---

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  For the quarterly period ended March 31, 2002  or  [  ]
     TRANSITION REPORT PURSUANT TO SECTION 13 OR
     15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from ___________ to
__________  Commission file number 0-22686     PALATIN TECHNOLOGIES, INC.(Exact name of registrant 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)  Registrant's telephone number:  (609)
520-1911


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

As of May 15, 2002, 16,327,932 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 March 31, 2002and June 30, 2001                                                                                                                           | Page 3 
|        |                                                                                                                                                                                                     |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --  For the Three and Nine Months Ended March 31, 2002 and
      March 31, 2001 and the Period from January 28, 1986
      (inception) through March 31, 2002 | Page 4 
|        |                                                                                                                                                                                                     |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --  For the Nine Months Ended March 31, 2002 and 
     March 31, 2001 and the Period from January 28, 1986 
     (inception) through March 31, 2002           | Page 5 
|        |                                                                                                                                                                                                     |        
|        | Notes to Consolidated Financial
     Statements                                                                                                                                                     | Page 6 
|        |                                                                                                                                                                                                     |        
|Item 2. | Management's Discussion and Analysis of
     Financial Condition
     and Results of Operations                                                                                                     | Page 10
|        |                                                                                                                                                                                                     |        
|Item 3. | Quantitative and Qualitative
     Disclosures About Market Risk                                                                                                                                     | Page 13
|        |                                                                                                                                                                                                     |        

|Item 1. | Legal Proceedings                                        | Page 14
|------- | -------------------------------------------------------- | -------
|        |                                                          |        
|Item 2. | Changes in Securities and Use of
     Proceeds           | Page 14
|        |                                                          |        
|Item 3. | Defaults Upon Senior Securities                          | Page 14
|        |                                                          |        
|Item 4. | Submission of Matters to a Vote of
     Security Holders | Page 14
|        |                                                          |        
|Item 5. | Other Information                                        | Page 14
|        |                                                          |        
|Item 6. | Exhibits and Reports on Form 8-K                         | Page 15
|        |                                                          |        

|Signatures | Page 16
|---------- | -------

2

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Table of Contents

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

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

`March 31, 2002     June 30, 2001
                                                                       --------------     -------------
ASSETS
Current assets:
  Cash and cash equivalents                                             $ 10,651,972      $ 11,456,424
  Prepaid expenses and other                                                 215,591           204,731
                                                                        -------------     -------------
      Total current assets                                                10,867,563        11,661,155

Property and equipment, net                                                2,024,548         1,924,962
Restricted cash                                                              613,075           613,075
Other                                                                        187,098            45,017
                                                                        -------------     -------------
                                                                        $ 13,692,284      $ 14,244,209
                                                                        =============     =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                      $  1,542,263      $  1,129,660
  Accrued expenses                                                           850,974           397,119
  Accrued compensation                                                       177,086           607,286
  Deferred license revenue                                                    69,443           166,666
                                                                        -------------     -------------
      Total current liabilities                                            2,639,766         2,300,731
                                                                        -------------     -------------

Deferred license revenue                                                           -            27,778
                                                                        -------------     -------------

Commitments and contingencies (Note 4)


Stockholders' equity:
  Preferred stock of $.01 par value - authorized 10,000,000 shares;
    Series A Convertible; 26,567 and 29,317shares issued and outstanding
      as of March 31, 2002 and June 30, 2001, respectively;                      266               293
    Series C Convertible; 700,000 shares issued and outstanding
      as of March 31, 2002 and June 30, 2001 respectively;                     7,000             7,000
  Common stock of $.01 par value - authorized 75,000,000 shares;
      16,173,788 and 11,199,658 issued and outstanding shares as of
      March 31, 2002 and June 30, 2001, respectively;                        161,738           111,997
  Additional paid-in capital                                              76,138,681        65,981,568
  Deferred compensation                                                      (39,688)          (80,119)
  Unrealized loss on investments                                              (1,198)                -
  Deficit accumulated during development stage                           (65,214,281)      (54,105,039)
                                                                        -------------     -------------
      Total stockholders' equity                                          11,052,518        11,915,700
                                                                        -------------     -------------
                                                                        $ 13,692,284      $ 14,244,209
                                                                        =============     =============`

