---

U.S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549  FORM 10-Q  [X]
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934       [  ]
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934          PALATIN TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)   Delaware
     95-4078884(State or other jurisdiction of
     incorporation or organization)
     (I.R.S. Employer Identification
     No.)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 November 14, 2001, 11,201,361 shares of the issuer's common stock, par
value $.01 per share, were outstanding.

---

PALATIN TECHNOLOGIES, INC.
                            Table of Contents

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                                        |        
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                                         |        
|        | CONSOLIDATED BALANCE SHEETS --
     As of September 30, 2001and June 30, 2001                                                                                                                                           | Page 3 
|        |                                                                                                                                                                                                                         |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --  For the Three Months Ended September 30, 2001 and
      September 30, 2000 and the Period from January 28, 1986
      (Commencement of Operations) through September 30, 2001 | Page 4 
|        |                                                                                                                                                                                                                         |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --  For the Three Months Ended September 30, 2001 and 
     September 30, 2000 and the Period from January 28, 1986 
     (Commencement of Operations) through September 30, 2001 | 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 3. | Quantitative and Qualitative
     Disclosures About Market Risk                                                                                                                                                         | Page 12
|        |                                                                                                                                                                                                                         |        

|Item 1. | Legal Proceedings                                        | Page 13
|------- | -------------------------------------------------------- | -------
|        |                                                          |        
|Item 2. | Changes in Securities and Use of
     Proceeds           | Page 13
|        |                                                          |        
|Item 3. | Defaults Upon Senior Securities                          | Page 13
|        |                                                          |        
|Item 4. | Submission of Matters to a Vote of
     Security Holders | Page 13
|        |                                                          |        
|Item 5. | Other Information                                        | Page 13
|        |                                                          |        
|Item 6. | Exhibits and Reports on Form 8-K                         | Page 14
|        |                                                          |        
|        | Signatures                                               | Page 15

2

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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

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

`September 30, 2001   June 30, 2001
                                                                ------------------   --------------
ASSETS
Current assets:
  Cash and cash equivalents                                        $  8,620,538       $ 11,456,424
  Prepaid expenses and other                                            227,714            204,731
                                                                   -------------      -------------
      Total current assets                                            8,848,252         11,661,155

Property and equipment, net                                           1,042,377          1,924,962
Restricted cash                                                         613,075            613,075
Intangible assets, net                                                   42,514             45,017
                                                                   -------------      -------------
                                                                   $ 10,546,218       $ 14,244,209
                                                                   =============      =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                 $    902,328       $  1,129,660
  Accrued expenses                                                      765,456            397,119
  Accrued compensation                                                  397,086            607,286
  Deferred license revenue                                              152,777            166,666
                                                                   -------------      -------------
      Total current liabilities                                       2,217,647          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; 29,317 shares issued and outstanding
      as of September 30, 2001 and June 30, 2001, respectively;             293                293
    Series C Convertible; 700,000 shares issued and outstanding
      as of September 30, 2001 and June 30, 2001 respectively;            7,000              7,000
  Common stock of $.01 par value - authorized 75,000,000 shares;
    Issued and outstanding 11,199,658 shares as of
      September 30, 2001 and June 30, 2001;                             111,997            111,997
  Additional paid-in capital                                         65,981,568         65,981,568
  Deferred compensation                                                 (64,831)           (80,119)
  Deficit accumulated during development stage                      (57,707,456)       (54,105,039)
                                                                   -------------      -------------
                                                                      8,328,571         11,915,700
                                                                   -------------      -------------
                                                                   $ 10,546,218       $ 14,244,209
                                                                   =============      =============`

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

3

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

`Inception
                                                                                 (January 28, 1986)
                                                Three Months Ended September 30,      through
                                                      2001             2000      September 30, 2001
                                                 -------------    -------------  ------------------
REVENUES:
     Grants and contracts                        $          -     $    855,081     $  9,543,165
     License fees and royalties                        41,667           41,667        1,942,630
     Other                                                  -                -          318,917
                                                 -------------    -------------    --------------
          Total revenues                               41,667          896,748       11,804,712
                                                 -------------    -------------    --------------
OPERATING EXPENSES:
     Research and development                       1,891,247        2,455,597       44,747,534
     General and administrative                       899,899          706,575       23,277,014
     Loss on impairment of assets                     954,347                -          954,347
     Net intangibles write down                             -                -          259,334
                                                 -------------    -------------    --------------
          Total operating expenses                  3,745,493        3,162,172       69,238,229
                                                 -------------    -------------    --------------
OTHER INCOME (EXPENSES):
     Interest income                                  102,087           87,292        2,243,651
     Interest expense                                    (678)          (2,280)      (1,956,631)
     Merger costs                                           -                -         (525,000)
                                                 -------------    -------------    --------------
          Total other income/(expenses)               101,409           85,012         (237,980)
                                                 -------------    -------------    --------------

