---

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  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 February 14, 2002, 16,161,487 shares of the issuer's
common stock, par value $.01 per share, were outstanding.

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PALATIN TECHNOLOGIES, INC.

Table of Contents

|Item 1. | Financial Statements (unaudited)                                                                                                                                                                            |        
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------
|        |                                                                                                                                                                                                             |        
|        | CONSOLIDATED BALANCE SHEETS --
     As of December 31, 2001and June 30, 2001                                                                                                                                | Page 3 
|        |                                                                                                                                                                                                             |        
|        | CONSOLIDATED STATEMENTS OF OPERATIONS --  For the Three and Six Months Ended December 31, 2001 and
      December 31, 2000 and the Period from January 28, 1986
      (inception) through December 31, 2001 | Page 4 
|        |                                                                                                                                                                                                             |        
|        | CONSOLIDATED STATEMENTS OF CASH FLOWS --  For the Six Months Ended December 31, 2001 and 
     December 31, 2000 and the Period from January 28, 1986 
     (inception) through December 31, 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 14
|        |                                                          |        
|Item 4. | Submission of Matters to a Vote of
     Security Holders | Page 14
|        |                                                          |        
|Item 5. | Other Information                                        | Page 15
|        |                                                          |        
|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)

`December 31, 2001   June 30, 2001
                                                                   -----------------   -------------
ASSETS
Current assets:
  Cash and cash equivalents                                          $ 15,023,906     $ 11,456,424
  Prepaid expenses and other                                              535,493          204,731
                                                                      ------------     ------------
      Total current assets                                             15,559,399       11,661,155

Property and equipment, net                                             1,071,529        1,924,962
Restricted cash                                                           613,075          613,075
Other                                                                     189,479           45,017
                                                                      ------------     ------------
                                                                     $ 17,433,482     $ 14,244,209
                                                                      ============     ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                   $  1,990,079     $  1,129,660
  Accrued expenses                                                        285,630          397,119
  Accrued compensation                                                    227,086          607,286
  Deferred license revenue                                                111,110          166,666
                                                                      ------------     ------------
      Total current liabilities                                         2,614,805        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 issued and outstanding
      as of December 31, 2001 and June 30, 2001, respectively;                293              293
    Series C Convertible; 700,000 shares issued and outstanding
      as of December 31, 2001 and June 30, 2001 respectively;               7,000            7,000
  Common stock of $.01 par value - authorized 75,000,000 shares;
    Issued and outstanding 16,106,389 and 11,199,658 shares as of
      December 31, 2001 and June 30, 2001, respectively;                  161,063          111,997
  Additional paid-in capital                                           76,142,485       65,981,568
  Deferred compensation                                                   (49,543)         (80,119)
  Unrealized loss on investments                                             (554)               -
  Deficit accumulated during development stage                        (61,442,067)     (54,105,039)
                                                                      ------------     ------------
      Total stockholders' equity                                       14,818,677       11,915,700
                                                                      ------------     ------------
                                                                     $ 17,433,482     $ 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 December 31,   Six Months Ended December 31,        through
                                                      2001             2000            2001             2000       December 31, 2001
                                                 -------------    -------------   -------------    -------------    ----------------
REVENUES:
  Grants and contracts                           $          -     $    664,793    $          -     $  1,519,874     $     9,543,165
  License fees                                         41,667           41,667          83,334           83,334           1,984,297
  Other                                                     -                -               -                -             318,917
                                                 -------------    -------------   -------------    -------------    ----------------
    Total revenues                                     41,667          706,460          83,334        1,603,208          11,846,379
                                                 -------------    -------------   -------------    -------------    ----------------
OPERATING EXPENSES:
  Research and development                          3,040,151        2,249,522       4,931,397        4,705,118          47,787,685
  General and administrative                        1,015,263          843,473       1,915,161        1,550,049          24,292,276
  Loss on impairment of assets                              -                -         916,518                -             916,518
  Net intangibles write down                                -                -               -                -             259,334
                                                 -------------    -------------   -------------    -------------    ----------------
    Total operating expenses                        4,055,414        3,092,995       7,763,076        6,255,167          73,255,813
                                                 -------------    -------------   -------------    -------------    ----------------
OTHER INCOME (EXPENSES):
  Interest income                                      79,974          279,195         182,060          366,487           2,323,624
  Interest expense                                       (678)          (1,349)         (1,356)          (3,629)         (1,957,309)
  Merger costs                                              -                -               -                -            (525,000)
                                                 -------------    -------------   -------------    -------------    ----------------
    Total other income (expenses)                      79,296          277,846         180,704          362,858            (158,684)
                                                 -------------    -------------   -------------    -------------    ----------------
    Loss before income taxes and cumulative
        effect of accounting change                (3,934,451)      (2,108,689)     (7,499,038)      (4,289,101)        (61,568,118)
  Income tax benefit                                  162,010          325,152         162,010          325,152             487,162
                                                 -------------    -------------   -------------    -------------    ----------------
    Loss before cumulative effect of
        accounting change                          (3,772,441)      (1,783,537)     (7,337,028)      (3,963,949)        (61,080,956)
  Cumulative effect of accounting change                    -                -               -         (361,111)           (361,111)
                                                 -------------    -------------   -------------    -------------    ----------------
NET LOSS                                           (3,772,441)      (1,783,537)     (7,337,028)      (4,325,060)        (61,442,067)
PREFERRED STOCK DIVIDEND                             (285,725)               -        (285,725)               -          (3,407,250)
                                                 -------------    -------------   -------------    -------------    ----------------
NET LOSS ATTRIBUTABLE TO COMMON
  STOCKHOLDERS                                   $ (4,058,166)    $ (1,783,537)   $ (7,622,753)    $ (4,325,060)    $   (64,849,312)
                                                 =============    =============   =============    =============    ================
Basic and diluted net loss per common share:
  Basic and diluted net loss before cumulative
   effect of accounting change                   $      (0.31)    $      (0.17)   $      (0.63)    $      (0.43)
 Cumulative effect of accounting change          $      (0.00)    $      (0.00)   $      (0.00)    $      (0.04)
                                                 -------------    -------------   -------------    -------------
  Basic and diluted net loss                     $      (0.31)    $      (0.17)   $      (0.63)    $      (0.47)
                                                 =============    =============   =============    =============
Weighted average number of common shares
     outstanding used in computing basic and
     diluted net loss per common share             13,013,547       10,366,170      12,106,579        9,210,971
                                                 =============    =============   =============    =============`

