---

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549  FORM 10-QSB  [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 small business issuer as specified in its charter)   Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)103 Carnegie Center - Suite 200Princeton, New Jersey
     08540(Address of principal executive
     offices)
     (Zip Code)  (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 May 11, 2000, 7,869,886 shares of the Issuer's common stock, par value
$.01 per share, were outstanding.

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

---

PALATIN TECHNOLOGIES, INC.
                            Table of Contents

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                                       |       
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------
|        |                                                                                                                                                                                                                        |       
|        | CONSOLIDATED BALANCE SHEETS -- As of
     March 31, 2000and June 30, 1999                                                                                                                                              | Page 3
|        |                                                                                                                                                                                                                        |       
|        | CONSOLIDATED STATEMENTS OF
     OPERATIONS -- For the Three and Nine Months Ended March 31, 2000
     and March 31, 1999 and the Period from January 28, 1986
     (Commencement of Operations) through March 31, 2000 | Page 4
|        |                                                                                                                                                                                                                        |       
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS
     --For the Nine Months Ended March 31, 2000 and March 31,
     1999 and the Period from January 28, 1986 (Commencement of
     Operations) through March 31, 2000            | 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
|        |                                                                                                                                                                                                                        |       

|Item 1.    | Legal Proceedings                                        | Page 12
|---------- | -------------------------------------------------------- | -------
|           |                                                          |        
|Item 2.    | Changes in Securities and Use of
     Proceeds           | Page 12
|           |                                                          |        
|Item 3.    | Defaults Upon Senior Securities                          | Page 12
|           |                                                          |        
|Item 4.    | Submission of Matters to a Vote of
     Security Holders | Page 12
|           |                                                          |        
|Item 5.    | Other Information                                        | Page 12
|           |                                                          |        
|Item 6.    | Exhibits and Reports on Form 8-K                         | Page 13
|           |                                                          |        
|Signatures |                                                          | Page 13

-2-

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

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

`March 31, 2000   June 30, 1999
                                                                        --------------   -------------
ASSETS
Current assets:
  Cash and cash equivalents                                              $  5,497,252    $  2,788,628
  Accounts receivable                                                       2,563,834               -
  Prepaid expenses and other                                                  452,297         147,780
                                                                         -------------   -------------
      Total current assets                                                  8,513,383       2,936,408

Fixed assets, net of accumulated depreciation and amortization
  of  $855,223 and $676,362, respectively                                   1,566,723       1,457,605
Restricted cash                                                               263,075         185,000
Other                                                                          57,527         144,032
                                                                         -------------   -------------
                                                                         $ 10,400,708    $  4,723,045
                                                                         =============   =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                       $  1,118,298    $  1,116,894
  Accrued expenses                                                            461,011       1,264,893
                                                                         -------------   -------------
      Total current liabilities                                             1,579,309       2,381,787
                                                                         -------------   -------------

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

Commitments and contingencies

Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 32,761 and 42,484 shares issued and outstanding
      as of March 31, 2000 and June 30, 1999, respectively;                       328             425
    Series B Convertible; 2,000 and 13,575 shares issued and outstanding
      as of March 31, 2000 and June 30, 1999; respectively;                        20             136
    Series C Convertible; 700,000 shares issued and outstanding
      as of March 31, 2000;                                                     7,000               -
  Common stock of $.01 par value - authorized 75,000,000 shares;
    Issued and outstanding 7,837,726 and 7,137,595 shares as of
      March 31, 2000 and June 30, 1999, respectively;                          78,377          71,376
  Additional paid-in capital                                               50,075,775      35,610,243
  Unamortized deferred compensation                                                 -         (18,558)
  Deficit accumulated during development stage                            (41,340,101)    (35,322,364)
                                                                         -------------   -------------
      Total stockholder's equity                                            8,821,399        341,258
                                                                         -------------   -------------

                                                                         $ 10,400,708    $  4,723,045
                                                                         =============   =============`

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

-3-

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

`Inception
                                                                                             (January 28,
                                         Three Months Ended           Nine Months Ended      1986) through
                                              March 31,                    March 31,           March 31,
                                         2000          1999           2000          1999         2000
                                     ------------  ------------  ------------  ------------  -------------
REVENUES:
  Grants and contracts               $ 1,428,099    $   59,977   $ 3,687,690    $   59,977      6,992,319
  License fees and royalties                   -             -       500,000       550,000      1,734,296
  Other                                        -             -             -             -        318,917
                                     ------------  ------------  ------------  ------------  -------------
    Total revenues                     1,428,099        59,977     4,187,690       609,977      9,045,532
                                     ------------  ------------  ------------  ------------  -------------