          Loss before income taxes and cumulative
            effect of accounting change            (3,602,417)      (2,180,412)     (57,671,497)
     Income tax benefit                                     -                -           325,152
                                                 -------------    -------------    --------------
          Loss before cumulative effect of
            accounting change                      (3,602,417)      (2,180,412)     (57,346,345)
     Cumulative effect of accounting change                 -         (361,111)        (361,111)
                                                 -------------    -------------    --------------
NET LOSS                                           (3,602,417)      (2,541,523)     (57,707,456)

PREFERRED STOCK DIVIDEND                                    -                -       (3,121,525)
                                                 -------------    -------------    --------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
                                                 $ (3,602,417)    $ (2,541,523)    $(60,828,981)
                                                 =============    =============    ==============

Basic and diluted net loss per common share
  Basic and diluted net loss before cumulative
    effect of accounting change                  $      (0.32)    $      (0.27)
  Cumulative effect of accounting change         $          -     $      (0.04)
                                                 -------------    -------------
  Basic and diluted net loss                     $      (0.32)    $      (0.31)
                                                 =============    =============

Weighted average number of common shares
     outstanding used in computing basic and
     diluted net loss per common share             11,199,611        8,080,352
                                                 =============    =============`

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

4

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

`Inception
                                                                                      (January 28, 1986)
                                                   Three Months Ended September 30,        Through
                                                         2001              2000       September 30, 2001
                                                     ------------     ------------    ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                           $(3,602,417)     $(2,541,523)      $(57,707,456)                                                                                          $
  Adjustments to reconcile net loss to net cash
    used for operating activities:
      Cumulative effect of accounting change                   -          361,111            361,111
      Depreciation and amortization                       77,464           69,120          1,451,320
      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
      Loss on impairment of assets                       954,347                -            954,347
      Settlement with consultant                               -                -            (28,731)
      Acceleration of options previously granted               -                -          1,505,315
      Stock based compensation                            15,288                -          3,626,204
      Deferred revenue                                   (41,667)         (41,667)          (208,334)
      Changes in certain operating assets and
       liabilities:
        Accounts receivable                                    -          158,082                  -
        Prepaid expenses and other                       (22,982)         147,591         (1,208,414)
        Accounts payable                                (227,332)        (312,358)           902,328
        Accrued expenses and other                       158,137          115,071            701,375
                                                     ------------     -------------     -------------
          Net cash used for operating activities      (2,689,162)      (2,044,573)       (47,244,914)
                                                     ------------     -------------     -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Purchases of short-term investments                      -         (675,733)                 -
      Purchases of property and equipment               (146,724)         (15,868)        (3,319,950)
                                                     ------------     -------------     -------------
          Net cash used for investing activities        (146,724)        (691,601)        (3,319,950)
                                                     ------------     -------------     -------------
 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                              -       10,547,809         32,976,743
      Proceeds from Preferred stock, net                       -                -         24,210,326
      Purchase of treasury stock                               -                -             (1,667)
                                                     ------------     -------------     -------------
          Net cash provided by financing activities            -       10,547,809         59,185,402
                                                     ------------     -------------     -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                (2,835,886)       7,811,635          8,620,538

CASH AND CASH EQUIVALENTS, beginning
   of period                                          11,456,424        3,219,593                  -
                                                     ------------     -------------     -------------

CASH AND CASH EQUIVALENTS, end of period             $ 8,620,538      $11,031,228        $ 8,620,538                                                                                           $
                                                     ============     =============     =============`

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 pharmaceutical company committed to
the discovery, development and commercialization of novel therapeutics. The
Companys product portfolio includes PT-141, a novel treatment currently in
development for erectile dysfunction, and LeuTech® a radioimaging
monoclonal antibody for the rapid diagnosis and detection of equivocal
appendicitis. Palatins patented drug discovery platform, MIDAS,
streamlines the drug discovery process with an efficient approach to identify
lead compounds from protein targets for drugs. The Companys pipeline
includes preclinical candidates from its proprietary MIDAS peptide-chemistry.