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

4

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Table of Contents

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

`Inception
                                                                                  (January 28, 1986)
                                                    Six Months Ended December 31,       Through
                                                         2001            2000      December 31, 2001
                                                    -------------   -------------  -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                          $(7,337,028)    $(4,325,060)    $(61,442,067)
  Adjustments to reconcile net loss to net cash
    used for operating activities:
      Cumulative effect of accounting change                  -         361,111          361,111
      Depreciation and amortization                     155,316         141,326        1,529,172
      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)
      Loss on impairment of assets                      916,518               -          916,518
      Acceleration of options previously granted              -         335,315        1,505,315
      Stock based compensation                           30,576         109,375        3,641,492
      Deferred compensation                             (83,334)        (83,334)        (250,001)
      Changes in certain operating assets and
        liabilities:
          Accounts receivable                                 -        (434,917)               -
          Prepaid expenses and other                   (480,228)        330,498       (1,665,660)
          Accounts payable                              861,319        (128,001)       1,990,979
          Accrued expenses and other                   (491,688)         39,483           51,550
                                                     -----------     -----------     ------------
            Net cash used for operating activities   (6,428,549)     (3,654,204)     (50,984,301)
                                                     -----------     -----------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Sales/(Purchases) of investments, net                       -         368,616                -
  Purchases of property and equipment                  (212,845)        (33,741)      (3,386,071)
                                                     -----------     -----------     ------------
            Net cash provided/(used) for investing
              activities                               (212,845)        334,875       (3,386,071)
                                                     -----------     -----------     ------------

 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                       10,208,876      14,965,300       43,185,619
  Proceeds from Preferred stock, net                          -               -       24,210,326
  Purchase of treasury stock                                  -               -           (1,667)
                                                     -----------     -----------     ------------
            Net cash provided by financing
              activities                             10,208,876      14,965,300       69,394,278
                                                     -----------     -----------     ------------

NET INCREASE IN CASH AND CASH EQUIVALENTS             3,567,482      11,645,971       15,023,906

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

CASH AND CASH EQUIVALENTS, end of period            $15,023,906     $14,865,564     $ 15,023,906                                                                                                                $
                                                    ===========     ===========     ============`

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

5

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Table of Contents

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 $7,337,028 for the six months ended
December 31, 2001 and has a deficit accumulated during development stage of
$61,442,067 as of December 31, 2001. 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.