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

3

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Table of Contents

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

`Inception
                                                                                                                  (January 28,
                                                                                                                      1986)
                                                 Three Months Ended March 31,     Nine Months Ended March 31,       through
                                                      2002            2001             2002            2001      March 31, 2002
                                                 ------------    ------------    -------------    ------------   --------------
REVENUES:
  Grants and contracts                           $    57,772     $   101,551     $     57,772     $ 1,621,425     $  9,600,937
  License fees                                        41,667          41,667          125,001         125,001        2,025,964
  Other                                                    -               -                -               -          318,917
                                                 ------------    ------------    -------------    ------------    -------------
    Total revenues                                    99,439         143,218          182,773       1,746,426       11,945,818
                                                 ------------    ------------    -------------    ------------    -------------
OPERATING EXPENSES:
  Research and development                         3,537,765       2,423,701        8,889,591       7,128,819       51,745,878
  General and administrative                       1,123,885         589,535        3,039,047       2,139,584       25,416,162
  Net intangibles write down                               -               -                -               -          259,334
                                                 ------------    ------------    -------------    ------------    -------------
    Total operating expenses                       4,661,650       3,013,236       11,928,638       9,268,403       77,421,374
                                                 ------------    ------------    -------------    ------------    -------------
OTHER INCOME (EXPENSES):
  Interest income                                     64,527         264,710          246,587         631,197        2,388,152
  Interest expense                                    (1,018)           (558)          (2,374)         (4,187)      (1,958,328)
  Merger costs                                            -               -                -               -          (525,000)
                                                 ------------    ------------    -------------    ------------    -------------
    Total other income (expenses)                     63,509         264,152          244,213         627,010          (95,176)
                                                 ------------    ------------    -------------    ------------    -------------
    Loss before income taxes and cumulative
      effect of accounting change                 (4,498,702)     (2,605,866)     (11,501,652)     (6,894,967)     (65,570,732)
  Income tax benefit                                 230,400               -          392,410         325,152          717,562
                                                 ------------    ------------    -------------    ------------    -------------
    Loss before cumulative effect of
      accounting change                           (4,268,302)     (2,605,866)     (11,109,242)     (6,569,815)     (64,853,170)
  Cumulative effect of accounting change                   -               -                -        (361,111)        (361,111)
                                                 ------------    ------------    -------------    ------------    -------------
NET LOSS                                          (4,268,302)     (2,605,866)     (11,109,242)     (6,930,926)     (65,214,281)
PREFERRED STOCK DIVIDEND                                   -               -         (285,725)              -       (3,407,250)
                                                 ------------    ------------    -------------    ------------    -------------
NET LOSS ATTRIBUTABLE TO COMMON
  STOCKHOLDERS                                   $(4,268,302)    $(2,605,866)    $(11,394,967)    $(6,930,926)    $(68,621,531)
                                                 ============    ============    =============    ============    =============
Basic and diluted net loss per common share:
  Basic and diluted net loss before cumulative
   effect of accounting change                   $     (0.26)    $     (0.24)    $      (0.85)    $     (0.67)
Cumulative effect of accounting change           $     (0.00)    $     (0.00)    $      (0.00)    $     (0.04)
                                                 ------------    ------------    -------------    ------------
  Basic and diluted net loss                     $     (0.26)    $     (0.24)    $      (0.85)    $     (0.71)
                                                 ============    ============    =============    ============
Weighted average number of common shares
     outstanding used in computing basic and
     diluted net loss per common share            16,140,790      11,000,017       13,431,685       9,794,356
                                                 ============    ============    =============    ============`

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
                                                                                      (January 28,1986)
                                                         Nine Months Ended March 31,        Through
                                                              2002            2001      March 31, 2002
                                                        -------------    ------------   --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                              $(11,109,242)    $(6,930,926)    $(65,214,281)
  Adjustments to reconcile net loss to net cash
   used for operating activities:
     Cumulative effect of accounting change                        -         361,111          361,111
     Depreciation and amortization                           865,754         230,891        2,239,610
     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                    -         335,315        1,505,315
     Stock based compensation                                 40,431         109,375        3,651,347
     Deferred revenue                                       (125,001)       (125,001)        (291,668)
     Changes in certain operating assets and liabilities:
       Accounts receivable                                         -         761,088                -
       Prepaid expenses and other                           (160,448)        497,948       (1,345,880)
       Accounts payable                                      412,603        (280,815)       1,542,263
       Accrued expenses and other                             23,657          49,680          566,894
                                                        -------------    ------------   --------------