OPERATING EXPENSES:
  Research and development             2,105,623     2,472,449     6,929,905     6,815,312     30,567,574
  General and administrative           1,236,742       578,773     3,542,426     1,968,237     18,327,427
  Net intangibles write down                   -             -             -             -        259,334
                                     ------------  ------------  ------------  ------------  -------------
    Total operating expenses           3,342,365     3,051,222    10,472,331     8,783,549     49,154,335
                                     ------------  ------------  ------------  ------------  -------------

OTHER INCOME (EXPENSES):
  Interest income                        107,537        32,748       293,926       117,968      1,242,326
  Interest expense                        (1,161)      (12,523)      (27,022)      (70,123)    (1,948,624)
  Merger costs                                 -             -             -             -       (525,000)
                                     ------------  ------------  ------------  ------------  -------------
    Total other income (expenses)        106,376        20,225       266,904        47,845     (1,231,298)
                                     ------------  ------------  ------------  ------------  -------------
NET LOSS                              (1,807,890)   (2,971,020)   (6,017,737)   (8,125,727)   (41,340,101)

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

NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS                  $(1,807,890)  $(2,971,020)  $(6,017,737)  $(8,125,727)  $(44,461,626)
                                     ============  ============  ============  ============  =============

Basic and diluted net loss per
  common share                       $     (0.24)        (0.53)        (0.82)        (1.64)  $     (28.10)
                                     ============  ============  ============  ============  =============
Weighted average number of common
  shares outstanding used in
  computing basic and diluted
  net loss per common share             7,461,321     5,646,652     7,301,911     4,959,922      1,582,512
                                     ============  ============  ============  ============  =============`

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

-4-

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

`Inception
                                                                                     (January 28, 1986)
                                                       Nine Months Ended March 31,       Through
                                                           2000            1999       March 31, 2000
                                                      ------------    ------------    -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                             $(6,017,737)    $(8,125,727)    $(41,340,101)
 Adjustments to reconcile net loss to net cash
  used for operating activities:
   Depreciation and amortization                          186,366         174,604        1,023,645
   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         485,985        4,521,426
   Changes in certain operating assets and liabilities:
    Accounts receivable                                (2,563,834)              -       (2,563,834)
    Prepaid expenses and other                           (304,517)        112,755       (1,161,998)
    Accounts payable                                        1,404         981,606        1,117,398
    Accrued expenses                                     (803,882)       (390,090)             744
                                                      ------------    ------------    -------------
      Net cash used for operating activities           (8,407,142)     (7,310,867)     (36,025,430)
                                                      ------------    ------------    -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                    (287,980)        (43,602)      (2,477,288)
                                                      ------------    ------------    -------------

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         (2,000,000)       (757,511)      (3,951,327)
  Proceeds from Common stock, stock option
   and warrant issuances, net                             403,746       7,488,360       17,791,311
  Proceeds from preferred stock                        13,000,000               -       26,210,326
  Purchase of treasury stock                                    -               -           (1,667)
                                                      ------------    ------------    -------------
      Net cash provided by financing activities        11,403,746       6,730,849       43,999,970
                                                      ------------    ------------    -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                  2,708,624        (623,620)       5,497,252

CASH AND CASH EQUIVALENTS, beginning
  of period                                             2,788,628       4,511,187                -
                                                      ------------    ------------    -------------
CASH AND CASH EQUIVALENTS, end of period               $5,497,252      $3,887,567       $5,497,252
                                                      ============    ============    =============`

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

-5-

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®, 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) metallopeptide technology (MIDAS
     technology).

Business Risk and Liquidity -- As shown in the
accompanying financial statements, the Company incurred net losses of $6,017,737
for the nine months ended March 31, 2000 and has a deficit accumulated during
development stage of $41,340,101. The Company anticipates incurring additional
losses in the future, 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 approximately $3,212,100 as contract
revenue during the nine months ended March 31, 2000, of which approximately
$2,972,600 was related to the shared development costs and $239,500 was related
to product direct costs of LeuTech.

On March 14, 2000 the Company announced that it will not be
extending the merger consummation date of March 31, 2000 for its previously
announced proposed merger with San Diego-based Molecular Biosystems, Inc. and
will not be proceeding with the merger. Palatins decision not to proceed
with the merger is based on managements view that the merger is not
currently in the best interests of its stockholders. The Company has recently
been notified of legal proceedings filed by Molecular Biosystems Inc. with
respect to the termination of their proposed merger proceedings.

On March 15, 2000 the Company entered into an agreement with
Watson Laboratories, Inc. (f/k/a TheraTech, Inc.) to terminate their License and
Development Agreement dated March 18, 1998. In connection with the settlement,
the Company paid approximately $500,000.