Business
Risk and Liquidity  As shown in the accompanying financial statements,
the Company incurred substantial net losses of $3,602,417 for the three
months ended September 30, 2001 and has a deficit accumulated during development
stage of $57,707,456 as of September 30, 2001. The Company anticipates
incurring additional losses in the future as it continues development of LeuTech
and expands clinical trials for other indications 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.

In November of
2001, the Company concluded a private placement of its common stock and
warrants, which yielded gross proceeds of approximately $11 million (see Note
5).

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. Management believes that it will be able to fund
the Companys operations through calendar year 2002, based on current
expenditure levels and including the receipt of the funds identified above.

## (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 September 30, 2001 and the results of operations and cash flows
for the three month period ended September 30, 2001 and 2000 and for the period
from January 28, 1986 (inception) to September 30, 2001. The results of
operations for the three month period ended September 30, 2001 may not
necessarily be indicative of the results of operations expected

6

---

for the full year, except that the Company expects to incur a
significant loss for the fiscal year ended 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 and for each of the three fiscal years in the
period ended June 30, 2001.

## (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 September 30, 2001 and June 30, 2001,
approximately $613,000 of cash was restricted to secure letters of credit for
security deposits on leases.

Property and
Equipment  Property and equipment consists 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 charged to expense as incurred while expenditures
that extend the useful life of an asset are capitalized.

Impairment
of Long-Lived Assets  The Company follows 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 of available price
information at which assets could be bought or sold including quoted market
prices, if available, or the present value of the estimated future discounted
cash flows based on reasonable and supportable assumptions.

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 first quarter of calendar year 2002. In connection with this move,
certain of the Companys existing leasehold

7

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improvements at its Edison, New Jersey facility have been
impaired, which resulted in a non-cash charge of $954,347 in the statement of
operations during the three months ended September 30, 2001.

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 months
ended September 30, 2001 and 2000, the Company recognized $41,667 of deferred
license revenue.

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 months ended September 30, 2001, the Company
recognized $15,288 of deferred compensation.

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 months ended September 30, 2001 and
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

8

---

purchase 6,551,021 shares of Common Stock at prices ranging from
$0.01 to $360 per share were outstanding at September 30, 2001.

## (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 lease will
expire 10 years from commencement. The Company anticipates occupying the new
space in the first 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 yearly payments. The cost to maintain these license agreements for the
fiscal year ending June 30, 2002 amounts to $300,000. There were no payments due
during the three months ended September 30, 2001 under these agreements.

## (5)     Subsequent
Event:

In November of
2001, the Company concluded a private placement of its common stock and
warrants, which yielded gross proceeds of approximately $11 million. Pursuant to
the private placement, on October 29, 2001, investors purchased approximately
4.9 million shares of common stock and approximately 1.225 million warrants, at
a market value of approximately $2.25 per share for the securities. For every
four shares purchased, the investors received a five-year warrant to purchase
one share of common stock at an exercise price equal to 120% of the per share
purchase price. The net proceeds of approximately $10.1 million, will be used
primarily for general corporate purposes, including the development and clinical
trials of new products based on certain of our proprietary technologies.

## 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 a number 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

9

---

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 and
expand clinical trials for other indications 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 a
development-stage 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 our
proprietary technology platform for drug design. This technology may be useful
to develop drugs to treat diseases or for diagnostic imaging. We are engaged in
research and development using this technology to diagnose infections and treat
sexual dysfunction, obesity and inflammation, and believe that this technology
may have applications in a variety of other areas as well, including immune
disorders, cancers and cardiology.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | PT-141, is a new, nasally administered peptide for the treatment of
sexual dysfunction. Our research suggests that PT-141 works through a mechanism
involving the central nervous system. We began human clinical testing of PT-141
for erectile dysfunction in the first quarter of calendar 2001. We have
completed a Phase 1 study and anticipate initiating a Phase 2 efficacy trial
later this calendar year.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | LeuTech®, is a product in development that is to be used to rapidly
image and diagnose sites of infection. 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 latter part of calendar year 2002. We are testing
LeuTech for detection of other infections, including osteomyelitis (infection
deep inside a bone), which is now in Phase 2 studies.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

## Results of Operations

Three Month Period Ended September 30, 2001 Compared to Three
Month Period Ended September 30, 2000.