         Net cash used for operating activities          (10,052,246)     (4,991,334)     (54,607,999)
                                                        -------------    ------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sales/(Purchases) of investments, net                            -       2,155,617                 -
  Purchases of property and equipment                       (956,814)       (578,095)       (4,130,039)
                                                        -------------    ------------   --------------
         Net cash provided/(used) for investing
           activities                                       (956,814)      1,577,522       (4,130,039)
                                                        -------------    ------------   --------------

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                     -               -       (1,951,327)
  Proceeds from Common stock, stock option
     and warrant issuances, net                           10,204,608      15,005,138       43,181,351
  Proceeds from Preferred stock, net                               -               -       24,210,326
  Purchase of treasury stock                                       -               -           (1,667)
                                                        -------------    ------------   --------------

         Net cash provided by financing activities        10,204,608      15,005,138       69,390,010
                                                        -------------    ------------   --------------

NET INCREASE/(DECREASE)  IN CASH AND CASH
   EQUIVALENTS                                              (804,452)     11,591,326       10,651,972
CASH AND CASH EQUIVALENTS, beginning of period            11,456,424       3,219,593                -
                                                        -------------    ------------   --------------

CASH AND CASH EQUIVALENTS, end of period                $ 10,651,972     $14,810,919     $ 10,651,972
                                                        =============    ============    =============`

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

5

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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 is currently conducting clinical investigations with its lead drug,
PT-141, for the treatment of erectile dysfunction, and is developing additional
therapeutic compounds, discovered using its enabling peptide platform
technology, MIDAS. Additionally, Palatin is developing a product for
infection imaging, LeuTech®, based on a proprietary radiolabeled monoclonal
antibody.

Business
Risk and Liquidity  As shown in the accompanying financial statements,
the Company incurred substantial net losses of $11,109,242 for the nine months
ended March 31, 2002 and has a deficit accumulated during development stage of
$65,214,281 as of March 31, 2002. The Company anticipates incurring additional
losses in the future as it continues development of LeuTech for equivocal
appendicitis and expands clinical trials for other indications of LeuTech and
for PT-141, and continues research and development of PT-141 and its 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.

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.

(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 March 31, 2002 and the results of operations and cash
flows for the three and nine month periods ended March 31, 2002 and 2001 and for
the period from inception (January 28, 1986) to March 31, 2002. The results of
operations for the nine month period ended March 31, 2002 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, 2002.

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, 2001 and 2000.

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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 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.

Statements
of Cash Flows Cash and cash equivalents include cash on hand, cash in
banks and all highly liquid investments with a maturity of three months or less
at the time of purchase. As of March 31, 2002 and June 30, 2001, approximately
$613,000 of cash was restricted to secure letters of credit for security
deposits on leases.

Investments  We account for investments in accordance with
Statement of Financial Accounting Standards No. 115 Accounting For Certain
Investments in Debt and Equity Securities. We classify such investments as
available for sale investments and as such all investments are recorded at fair
value. The investments consist of commercial paper. Unrealized gains and losses
are classified as a separate component of stockholder's equity. Realized gains
and losses are recorded in the statement of operations in the period that the
transaction occurs.

Property and
Equipment  Property and equipment consist of office and laboratory
equipment, office furniture and leasehold improvements. Property and equipment
are recorded at cost. Depreciation is recognized using the straight-line method
over the estimated useful lives of five years for equipment, seven 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.

During 2001,
the Company entered into an agreement to lease a new facility in Cranbury, New
Jersey that will combine both the research and development facility in Edison,
New Jersey and the corporate offices in Princeton, New Jersey. The lease will
expire 10 years from commencement. The Company anticipates occupying the new
space in the second quarter of calendar year 2002. In connection with this move,
the Company has re-evaluated the useful life of certain existing leasehold
improvements at its Edison, New Jersey facility such that they will be
depreciated through June 30, 2002, when the Company anticipates vacating this
facility. This change in estimate resulted in increased depreciation expense
of approximately $635,000 in the statement of operations during the nine months
ended March 31, 2002 as compared to the same period in 2001.