In November
2001, the Company concluded a private placement of its common stock and
warrants, which yielded gross proceeds of $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.

## (2)    Basis of
Presentation:

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnote disclosures
required to be presented for complete financial statements. In the opinion of
management, these financial statements contain all adjustments (consisting of
only normal recurring adjustments) considered necessary to present fairly the
financial position as of December 31, 2001 and the results of operations and
cash flows for the three and six month periods ended December 31, 2001 and 2000
and for the period from inception (January 28, 1986) to December 31, 2001. The
results of operations for the six month period ended December 31, 2001 may not
necessarily be indicative of the results of operations expected for the full
year, except that the Company expects to incur a significant loss for the fiscal
year ended June 30, 2002.

6

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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 December 31, 2001 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. As of December
31, 2001 the unrealized gain on investments was immaterial. 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.

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 our 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

7

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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, certain of the Company's existing leasehold improvements at its Edison,
New Jersey have been impaired, which resulted in a non-cash charge of $916,518
in the statement of operations during the six months ended December 31, 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 and
six months ended December 31, 2001 and 2000, the Company recognized $41,667 and
$83,334 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 six months ended December 31, 2001, the Company
recognized $15,288 and $30,576 of deferred compensation 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.

8

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For the three and six months ended December 31, 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 purchase 8,734,000
shares of Common Stock at prices ranging from $0.01 to $360 per share were
outstanding at December 31, 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 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 yearly payments. The cost to maintain these license agreements for the
fiscal year ending June 30, 2002 amounts to $300,000. $250,000 was expensed
during the three and six months ended December 31, 2001 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 deemed dividend of $285,725 has been reflected in the Company's
consolidated statement of operations.

## (6)    Income Tax
Benefit:

In December
2001, the Company sold New Jersey Net Operating Losses pursuant to the New
Jersey Economic Development Agency's Tax Transfer Program. As a result, we
received $162,010, which is reflected as an income tax benefit in the statement
of operations.

9

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## 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 our proprietary technology platform for drug
     design. Its systematic and rational design algorithms transform peptides
     into rigid peptidomimetics as well as small molecule drug leads. We believe
     that the use of the MIDAS technology increases the productivity of the drug
     discovery process, thereby eliminating the need for costly and time
     consuming steps such as the high-throughput screening of thousands of
     compounds, x-ray crystallography, NMR (nuclear magnetic resonance), CADD
     (computer assisted drug design), or other physical and in silico
     tools currently used for structure-based drug design. Several MIDAS derived
     compounds are now in preclinical development for the treatment of sexual
     dysfunction, obesity and inflammation.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | PT-141 is a novel, patented, nasally
     administered peptide analog of the neuropeptide hormone (alpha)-MSH
     ((alpha) - melanocyte-stimulating hormone) 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 various Phase 1 studies and anticipate initiating Phase 2
     efficacy trials in early 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. 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                                                                                                                                                                                                                                                                                                                                                                                      

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| | 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 and Six Month Periods Ended December 31, 2001 Compared
to Three and Six Month Periods Ended December 31, 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 and six months ended December 31,
2001 compared to $664,793 and $1,459,874, respectively, for the three and six
month periods ended December 31, 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 and six months
ended December 31, 2001 compared to $60,000 for the six months ended December
31, 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 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 six months ended December 31, 2001 and 2000, we recorded
$41,667 and $83,334, respectively, of license revenue that was included in the
cumulative effect adjustment as of July 1, 2000.

Research and
development  Research and development expenses increased to $3,040,151
and $4,931,397, respectively, for the three and six month periods ended December
31, 2001 compared to $2,249,522 and $4,705,118, respectively, for the three and
six month periods ended December 31, 2000. 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.

General and
administrative  General and administrative expenses increased to
$1,015,263 and $1,915,161, respectively, for the three and six month periods
ended December 31, 2000 compared to $843,473 and $1,550,049, respectively, for
the three and six month periods ended December 31, 2000. The increase in general
and administrative expenses is mainly attributable to an increase in
professional fees mainly related to legal fees and our new website.