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-

(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
disclosure normally included in the Company's audited annual financial
statements has been condensed or omitted in the Company's interim financial
statements. In the opinion of the Company, these financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of March 31, 2000 and
June 30, 1999, and the results of operations for the three and nine month
periods ended March 31, 2000 and 1999 and for the period from inception (January
28, 1986) to March 31, 2000 and cash flows for the nine months ended March 31,
2000 and 1999, and for the period from inception (January 28, 1986) to March 31,
2000. The results of operations for the interim periods 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, 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
fiscal 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 and Cash Equivalents -- 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 March 31,
2000 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. Impairment is measured at fair value. Fair value
is determined by an evaluation or 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.

-7-

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

In connection with the issuance of Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101), the Company is
required to defer such amount and recognize revenue over the estimated period to
be benefited. The period to be benefited will be five years. The Company will
report a change in accounting principle and will record the impact of this
change as cumulative effect in its statement of operations no later than the
first fiscal quarter ending September 30, 2000.

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 nine
months ended March 31, 2000 and 1999 and for the period from inception (January
28, 1986) through March 31, 2000, 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 5,366,516 shares of common stock at prices ranging from
$0.20 to $306 per share were outstanding at March 31, 2000.

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 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.

-8-

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 accompanying notes filed as part of this
report. Unless otherwise indicated, all references to Palatin include our 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 Nine Month Periods Ended March 31, 2000 Compared to
Three and Nine Month Periods Ended March 31, 1999.

Cash and cash equivalents -- Cash and cash equivalents
increased to $5,497,252 at March 31, 2000 from $2,788,628 at June 30, 1999. The
increase was due to the receipt of funds, approximately $11,450,000 net, from
the collaboration agreement signed with Mallinckrodt, Inc (see "Liquidity and
Capital Resources," below).

Accounts receivable -- Accounts receivable increased
to $2,563,834 at March 31, 2000 from nothing at June 30, 1999. The increase was
due to the recognition of contract revenue pursuant to the collaboration
agreement with Mallinckrodt (see "Liquidity and Capital Resources," below), and
approximately $358,000 of grant funds.

Grants and contracts -- We recorded $1,070,159 and
$3,212,059, respectively, as contract revenue during the three and nine month
periods ended March 31, 2000 related to the shared development costs and product
direct costs of LeuTech, pursuant to the strategic collaboration agreement with
Mallinckrodt, as opposed to no contract revenue for the three and nine month
periods ended March 31, 1999. Also during the three and nine month periods ended
March 31, 2000, we recognized $357,940 and $475,631, respectively, as revenue
under the Small Business Innovation Research (SBIR) and the Small
Business Technology Transfer (STTR) programs of the Department of
Health and Human Services (DHHS). Grant revenue, consisting of only
the STTR program, was $59,977 for the three and nine month periods ended March
31, 1999. In addition, we recognized $500,000 in license fees from Mallinckrodt
as revenue during the nine months ended March 31, 2000 compared to $550,000 in
license fees as revenue during the nine months ended March 31, 1999 related to
the termination of a license option agreement with Nihon Medi-Physics Co. Ltd.
This $550,000 was previously reported as deferred license revenue.

-9-

Research and development -- Research and development
expenses decreased to $2,105,623 for the three month period ended March 31, 2000
compared to $2,472,449 for the three month period ended March 31, 1999. The
decrease was attributable to a reduction in consulting expenses. Research and
development expenses increased to $6,929,905 for the nine month period ended
March 31, 2000 compared to $6,815,312 for the nine month period ended March 31,
1999. The increase was primarily due to development of the LeuTech product for
diagnostic imaging of infections, including increased expenses for manufacturing
scale-up, consulting and clinical trials. We expect research and development
expenses to continue to increase in future quarters as we expand research and
manufacturing efforts on the LeuTech product and expand efforts to develop PT-14
and MIDAS technology.

General and administrative -- General and administrative
expenses increased to $1,236,742 for the three month period ended March 31, 2000
compared to $578,773 for the three month period ended March 31, 1999 and
expenses increased to $3,542,426 for the nine month period ended March 31, 2000
compared to $1,968,237 for the nine month period ended March 31, 1999. The
increase in general and administrative expenses is mainly attributable to the
recognition of stock-based compensation expense pursuant to SFAS No. 123. The
increase is also attributable to the recognition of approximately $550,000 of
merger-related costs previously reported as prepaid expenses, payment of
performance bonuses and increases in salaries and insurance premiums.

Interest income -- Interest income increased to
$107,537 and $293,926 respectively for the three and nine month periods ended
March 31, 2000 compared to $32,748 and $117,968 respectively for the three and
nine month periods ended March 31, 1999. 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
$1,161 and $27,022 respectively for the three and nine month periods ended March
31, 2000 compared to $12,523 and $70,123 respectively for the three and nine
month periods ended March 31, 1999. The decrease in interest expense is due to
the repayment of notes payable and long term debt.