In our
September 30 and December 31, 2001 Form 10-Qs, we previously recorded a charge
of $916,518 related to the impairment of the leasehold improvements at our
Edison, New Jersey facility. Given that we are still utilizing that facility
through June 2002, an impairment charge should not have been taken as previously
reported, but rather a change in the remaining estimated useful life of the
leasehold improvements, as discussed above, should have been made. Our results
of operations as presented in the accompanying statements of operations for the
three and nine months ended March 31, 2002 reflect the appropriate accounting
for the change in estimate. Had we accounted for the change in estimate
accurately, our previously reported net

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loss for the three months ended September 30, 2001 and six
months ended December 31, 2001 would have been lower by $744,133 and $496,089,
respectively.

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. In the fiscal year ended June 30, 2001, the
Company adopted U.S. Securities and Exchange Commission Staff Accounting
Bulletin No. 101 Revenue Recognition in Financial Statements
(SAB 101). SAB 101 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 $361,000, or $0.04
per share during the three months ended September 30, 2000. For the three and
nine months ended March 31, 2002 and 2001, the Company recognized $41,667 and
$125,001 of deferred license revenue, respectively.

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

Stock
Options and Warrants  Warrants and the majority of common stock
options issued to employees and non-employee directors 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 options. However,
stock options were granted to non-employees for services. The fair value of
these options, pursuant to the Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation" (SFAS 123),
as calculated by the Black-Scholes option pricing model, has been recorded as
deferred compensation and is being expensed over the vesting period of such
options. During the three and nine months ended March 31, 2002, the Company
recognized $9,855 and $40,431 of stock-based compensation expense, respectively.

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 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 three and nine months ended March 31, 2002
and 2001, 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
8,909,715 shares of Common Stock at prices ranging from $0.01 to $360 per share
were outstanding at March 31, 2002.

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(4)    Commitments and
Contingencies:

Leases
 The Company currently leases two facilities in New Jersey under
non-cancelable operating leases.

During 2001,
the Company entered into an agreement to lease a new facility in Cranbury, New
Jersey that will combine both the research and development facility in Edison,
New Jersey and the corporate offices in Princeton, New Jersey. The Company
anticipates occupying the new space in the second quarter of calendar year 2002.
The Companys anticipated cash outlay related to the move is projected at
approximately $1.6 million.

License
Agreements  The Company has three license agreements that require
minimum annual payments. The cost to maintain these license agreements for the
fiscal year ending June 30, 2002 amounts to $300,000. During the three months
ended March 31, 2002, $50,000 was expensed and an aggregate of $300,000 was
expensed during the nine months ended March 31, 2002 under these agreements.

(5)    Stockholders
Equity:

In November
2001, the Company concluded a private placement of its common stock and
warrants, which yielded gross proceeds of $11 million. Investors purchased
4,902,481 shares of common stock and 1,225,623 warrants at a market value of
approximately $2.25 per share. For every four shares purchased, the investors
also received a five-year warrant. Each warrant entitles the purchaser to
purchase one share of common stock at an exercise price of approximately $2.70
per share. Based on the sales price of the common stock and warrants in this
private placement, the conversion price of the Companys outstanding Series
A Preferred Stock and the exercise price of certain outstanding warrants have
been adjusted downward in accordance with the existing terms of those
securities. As a result, a non-cash, deemed dividend of $285,725 has been
reflected in the Companys consolidated statement of operations during the
three months ended December 31, 2001.

(6)    Income Tax Benefit:

In December
2001 and February 2002, the Company sold New Jersey Net Operating Losses
pursuant to the New Jersey Economic Development Agency's Tax Transfer Program.
As a result, the Company received an aggregate $392,410, which is reflected as
an income tax benefit in the statement of operations.

(7)    Subsequent Event:

On May 13,
2002, the Company entered into an agreement with Mallinckrodt, Inc., a division
of Tyco International, Ltd., to amend the Strategic Collaboration Agreement
dated as of August 17, 1999. Under the terms of the original agreement, in
addition to other provisions, Mallinckrodt agreed to pay Palatin a licensing fee
of $500,000 and an additional $13 million to purchase 700,000 restricted
unregistered shares of Palatin preferred stock. LeuTech development expenses
prior to approval were equally shared. Milestone payments of an additional $10
million were to be paid on FDA approval of the first LeuTech indication and on

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attainment of certain sales goals following product launch.
Palatin would manufacture LeuTech and receive a transfer price on each product
unit and a royalty on LeuTech net sales.