Interest
income  Interest income decreased to $79,974 and $279,195,
respectively, for the three and six month periods ended December 31, 2001
compared to $279,185 and $366,487, respectively, for the three and six month
periods ended December 31, 2000. The decrease in interest income is mainly
attributable to the time the funds were received, pursuant to our recent
financing, in our account and available for investment purposes as opposed to
timing of the September and October 2000 financing.

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Net loss
 Net loss increased to $3,772,441 and $7,337,028, respectively, for the
three and six month periods ended December 31, 2001 compared to $1,783,537 and
$4,325,060, respectively, for the three and six month periods ended December 31,
2000. The increase was primarily attributable to the loss on impairment of
assets of $916,518 pursuant to our anticipated move to Cranbury, New Jersey.
(See Note 3) as well as the increase in expenses explained above.

## Liquidity and Capital Resources

Since
inception, we have incurred net operating losses. As of December 31, 2001, we
had a deficit accumulated during development stage of $61,442,067. We have
financed our net operating losses through December 31, 2001 by a series of debt
and equity financings. At December 31, 2001, we had cash and cash equivalents of
$15,023,906.

For the six
months ended December 31, 2000, the net increase in cash was $3,567,482. Net
cash used for operating activities was $6,428,549, net cash used by investing
activities was $212,845 and net cash provided by financing activities was
$10,208,876.

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 will be used primarily for general corporate purposes, including
the development and clinical trials of new products based on certain of our
proprietary technologies.

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 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 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

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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 December
31, 2001, our cash and cash equivalents consisted of $15,023,906, 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.

# 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.

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## Item 2. Changes in Securities and
Use of Proceeds.

In a private
placement of common stock and warrants, which concluded in November 2001, we
sold 4,902,481 shares of our $.01 par value 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 gross proceeds totaled $11 million
and the net proceeds totaled $10.2 million. We made the private placement solely
to foreign and domestic accredited investors pursuant to Regulations D and S
under the Securities Act of 1933. The investors represented to us that they were
purchasing the securities for their own accounts for investment and not with a
view toward resale or distribution to others. The certificates representing the
shares of common stock and warrants bear restrictive legends.

In connection
with the private placement, we paid finder fees to third parties in the
aggregate of $771,879 and issued five-year warrants in the aggregate to purchase
356,060 shares of common stock at approximately $2.70 per share.

## Item 3. Defaults Upon Senior
Securities.

None.

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

At our annual meeting of stockholders which convened on November
27, 2001, the stockholders:

| | elected seven directors                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                         
| | ratified the appointment of Arthur Andersen LLP
     as our independent public accountants for the fiscal year ending June 30,
     2002

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

|Election of
     directors:       | For       | Witheld
     Authority | Broker
     Non-votes
|--------------------------------- | --------- | ---------------------- | ---------------------
|                                  |           |                        |                      
|Carl Spana,
     Ph.D.            | 7,574,319 | 33,666                 | 0                    
|                                  |           |                        |                      
|John K.A. Prendergast,
     Ph.D. | 7,574,319 | 33,666                 | 0                    
|                                  |           |                        |                      
|Robert K. deVeer,
     Jr.        | 7,574,319 | 33,666                 | 0                    
|                                  |           |                        |                      
|Kevin S.
     Flannery            | 7,574,319 | 33,666                 | 0                    
|                                  |           |                        |                      
|Zola P. Horovitz,
     Ph.D.      | 7,574,319 | 33,666                 | 0                    
|                                  |           |                        |                      
|Robert I. Taber,
     Ph.D.       | 7,574,319 | 33,666                 | 0                    
|                                  |           |                        |                      
|Perry B. Molinoff,
     M.D.      | 7,574,319 | 33,666                 | 0                    

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|Item:                       | For       | Against | Abstentions | Broker
     Non-votes
|--------------------------- | --------- | ------- | ----------- | ---------------------
|                            |           |         |            
|Ratification of accountants | 7,560,222 | 37,920  | 9,843       | 0                    

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

## Item 5. Other
Information.

None.

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

(a) Exhibits filed with this
report:



| | None.
| | -----

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

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