Net loss -- Net loss decreased to $1,807,890 and
$6,017,737 respectively for the three and nine month periods ended March 31,
2000 compared to $2,971,020 and $8,125,727 respectively for the three and nine
month periods ended March 31, 1999. The decrease is attributable to revenues
earned related to cost sharing provisions pursuant to the strategic
collaboration agreement with Mallinckrodt along with the receipt of grant
revenue from DHHS.

Liquidity and Capital Resources

Since inception, we have incurred net operating losses and, as
of March 31, 2000, had an accumulated deficit during development stage of
$41,340,101. We have financed our net operating losses through March 31, 2000 by
a series of debt and equity financings. At March 31, 2000, we had cash and cash
equivalents of $5,497,252, accounts receivable of $2,563,834 and prepaid
expenses and other assets of $452,297, and working capital of
$6,934,074.

For the nine months ended March 31, 2000, the net increase in
cash amounted to $2,708,624. Cash used for operating activities was $8,407,142,
net cash used for investing activities was $287,980 and cash provided by
financing activities was $11,403,746.

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

-10-

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:

| | received an exclusive worldwide license (excluding Europe)
     for sales, marketing and distribution of LeuTech and paid a licensing fee
     of $500,000;                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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;                                                                                                                                             
| | agreed to reimburse Palatin for 50% of all ongoing LeuTech
     development costs, subject to a cap, which can be amended;                                                                                                                                                                                                              
| | 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;                                                                                                                                                      
| | purchased 700,000 restricted shares of Palatins
     non-voting Series C convertible preferred stock for $13,000,000;                                                                                                                                                                                                                  
| | 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; and
| | was repaid $2,000,000 in principal plus $46,489 of interest
     in connection with a subordinated non-negotiable promissory note.                                                                                                                                                                                                      

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 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.

-11-

PART II - OTHER INFORMATION

Item 1.     Legal
Proceedings.

On March 14, 2000 the Company announced that it will not be
extending the merger consummation date of March 31, 2000 for its previously
announced proposed merger with San Diego-based Molecular Biosystems, Inc. and
will not be proceeding with the merger. Palatin's decision not to proceed with
the merger is based on management's view that the merger is not currently in the
best interests of its stockholders.

On or about April 28, 2000, Molecular Biosystems, Inc. ("MBI")
commenced an action (the "Action") against the Company and against Evergreen
Merger Corporation ("Evergreen"), a wholly owned subsidiary or the Company, in
the Superior Court of the State of Delaware, County of New Castle. In its
complaint, MBI seeks damages against the Company and Evergreen arising from the
alleged improper termination by the defendants of a merger agreement dated
November 11, 1999 among MBI, the Company and Evergreen pursuant to which
Evergreen would merge with and into MBI and become a wholly owned subsidiary of
the Company.

As a consequence of the claims alleged in the complaint, MBI
contends that it is entitled to an award of damages against the Company and
Evergreen in amounts to be determined at the trial of the Action but, in any
event, at least equal to $1,765,305, representing the amount of a "breakup fee"
of $1,000,000 provided for in the agreement and $765,305 for the costs and
expenses incurred by MBI in connection with the merger. In addition, MBI seeks
consequential damages in an unstated amount plus interest and MBI's costs and
expenses of the Action.

Management believes that its has good and meritorious defenses
to the Action and intends vigorously to defend the Action.

Item
2.     Changes in Securities and Use of Proceeds.

Item
3.     Defaults Upon Senior Securities.

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

Item 5.     Other
Information.

On March 30, 2000, we announced that the U.S. Patent and
Trademark Office issued patent 6,027,711 relating to the Company's MIDAS peptide
technology. This is the second MIDAS patent to issue having claims that cover
the design and synthesis of conformationally constrained metallo-peptides. MIDAS
is a platform technology for design and development of receptor selective agents
for use as therapeutics or imaging. Our first MIDAS therapeutic agent, for
treating obesity, is in animal testing and management anticipates receiving
results within three months. In addition, we have several MIDAS-based cancer
imaging agents that have demonstrated efficacy in animal models and management
is currently deciding which will move forward to clinical trials.

-12-

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

(a) Exhibits



| | 27.1 Financial Data Schedule                                                                                                  
| | ------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                               
| | 99.1 Press Release dated March 14, 2000 concerning
     discontinuation of the proposed merger with Molecular Biosystems, Inc.

(b) Reports on Form
8-K

| | None.
| | -----

Signatures

|                   |  | Palatin Technologies, Inc.
     (Registrant)                                                                                                               
|------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                            
|                   |  |                                                                                                                                                            
|                   |  |                                                                                                                                                            
|Date: May 11, 2000 |  | /s/ Stephen T. Wills
     Stephen T. Wills
     Executive Vice President and Chief Financial
     Officer (Principal Financial and
     Accounting Officer)

-13-