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 months ended September 30, 2001
compared to $795,081 for the three months ended September 30, 2000. The decrease
in contract revenue was attributable to the cap on shared development costs of
LeuTech pursuant to the agreement. We had no revenue from grants recorded for
the three months ended September 30, 2001 compared to $60,000 for the three
months ended September 30, 2000.

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

10

---

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 months ended
September 30, 2001 and 2000, we recorded $41,667 of license revenue that was
included in the cumulative effect adjustment as of July 1, 2000.

Research and
development  Research and development expenses decreased to $1,891,247
for the three months ended September 30, 2001 compared to $2,455,597 for the
three months ended September 30, 2000. The decrease in research and development
spending is primarily related to the level, scope and size of the clinical
studies of our product pipeline compared to last year. We expect this decrease
in research and development expenses to be temporary as we expand clinical
trials and manufacturing efforts on LeuTech and expand our efforts to develop
our MIDAS and PT-141 technologies in future quarters.

General and
administrative  General and administrative expenses increased to
$899,899 for the three months ended September 30, 2001 compared to $706,575 for
the three months ended September 30, 2000. The increase in general and
administrative expenses is mainly attributable to an increase in professional
fees and our new website.

Interest
income  Interest income increased to $102,087 for the three months
ended September 30, 2001 compared to $87,292 for the three months ended
September 30, 2000. The increase in interest income is due to higher level of
funds available for investment due to our financing in September and October of
2000.

Net loss
 Net loss increased to $3,602,417 for the three months ended September 30,
2001 compared to $2,541,523 for the three months ended September 30, 2000. The
increase was primarily attributable to the loss on impairment of assets of
$954,347 pursuant to our anticipated move to Cranbury, New Jersey. (See Note 3).

## Liquidity and Capital Resources

Since inception,
we have incurred net operating losses. As of September 30, 2001, we had a
deficit accumulated during development stage of $57,707,456. We have financed
our net operating losses through September 30, 2001 by a series of debt and
equity financings. At September 30, 2001, we had cash and cash equivalents of
$8,620,538.

For the three
months ended September 30, 2001, the net decrease in cash was $2,835,886. Net
cash used for operating activities was $2,689,162 and net cash used for
investing activities was $146,724. There was no cash either provided by or used
for financing activities.

In November of
2001, we concluded a private placement of our common stock and warrants, which
yielded gross proceeds of approximately $11 million. Pursuant to the private
placement, on October 29, 2001, investors purchased approximately 4.9 million
shares of common stock and approximately 1.225 million warrants, at a market
value of approximately $2.25 per share for the securities. For every four shares
purchased, the investors received a five-year warrant to purchase one share of
common stock at an exercise price equal to 120% of the per share purchase price.
We have agreed to file a registration statement registering for resale the
common stock sold and the common stock issuable on exercise of warrants, within
30 days of the closing. The net proceeds of approximately $10.1 million, will be
used primarily for general corporate purposes, including the development and
clinical trials of new products based on certain of our proprietary
technologies.

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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 of approximately 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. The lease will expire 10 years from commencement. We anticipate
occupying the new space in the first quarter of calendar year 2002. Our
anticipated 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, including the funds we received in
November 2001, 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 September
30, 2001, our cash and cash equivalents consisted of $8,620,538, 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 fluctuations in 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.

None.

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

(a) Exhibits filed with this
report:



| | 10.1   Form of stock purchase agreement for the
     fall 2001 private placement.                                      
| | -----------------------------------------------------------------------------------------------------------------------
| |                                                                                                                        
| | 10.2   Form of registration rights agreement for
     the fall 2001 private placement.                                 
| |                                                                                                                        
| | 10.3   Form of warrant issued to purchasers in the
     fall 2001 private placement.                                   
| |                                                                                                                        
| | 10.4   Employment agreement dated as of October 1,
     2001, between Palatin Technologies, Inc. and Carl Spana.*      
| |                                                                                                                        
| | 10.5   Employment agreement dated as of October 1,
     2001, between Palatin Technologies, Inc. and Stephen T. Wills.*
| |                                                                                                                        

*Management contract.

(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: November 14, 2001 |  | /s/ Carl Spana
     Carl Spana, Ph.D.
     President and 
     Chief Executive Officer                                                            
|                        |  |                                                                                                                                                   
|                        |  |                                                                                                                                                   
|Date: November 14, 2001 |  | /s/ Stephen T. Wills Stephen T. Wills Executive
     Vice President and Chief Financial Officer (Principal  Financial
     and Accounting Officer)

15

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