantitative and Qualitative
Disclosures About Market Risk.

Interest
Rate Risk. Our exposure to market risk related to changes in interest rates relates
primarily to our investment portfolio. We invest in instruments that meet high credit
quality standards, and we limit the amount of credit exposure as to any one issue, issuer
and type of investments.

As
of December 31, 2003, our cash and cash equivalents were $7,367,092 and investments, which
consisted of corporate debt securities and mutual funds, were $3,916,657. Due to the
average maturity and conservative nature of our investment portfolio, we do not believe
that short term fluctuations in interest rates would materially affect the value of our
investments.

Item 4. Controls and Procedures.

Evaluation
of Disclosure Controls and Procedures. Our chief executive officer and chief financial
officer, after evaluating the effectiveness of our disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered

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by this Quarterly Report on Form 10-Q, have concluded that, based on their evaluation, our
disclosure controls and procedures were adequate and effective to ensure that material
information relating to Palatin, including our consolidated subsidiaries, was made known
to them by others within those entities, particularly during the period in which this
Quarterly Report on Form 10-Q was being prepared.

Changes
in Internal Controls. There were no significant changes in our internal controls over
financial reporting or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, nor were there any significant deficiencies or
material weaknesses in our internal controls over our financial reporting. Accordingly, we
did not require or undertake any corrective actions.

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Table of Contents

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.

At our annual meeting of stockholders
which convened on December 5, 2003, the stockholders:

| | elected seven directors; and                                                                                             
|- | -------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                          
| | ratified the appointment of
     KPMG LLP as our independent public accountants for the fiscal year ending June 30, 2004.

Common stock and Series A convertible
preferred stock voted as a single class on all matters. The following tables show the
votes cast.

|Election of
     directors:       | For        | Witheld
     Authority | Broker
     Non-votes
|--------------------------------- | ---------- | ---------------------- | ---------------------
|                                  |            |                        |                      
|Carl Spana,
     Ph.D.            | 26,927,547 | 352,290                | 0                    
|                                  |            |                        |                      
|John K.A. Prendergast,
     Ph.D. | 26,833,447 | 446,390                | 0                    
|                                  |            |                        |                      
|Perry B. Molinoff,
     M.D.      | 26,833,447 | 446,390                | 0                    
|                                  |            |                        |                      
|Robert K. deVeer,
     Jr.        | 26,852,647 | 427,190                | 0                    
|                                  |            |                        |                      
|Zola P. Horovitz,
     Ph.D.      | 26,852,647 | 427,190                | 0                    
|                                  |            |                        |                      
|Robert I. Taber,
     Ph.D.       | 26,852,647 | 427,190                | 0                    
|                                  |            |                        |                      
|Errol De Souza, Ph.D.             | 26,946,872 | 332,965                | 0                    

|Item:                       | For        | Against | Abstentions | Broker
     Non-votes
|--------------------------- | ---------- | ------- | ----------- | ---------------------
|                            |            |         |            
|Ratification of accountants | 26,921,785 | 129,631 | 228,421     | 0                    

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Table of Contents

Abstentions and broker non-votes were
counted neither for nor against the election of officers or the ratification of
accountants.

Item 5. Other Information.

None.

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

(a)  
          Exhibits filed with this report:

| | 10.1 | Stock Purchase Agreement dated as of January 26, 2004, between Palatin technologies, Inc.
and the purchasers listed in Appendix A; including form of warrant.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 31.1 | Certification of Chief Executive Officer
| | ---- | ----------------------------------------

| | 31.2 | Certification of Chief Financial Officer
| | ---- | ----------------------------------------

| | 32.1 | Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 32.2 | Certification of principal financial officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------

(b)    
          Reports on Form 8-K

| | On November 6, 2003, we filed a
     current report on Form 8-K reporting an Item 5 event regarding the presentation of positive
     safety and efficacy data from our Phase 2B "at home" study of PT-141 for male sexual
     dysfunction.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Table of Contents

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)                                                                                                       
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|                        |  |                                                                                                                                               
|                        |  |                                                                                                                                               
|                        |  |                                                                                                                                               
|Date: February 17, 2004 |  | /s/ Carl
     Spana Carl
     Spana, Ph.D. President and  Chief Executive Officer                                                             
|                        |  |                                                                                                                                               
|                        |  |                                                                                                                                               
|Date: February 17, 2004 |  | /s/ Stephen T. Wills Stephen T. Wills Executive Vice President and  Chief Financial Officer
     (Principal  Financial and Accounting Officer)

24

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