Under the terms
of the amended agreement, Mallinckrodt has committed up to an additional $3.2
million to cover half of Palatins estimated expenses associated with
completing the FDA review process. This additional funding is conditioned upon
attainment of certain milestones, and Palatin will receive $800,000 of such
amount within ten days of the execution of the amendment. Additionally, the $10
million milestone payment schedule to Palatin has been revised to coincide with
LeuTech®s anticipated marketing approval and achievement of future
sales goals.

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.

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 several of these factors
in our annual report on Form 10-K for the year ended June 30, 2001. 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 may 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 additional losses in the future as we continue development of LeuTech for
equivocal appendicitis and expand clinical trials for other indications of
LeuTech and for PT-141, 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.

Overview

We are an
emerging pharmaceutical company committed to the discovery, development and
commercialization of novel therapeutics. We do not currently offer any products
for sale. We are concentrating our efforts on the following:

| | MIDAS (Metal Ion-induced Distinctive
     Array of Structures) is a rational, synthetic platform for drug design
     and discovery. The system provides a rapid and efficient process to
     transform peptides into either peptidomimetic therapeutic leads or small
     molecule therapeutic leads. We believe MIDAS process and streamlined
     algorithms improve the productivity of the drug discovery process by
     eliminating the need for costly and time consuming high-throughput
     screening, x-ray crystallography, NMR (nuclear magnetic resonance), CADD
     (computer assisted drug design), or other laboratory and in silico
     tools currently used for
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|  | structure-based drug design. Several MIDAS
     derived compounds are now in preclinical development as potential
     treatments for sexual dysfunction, obesity and inflammation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | PT-141 is a new, nasally administered
     peptide for the potential treatment of sexual dysfunction. PT-141 is a
     synthetic analog of the naturally occurring hormone (alpha)-MSH
     (melanocyte-stimulating hormone). The MSH class of hormones are potent
     regulators of a variety of physiological and behavioral functions,
     including the natural physiological sexual response. We believe that PT-141
     may offer many potential advantages over current therapies for Erectile
     Dysfunction (ED). The nasal mode of administration is
     non-invasive and fast-acting. Its Central Nervous System (CNS)
     mechanism of action also offers several potential benefits for patients and
     medical practitioners over currently available phosphodiesterase
     (PDE) inhibitors that work through the vascular system to
     moderate blood flow. We have completed various Phase 1 studies and
     initiated a Phase 2A efficacy study in male patients and a
     proof-of-principle study in female patients in the first quarter of
     calendar year 2002. A placebo-controlled Phase 2B at home
     efficacy study in male patients is planned for the second half of calendar
     year 2002.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | LeuTech® is a radiolabeled
     monoclonal antibody that binds to white blood cells that collect at sites
     of infection, thus enabling the infection to be easily and rapidly imaged
     and detected with a gamma camera, a common piece of hospital equipment that
     records radioactivity. The FDA Medical Imaging Drugs Advisory Committee
     unanimously voted that LeuTech is safe and effective for the diagnosis of
     appendicitis. The FDA reviewed the biologics license application (BLA) and
     determined that the efficacy and safety data are complete, yet additional
     manufacturing and process validation data were required prior to final
     approval. We are working to resolve the outstanding issues and anticipate
     filing an amendment to the BLA in the second half of calendar year 2002.                                                                                                                                                                                                                                                                                                                                                                                                        

Results of Operations

Three and Nine Month Periods Ended March 31, 2002 Compared to
Three and Nine Month Periods Ended March 31, 2001.

Grants and
Contracts  There was no contract revenue related to the shared
development costs of LeuTech pursuant to our collaboration agreement with
Mallinckrodt, Inc., recorded for the three and nine months ended March 31, 2002
compared to $22,276 and $1,410,356, respectively, for the three and nine month
periods ended March 31, 2001. The decrease in contract revenue was attributable
to the cap on shared development costs of LeuTech pursuant to the agreement.
Grant revenue under both the Small Business Innovation Research and the Small
Business Technology Transfer programs of the Department of Health and Human
Services, decreased to $57,772 for both the three and nine months ended March
31, 2002 compared to $79,275 and $211,069, respectively, for the three and nine
months ended March 31, 2001.

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. Accordingly, the cumulative effect of
adopting SAB 101 resulted in a one-time, non-cash charge which reflected 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. For the three and nine months ended March 31, 2002 and 2001, we recorded
$41,667 and $125,001, respectively, of license revenue that was included in the
cumulative effect adjustment as of July 1, 2000.

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Research and
development  Research and development expenses increased to $3,537,765
and $8,889,591, respectively, for the three and nine month periods ended March
31, 2002 compared to $2,423,701 and $7,128,819, respectively, for the three and
nine month periods ended March 31, 2001. The increase in research and
development expenses is related to the expanding clinical trials and development
efforts of PT-141 and our MIDAS technology, and the further development costs
associated with LeuTech and the increase in depreciation expense due to a change
in the estimated useful lives of certain leasehold improvements. (See Note 3).

General and
administrative  General and administrative expenses increased to
$1,123,885 and $3,039,047, respectively, for the three and nine month periods

ended March 31, 2002 compared to $589,535 and $2,139,584,
respectively, for the three and nine month periods ended March 31, 2001. The
increase in general and administrative expenses is primarily attributable to an
increase in professional fees mainly related to legal fees and the increase in
salaries and related personnel expenses. We anticipate that this trend in legal
expenses to level off later this calendar year.

Interest
income  Interest income decreased to $64,527 and $246,587,
respectively, for the three and nine month periods ended March 31, 2002 compared
to $264,710 and $631,197, respectively, for the three and nine month periods
ended March 31, 2001. The decrease in interest income is mainly attributable to
the amount of funds available for investment purposes during the periods and
lower rates of return during 2002.

Net loss
 Net loss increased to $4,268,302 and $11,109,242, respectively, for the
three and nine month periods ended March 31, 2002 compared to $2,605,866 and
$6,930,926, respectively, for the three and nine month periods ended March 31,
2001. The increase was primarily attributable to the increase in expenses and
decrease in revenues explained above and the increase in depreciation expenses
related to our leasehold improvements of approximately $650,000, pursuant to our
planned move to Cranbury, New Jersey. (See Note 3).

Liquidity and Capital Resources

Since
inception, we have incurred net operating losses. As of March 31, 2002, we had a
deficit accumulated during development stage of $65,214,281. We have financed
our net operating losses through March 31, 2002 by a series of debt and equity
financings. At March 31, 2002, we had cash and cash equivalents of $10,651,972.

For the nine
months ended March 31, 2002, the net decrease in cash was $804,452. Net cash
used for operating activities was $10,052,246, net cash used by investing
activities was $956,814 and net cash provided by financing activities was
$10,204,608.

In November
2001, we concluded a private placement of our common stock and warrants, which
yielded gross proceeds of $11 million. Investors purchased 4,902,481 shares of
common stock and 1,225,623 warrants at a market value of approximately $2.25 per
share. For every four shares purchased, the investors also received a five-year
warrant. Each warrant entitles the purchaser to purchase one share of common
stock at an exercise price of approximately $2.70 per share. The net proceeds of
$10.2 million are being used primarily for general corporate purposes, including
the development and clinical trials of new products based on certain of our
proprietary technologies.

On May 13,
2002, we entered into an agreement with Mallinckrodt, Inc. to amend the
Strategic Collaboration Agreement dated as of August 17, 1999. Under the terms
of the amended

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agreement, Mallinckrodt has committed up to an additional $3.2
million to cover half of Palatin's estimated expenses associated with completing
the FDA review process. This additional funding is conditioned upon attainment
of certain milestones, and Palatin will receive $800,000 of such amount within
ten days of the execution of the amendment. Additionally, the $10 million
milestone payment schedule to Palatin has been revised to coincide with
LeuTech's anticipated marketing approval and achievement of future sales goals.

We have three
license agreements that require minimum yearly payments. Future minimum payments
under the license agreements are: 2002 - $300,000, 2003 - $300,000, 2004 -
$200,000, 2005 - $200,000 and 2006 - $200,000.

During 2001, we
entered into an agreement to lease a new facility totaling 28,000 square feet in
Cranbury, New Jersey that will combine both the research and development
facility in Edison, New Jersey and the corporate offices in Princeton, New
Jersey. We anticipate occupying the new space in the second quarter of calendar
year 2002. Our anticipated initial cash outlay related to the move is projected
at $1.6 million.

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 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.
We expect our existing capital resources, along with the additional funds
anticipated from Mallinckrodt, will be adequate to fund our projected operations
through calendar year 2002, 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-141and 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.

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 March 31,
2002, our cash and cash equivalents consisted of $10,651,972, most of which were
short term investments having an original maturity of less than three months.
Due to the average maturity and conservative nature of our investment portfolio,
we do not believe that short-term fluctuationsin interest rates would
materially affect the value of our securities.

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PART II - OTHER INFORMATION

Item 1. Legal
Proceedings.



On March 14,
2000, we announced that we would not be extending the merger closing date of
March 31, 2000 for our previously announced proposed merger with San Diego-based
Molecular Biosystems, Inc. and will not be proceeding with the merger. Our
decision not to proceed with the merger was based on management's view that the
merger was not in the best interests of our stockholders.

On or about
April 28, 2000, Molecular Biosystems commenced a legal action against us and
against Evergreen Merger Corporation, a wholly-owned subsidiary of the Company,
in the Superior Court of the State of Delaware, County of New Castle. In the
complaint, Molecular Biosystems seeks damages against us and Evergreen arising
from the alleged improper termination of the merger agreement dated November 11,
1999, among Molecular Biosystems, Palatin and Evergreen. Under the merger
agreement, Evergreen would have merged with and into Molecular Biosystems, which
would have become a wholly-owned subsidiary of ours.

As a
consequence of the claims alleged in the complaint, Molecular Biosystems
contends that it is entitled to an award of damages against us and Evergreen in
amounts to be determined at trial, but in any event, at least equal to
$1,765,305. This figure represents the amount of a breakup fee of
$1,000,000 provided for in the agreement and $765,305 for the purported costs
and expenses allegedly incurred by Molecular Biosystems in connection with the
proposed merger. In addition, Molecular Biosystems seeks consequential damages
in an unstated amount plus interest and Molecular Biosystems' costs and expenses
of the action.

In our response
filed in June of 2000, we have denied the material allegations. Management
believes that we have good and meritorious defenses to the action and we intend
vigorously to defend the action. On January 3, 2001, Alliance Pharmaceutical
Corp. (NASDAQ: ALLP) announced that it had completed its acquisition of
Molecular Biosystems. This litigation is currently in the discovery and
deposition phase.

Item 2. Changes in Securities and
Use of Proceeds.

None.

Item 3. Defaults Upon Senior
Securities.

None.

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

None.

Item 5. Other
Information.

Subsequent
Event:

On May 13,
2002, the Company entered into an agreement with Mallinckrodt, Inc., a division
of Tyco International, Ltd., to amend the Strategic Collaboration Agreement
dated as

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of August 17, 1999. Under the terms of the original agreement,
in addition to other provisions, Mallinckrodt agreed to pay Palatin a licensing
fee of $500,000 and an additional $13 million to purchase 700,000 restricted
unregistered shares of Palatin preferred stock. LeuTech development expenses
prior to approval are equally shared. Milestone payments of an additional $10
million were to be paid on FDA approval of the first LeuTech indication and on
attainment of certain sales goals following product launch. Palatin would
manufacture LeuTech and receive a transfer price on each product unit and a
royalty on LeuTech net sales.

Under the terms
of the amended agreement, Mallinckrodt has committed up to an additional $3.2
million to cover half of Palatins estimated expenses associated with
completing the FDA review process. This additional funding is conditioned upon
attainment of certain milestones, and Palatin will receive $800,000 of such
amount within ten days of the execution of the amendment. Additionally, the $10
million milestone payment schedule to Palatin has been revised to coincide with
LeuTech®s anticipated marketing approval and achievement of future
sales goals.

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

(a) Exhibits filed with this
report:



| | 10.1  Amendment To Strategic Collaboration Agreement. We have
     requested confidential treatment of certain provisions contained in Exhibit
     10.1.  The copy filed as an exhibit  omits the  information  subject to the
     confidentiality request.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(b) Reports on Form
8-K

| | None.
| | -----

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Signatures

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

|                   |  | Palatin Technologies, Inc.
     (Registrant)                                                                                                      
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                   
|                   |  |                                                                                                                                                   
|                   |  |                                                                                                                                                   
|Date: May 15, 2002 |  | /s/ Carl Spana
     Carl Spana, Ph.D.
     President and 
     Chief Executive Officer                                                            
|                   |  |                                                                                                                                                   
|                   |  |                                                                                                                                                   
|Date: May 15, 2002 |  | /s/ Stephen T. Wills Stephen T. Wills Executive
     Vice President and Chief Financial Officer (Principal  Financial
     and Accounting Officer)

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